China's thriving mobile payment market will witness a new battle for dominance between Apple Inc and its local smartphone rivals, with industry insiders anticipating a direct showdown between Apple Pay and a home-grown digital wallet service in late 2015.
Analysts said the Android Pay project, which is led by Shanghai-based bankcard association China UnionPay, will have widespread support from Chinese handset vendors.
These vendors sell about 300 million Android operating system-based phones each year in the country.
Citing anonymous sources, Shanghai-based newspaper China Business News reported on Tuesday the proposed service will be launched in the third quarter of 2015 and UnionPay is seeking partnerships with local smartphone manufacturers.
UnionPay would not confirm the existence of the Android Pay project, but it did express an interest in establishing a new payment service.
In a statement to China Daily, the company said: "We have been constantly trying new technologies and business models in the mobile payment sector."
Established in 2002, UnionPay has about 400 domestic and overseas members.
Wang Yanhui, secretary-general of the industry organisation Mobile China Alliance, said in his micro-blog account that UnionPay had decided to team up with local handset makers as early as last week.
Major smartphone makers, including Xiaomi Corp, Lenovo Group Ltd and ZTE Corp, had not announced any such arrangements as of Tuesday.
Sources from Lenovo's supply chain told China Daily that the company is developing a new phone equipped with fingerprint unlocking capability. The feature can be used as a substitute for entering passwords before transactions.
Only a handful of local smartphones support near field communication, a technology used in wireless handset payment services. Virtually no brick-and-mortar stores in China have installed cashier systems that accept NFC-enabled payments.
NFC is not popular even in the United States, where Apple first deployed its wireless payment service known as Apple Pay. The service is available only in selected stores in the US, including McDonald's Corp restaurants and department stores run by Macy's Inc.
Popular retailers such as Best Buy Co Inc (electronics), Wal-Mart Stores Inc and two major pharmacy chains (CVS Health Corp and Rite-Aid Corp) do not accept Apple Pay.
Over the past week, Apple announced it had started to accept online payments made through UnionPay cards at its Chinese mainland app store.
The US-based company subsequently kicked off a UnionPay-customers-only promotion campaign by lowering the download price of more than 100 apps to 1 yuan (S$0.21).
Analysts speculated this move meant Apple would soon launch Apple Pay on the Chinese mainland.
According to industry consultancy Forrester Research Inc, Apple Pay's technology will accelerate payments and enable new customer experiences in the coming year.
"China and Australia will run ahead with Apple Pay on mobile (in 2015)," Forrester said.
It also said that the mobile payments landscape in China and other Asia-Pacific markets would remain fragmented over the next year. Wang said the official Apple Pay launch in China is likely in March 2015.
Li Ye, a researcher from Analysys International, said that with China opening up the bank card clearing market, UnionPay's position as the only bank card organisation is being challenged.
"Quick emergence of third-party online transaction channels forced UnionPay to find new business models suited to the mobile Internet era," Li said.
The mobile transaction volume of third-party platforms exceeded 2 trillion yuan in the third quarter of this year, a jump of 25.6 per cent year-on-year, statistics from Analysys International show.
"Although Apple Pay has yet to enter the Chinese market, it has heightened local players' interest in mobile phone payments and NFC technology," it said.