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Apple bullish on Apple Pay in China amid talks with Alibaba

While Apple's CEO Tim Cook may be optimistic, Apple Pay faces obstacles before it can garner support from Chinese banks.

Apple is eager to introduce Apple Pay to China. James Martin/CNET

Apple is chatting with Chinese e-commerce company Alibaba Group and Chinese banks about adopting Apple Pay in the country.

Apple's CEO Tim Cook acknowledged the talks in an interview with China's official Xinhua news agency, Reuters reported on Tuesday. Cook didn't reveal any details about the conversations thus far but expressed a strong desire to launch Apple Pay in the country. "We very much want to get Apple Pay in China," Cook told Xinhua during a visit to China, Reuters said. "I'm very bullish on Apple Pay in China."

Launched in October 2014, Apple Pay is Apple's first foray into the contactless mobile payments market. Using an iPhone 6, iPhone 6 Plus or Apple Watch, you can pay for items on the go at supported retailers through the wireless NFC (near-field communication) technology. Apple has been drumming up support for Apple Pay in the US. But to truly take off, Apple Pay needs to expand globally, most notably in China, which is still the world's largest smartphone market and a country where Apple's smartphone share has jumped following the introduction of the iPhone 6 and iPhone 6 Plus.

Cook may be "very bullish" on Apple Pay in China. But that doesn't mean the road to adoption will be an easy one.

Last year, Apple began talking with Chinese bank card association UnionPay about using its network for Apple Pay, MarketWatch reported in April. UnionPay is the only avenue in China for banks and retailers that want to implement NFC-based payments. Apple hoped to reach an agreement by March, but talks between the two parties reportedly stalled.

Talks with Chinese banks reportedly haven't been going too well either. Apple gets a 0.15 percent cut of the 2 percent fee paid by retail merchants for each credit card payment and half a penny for each debit card payment conducted through Apple Pay. But the Chinese banks have been balking at Apple taking such a large percentage on each transaction, an employee of one large bank told MarketWatch.

Apple's discussions with Alibaba Group could be another way for Apple Pay to enter China. In November 2014, Alibaba Group Holding executive vice chairman Joseph Tsai revealed that the Chinese e-commerce company had been talking to Apple about a potential partnership over Apple Pay, the Wall Street Journal reported at the time.

Alibaba Group Holding owns an electronic payment system called Alipay, which boasts 300 million users, Alibaba co-founder Jack Ma said last October. Alipay could serve as a back-end service to let iPhone 6 owners pay for items from their Alipay accounts, Tsai explained. Like Apple Pay, Alipay's own app uses fingerprint recognition to confirm the identify of the user. But even here, one key challenge remains.

As the only channel in China for NFC transactions, UnionPay sets the rates paid by merchants of its system, MarketWatch reported in February. UnionPay's control of the market could be more than Alipay can handle, thus proving an obstacle to any deal with Apple Pay.

The rate charged by UnionPay to users of the NFC system "is a heavy price to pay for Alipay," an Alipay source told MarketWatch. "We don't have an offline settlement system, and expensive POS (point-of-sale) equipment is unaffordable to us."

An Apple spokeswoman told CNET that the company didn't have any comment to share beyond what Cook said.