Apple in Talks With Alibaba to Partner on Mobile Payments in China

Updated from 9:29 a.m. to include commentary from analyst Carolina Milanesi.

NEW YORK (TheStreet) -- Apple (AAPL) is in talks to partner with Alibaba (BABA) on mobile payments, according to Chinese news agency Xinhua.

Apple CEO Tim Cook told Xinhua that the Cupertino, Calif.-based company is speaking to both Alibaba and Chinese banks to bring its mobile payment system to China.

"We very much want to get Apple Pay in China," Cook told Xinhua.

Apple could not be immediately reached for comment.

Alibaba currently operates a mobile payment system of its own called Alipay via its affiliate Ant Financial. Apple Pay would seemingly pose some competition for Alipay, but Ant Financial seems to believe the two can work in tandem.

"Ant Financial is open to work with various partners in order to provide secure, efficient and convenient online and mobile payment services for over 300 million Alipay users," a representative for Ant Financial Services Group said.

Apple Pay was launched in the U.S. last September and it is now accepted at more than 220,000 retail locations. The payment system seems to be gaining traction, claiming more than 50% of tap-to-pay purchases at McDonald's (MCD) and about 1% of all Whole Foods (WFM) transactions.

There is potential for the two services to benefit each other, according to Wedbush Securities analyst Gil Luria.

"Apple is more interested in how sticky Apple Pay makes its iPhone, and Alibaba can still have Alipay as the payment method," Luria said. "Apple Pay can compete with Alipay in some implementations, especially if it is linked to a China Union Pay card, but Alibaba does not have to implement it that way."

It's a "win-win" situation, says Carolina Milanesi, chief of research at Kantar Worldpanel ComTech.

At the WSJD Live global technology conference in October, Alibaba founder Jack Ma said that he hoped Apple and Alibaba could "do something together" when asked about any potential partnership between Alipay and Apple Pay.

Alibaba declined to add any comment beyond Ma's October speech.

In December, Alibaba took the first step towards a partnership by integrating Alipay with the iPhone's fingerprint sensor, allowing its users to opt for fingerprint authentication instead of a password.

China is already Apple's second-largest market in terms of revenue and accounts for more iPhone sales than the U.S., so it makes sense that the company would look to bring its mobile payment system into the market.

However, any future partnership still has to overcome one large obstacle: China's financial regulators, who would have to approve any relationships involving Chinese banks. 

For instance, Apple will likely have to pay a fee to one entity that regulates all payments using near field communication (NFC), the technology that powers Apple Pay and enables consumers to tap a terminal to pay. Alipay uses a bar code technology for in-store payments to avoid having to pay these fees. 

"The Chinese market is very specific and there are some boundaries and limitations from the government for Westerners to make business in China," Milanesi said. "You need to do business their way."

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