With a huge number of smartphone users in China, expanding Apple Pay into the country makes sense -- but the company will face a number of challenges.
Apple Pay works on a technology known as near-field communication (NFC), a wireless system that allows people to pay with credit cards linked to their smartphone by tapping the device on a reader.
In China, UnionPay – that state-owned credit and debit card operator – dominates the processing of payments made by NFC. As such, UnionPay sets the transaction fees, which could be a potential hurdle for Apple in China.
This is likely one reason why the technology giant is looking to partner with Chinese e-commerce giant Alibaba, which owns its own mobile payment system known as Alipay. This uses different methods of paying for items, such as scanning a special barcode. Alibaba is also experimenting with different authentication methods, such as taking a selfie to authorize a payment.
The exact details of how Alibaba and Apple could work together are unclear, but any partnership will give the U.S. technology giant a way into the mobile payments market in the world's second-largest economy.
"Ant Financial (the Alibaba affiliate behind Alipay) 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 spokesperson told CNBC by email.