On August 20, Apple officially released a credit card under its own brand in the US. The minimalist white titanium card backed by Goldman Sachs was met with mixed emotions by professionals and casual Apple fans alike. Nonetheless, Apple seems to be eyeing a geographic expansion for its new financial product, having reportedly started discussing the terms with European regulators. We took it a bit farther and imagined what could happen if Apple decided to bring its new gimmick to China.
Spoiler alert: Nothing
Cards have no appeal
For us, aka an average western consumer, a credit card is effectively an extension of a limb, protruding seamlessly from our palms once we sense a good purchase. However, the ease and nonchalance with which we handle these slices of plastic is in deep contrast with the predicament a fair number of small-time entrepreneurs get themselves into to accommodate our importunate demands for more convenience. The POS machines, the ones that process our card payments, are in fact quite pricey. The software that powers these devices can cost from $50 to $100 per month, while the whole POS system will lighten your wallet by roughly $1200.
Yet, in China, a country that’s been moving expeditiously from the third world to the first for the past 30 years, few people would look for a POS machine in a store. Until the beginning of the 2000’s China was still relatively poor and extremely dependent on cash. Most rural residents would not trust plastic with safeguarding their money, while city dwellers boasting hefty bank accounts would hardly find any place that would be eager to accept a credit card payment. A POS machine was a luxury for Chinese merchants, but the savior descended upon them in a form of a QR code. Anyone from a food stall owner to a busker could now print out a code and have people scan it to send money, no strings attached, no extra fees charged.
SEE ALSO: QR Codes are Back and They are Spreading Outside China
To start an account in WeChat Pay or Alipay, two primary QR code payment apps in China, you would still need a bank card, which acts as the primary source of funds. Nonetheless, that’s where its part ends. China had over 7.83 billion bank cards in the beginning of 2019, according to Xinhua, but the proportion of the card-based consumption to total retail sales is still low.
Tight banking regulations
Moreover, two biggest card operators Visa and Mastercard, are still struggling to navigate their way through the maze of myriad regulations and settle in the Chinese market. Currently, the only official bank card network in China is UnionPay, which controls more than 90% of the market. Visa and Mastercard are only present as part of cooperation deals with several banks and are still forced to process their operations through UnionPay’s network.
Should Apple decide to bring its card service to China, it will first need to change from Mastercard to UnionPay, and possibly switch the underwriter bank from Goldman Sachs to some local entity. Sadly, this will not guarantee success, since China skipped the credit card stage a long time ago and is not preparing to look back.
Apple pay is not in use
Luckily for Apple, it already has a partnership with UnionPay established in 2015, a year before Apple Pay was rolled out in the country. The company had high hopes for its payment system, which came tumbling down, since most Chinese just did not care for it. Nowadays one of the few places where people are still encouraged to use Apple Pay is the Apple Store, but even there the American tech giant had to succumb to the unquestionable influence of QR code payments, striking an unprecedented deal with AliPay and allowing customers to pay using Alibaba’s service.
Not to disregard Apple Pay completely, the service enjoys some popularity with Chinese commuters. Several Chinese cities including Beijing and Shanghai have not long ago introduced virtual transport cards that can be stored in the iPhone’s Wallet app and used to pay for rides on the subway. But even on this front it keeps facing competition from QR codes. A local app allowing people to enter the subway by scanning a code has gained noticeable traction within a year since its official launch and is perceived by most commuters as more reliable than the NFC based Apple service.
With the Apple Card being merely a physical avatar of Apple Pay, there is little chance it could work in the market, where even its digital twin is doing egregiously poorly compared to its Chinese competitors.
Apple’s market share is declining
Obviously, Apple Card, tied to Apple Pay, is only an option for iPhone users. While this model can work in the US, where Apple accounted for roughly 39% of the whole smartphone market in Q3 2018, it could barely hold up in China, where iPhone sales have been dwindling for the past several years. During the first quarter of 2019 Apple’s shipment figures fell by 30%, according to estimates from Canalys.
Apple saw its worst quarter in two years, shipping only 6.5 million phones, way fewer that its competitors Xiaomi, Vivo, Oppo, and Huawei. While leading on its home turf, Apple is only the fifth most popular smartphone producer in China, a position that it’s struggling to retain. With a declining number of iPhone users, Apple Card would be nothing but a futile redundancy, if introduced to the market.