According to a new report from a Chinese site, Apple's negotiations with Chinese banking authorities to launch Apple Pay in the country involved the company agreeing to take a significantly lower cut from the fees banks charge merchants for credit processing -- but in exchange for this concession, the iPhone maker got the right to suspend the discount for banks that didn't sign up to support Apple Pay on launch. In addition, Apple agreed to a two-year delay in collecting the fees, which amount for 0.07 percent of each transaction, rather than 0.15 percent as Apple charges in the US and other countries.
"People with knowledge of the matter" reported that the cut Apple gets from Apple Pay transactions -- which comes not from consumers, but as a small fraction of the amount banks charge for credit processing -- will be about half in China of what it is in the US and elsewhere (currently, about 15 cents per $100 charged). Banks get between 1.5 percent and three percent of credit card and debit transactions, and the speed and safety of Apple Pay was worth giving up the small fraction of its fee.
"The 19 banks [in China] will pay Apple the fees at a discount, but banks that get on board later may not have the leverage anymore," said one of the sources for the report. The service has been a big hit in China, with
around 10 million people signing up for Apple Pay in the first hour, and a reported 40 million who signed up on the first full day. While a relatively small number compared to China's overall population, it's a good start to competing against Chinese market leader Alipay, which has around 400 million users. Mobile wallet technology has seen broad adoption in China, as it has in many countries outside the US.
China is the largest and currently the third country to fully support Apple Pay outside the US and UK. Limited support, in the form of being able to use Apple Pay with supported US cards outside the US, exists in most developed countries. In addition, American Express has brought support for Apple Pay to Amex-branded bank cards in Canada and Australia, with plans for Hong Kong, Spain, and other countries later this year.
The concession on fees for China was apparently the breakthrough that allowed banks in China to get on board with the service. The penalty clause Apple won in return that penalizes banks for waiting to adopt the technology with un-discounted fees turned out to be the factor that prompted many of the region's largest banks to get on board on launch, resulting in some 80 percent of payment cards being compatible with the service.
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