* Global turnover $10.9 bln last year, mainly in U.S.
* Tough challenge unseating Internet giants in China
* Popular with core iPhone users, otherwise varied
* Spurring development in untapped markets
By Matt Siegel, Jeremy Wagstaff and Eric Auchard
June 2 (Reuters) - More than 18 months after Apple Pay took
the United States by storm, the smartphone giant has made only a
small dent in the global payments market, snagged by technical
challenges, low consumer take-up and resistance from banks.
The service is available in six countries and among a
limited range of banks, though in recent weeks Apple AAPL.O
has added four banks to its sole Singapore partner American
Express AXP.N ; Australia and New Zealand Banking Group
ANZ.AX in Australia; and Canada's five big banks.
Apple Pay usage totalled $10.9 billion last year, the vast
majority of that in the United States. That is less than the
annual volume of transactions in Kenya, a mobile payments
pioneer, according to research firm Timetric.
And its global turnover is a drop in the bucket in China,
where Internet giants Alibaba (NYSE:BABA) BABA.N and Tencent 0700.HK
dominate the world's biggest mobile payments market - with an
estimated $1 trillion worth of mobile transactions last year,
according to iResearch data.
Anecdotal evidence from Britain, China and Australia
suggests Apple Pay is popular with core Apple followers, but the
quality of service, and interest in it, varies significantly.
To use Apple Pay, consumers tap their iPhone over payment
terminals to buy coffee, train tickets and other services. It
can be also used at vending machines that accept contactless
payments.
Apple Pay transactions were a fraction of the $84.5 billion
in iPhone sales for the six months to March, which accounted for
two-thirds of Apple's total revenue.
TECH HITCHES
In Australia, where Apple Pay launched a month ago, payment
machines supported by one mid-sized bank reported frequent
failures.
"Bendigo Bank BEN.AX is experiencing some unforeseen
technical issues in accepting Apple Pay payments at selected
merchant terminals," a spokeswoman for the bank told Reuters,
adding that a lack of wider industry engagement in launching the
service limited the lead time in testing the new technology.
Apple Vice President Jennifer Bailey said such experiences
were premature and not representative. "Like any set of major
technology changes, it takes time," she said. "We want to move
as quickly as possible, we push it as quickly as possible."
Facing a slowing smartphone business, Apple has
taken on the payments market hoping to add ways to make its
devices more appealing, and more revenue streams. Apple takes a
cut of up to 15 cents in the United States on every $100 spent.
While it has long mastered the supply chain for its mobile
devices, the payments ecosystem has proved harder to control,
and banks in other countries have reportedly negotiated lower
transaction fees, contributing to its slow global roll-out.
Apple nearly doubled its R&D spending to more than $8
billion in 2013-15 as it pushed out a wave of new products
including Apple Watch and Apple Pay, as well as upgrades to
existing hardware devices and new services.
RESISTANCE
Apple has leveraged its huge U.S. user base to push Pay, but
has met resistance in Australia, Britain and Canada where
banks are building their own products.
"Payments in general is such a complicated system with so
many incumbent providers that revolutionary change like this was
not going to happen very quickly," said Joshua Gilbert, an
analyst at First Annapolis Consulting.
The upshot: Apple has rolled out Pay in a dribble, adding
countries and partners where it can - Hong Kong is expected to
be added next - resulting in an uneven banking landscape with
users and retail staff not always sure what will work and how.
In Britain, for example, $14 billion was spent via
contactless cards last year, according to Windsor Holden, a
Juniper Research analyst. That makes it harder to persuade
people to take the extra step on their smartphone for the same
checkout convenience.
"You have over 86 million contactless cards in circulation,
you have to persuade Britons to register their cards to the
(Apple Pay) service when they can already use them to make a
contactless payment," Holden said.
In Australia, where more than 60 percent of all card
transactions are through contactless cards, reception has also
been muted. A spokesman for one large retailer said he had seen
"very little uptake of the payment option" in his sector. He
didn't want to be named as he was not authorised to
speak publicly about the matter.
Diego Machuca, 32, banks with Apple Pay-holdout Commonwealth
Bank CBA.AX , has an iPhone and is already "largely cashless".
He says Apple Pay is appealing, but he wouldn't switch banks
just to access that one feature. "Not over that. There's too
much work involved just for tap-and-go," he told Reuters.
Three months after the China launch, users on online forums
complained that using Apple Pay, even at popular fast-food
outlets, was not as seamless as local services such as WeChat,
Tencent's messaging and mobile commerce phenomenon.
Nonetheless, Apple's approach has spurred development in
several markets where the mobile payments industry had
previously not taken hold - giving it the jump on rivals
Google's Android Pay GOOGL.O and Samsung Pay 005930.KS .
Android Pay only launched in the United States in March and
in Britain last month for use on the latest model Android
phones. Samsung Pay is available in three markets; China, South
Korea and the United States.