Xiaomi, China’s leading smartphone vendor and maker of the Mi fitness band, has announced a partnership with Alibaba to enable mobile payments on the Mi band. Mi fitness bands, priced aggressively at $13, have been highly successful so far, with more than 1 million bands sold in 4Q 2014 when they were launched.
Alibaba’s online payment solution, known as AliPay, has more than 300 million registered users, and its mobile wallet app has been downloaded nearly 200 million times. AliPay handles more than 80 million transactions per day, with more than 50% of its transactions coming over mobile. These figures were released in a report from Alibaba at the end of 2014.
The figures are quite remarkable given that Apple Pay is just beginning to roll out across North America and Europe. While in the West, mobile payment is being driven by smartphone platforms like Google and Apple, in China it is third-party providers like Alibaba, Tencent, and UnionPay that are driving the market and have been doing so since 2013. In 2014, it is estimated that Chinese mobile payment transaction values exceeded RMB599 billion (US$98 billion).
With Xiaomi having partnered with AliPay, one of the largest mobile payment providers in China and the world, there are massive implications for Apple. Apple has been trying to negotiate with Alibaba and UnionPay to launch Apple Pay in China, however it hasn’t succeeded. In fact, it was reported in February that talks between Apple and UnionPay broke down.
Apple is aiming to sell a lot of watches in China, as its brand grows in size and scale. The fact that Apple was the biggest smartphone vendor in China during 4Q 2014 says a lot about Apple’s competitive positioning. Having Apple Pay enabled in China would allow the company to extend its value proposition in that market, leading to more sales of iPhones and watches. Now that AliPay has partnered with Apple’s closest competitor Xiaomi, it appears that Alibaba is more comfortable staying away from any Apple partnerships. And with the UnionPay negotiations getting stalled, it’s getting harder for Apple to break into the Chinese mobile payment market.
With Mi band, Alibaba will enable NFC payments, which will allow AliPay users to pay at NFC terminals, something that AliPay has been rolling out in limited numbers since 2014. NFC payments are a very small percentage of mobile payments in China, with most payments done through QR codes instead. One of the requirements for an AliPay Mi band payment is that the band should be connected to a Xiaomi smartphone via Bluetooth. These limitations suggest that it will take time before wearable-based NFC payments will become big in China, or take any sizable share of the massive mobile payment market. On the other hand, Xiaomi has established a head start over Apple in enabling the transition from QR codes to NFC, and wearables are leading that charge.