Tech Transformers

Samsung Pay follows Apple into China

Samsung launched its mobile payments service Samsung Pay in China on Tuesday, following rival Apple into the world's second-largest economy.

Samsung Pay allows a user to tap their phone on a reader to pay for items and is partnering with China UnionPay – the payment processing network that until recently held a monopoly in China – to bring the solution to the country.

"The reception of Samsung Pay since its launch has been extremely positive and the service has already seen tremendous success in terms of availability and adoption by consumers," Injong Rhee, head of research and development, software and services of mobile at Samsung Electronics, said in a statement on Tuesday.

SeongJoon Cho | Bloomberg | Getty Images

But the South Korean electronics giant is coming up against some stiff competition in China. Apple Pay went live in China last month, while existing competitors – Alibaba's Alipay and Tencent's WePay – already have a strong foothold in the market. Alipay says it has over 400 million active users, with 80 percent on mobile. Also, both WePay and Alipay are already ingrained into the daily lives of Chinese consumers, something that will be a challenge for Samsung.

"The kind of services they (Tencent and Alibaba) offer are well integrated into Tencent's messaging platform WeChat and into Alibaba's whole ecosystem of e-commerce services," Enrique Velasco-Castillo, analyst at Analysys Mason, told CNBC by phone.

Samsung Pay currently supports select credit and debit cards from nine banks:

  • China CITIC Bank
  • China Construction Bank
  • China Everbright Bank
  • China Guangfa Bank
  • China Minsheng Banking Corp. Ltd
  • China Merchants Bank
  • Hua Xia Bank
  • Industrial and Commercial Bank of China
  • Ping An Bank

Samsung said it would add additional support for credit and debit cards from six more banks including Bank of China, Bank of Beijing, Bank of Communications, China Bohai Bank, Industrial Bank and Shanghai Pudong Development Bank.

Currently Samsung Pay is available on the company's Galaxy S7, Galaxy S7 edge, Galaxy S6 edge+ and Galaxy Note5. It said that there is an "opportunity" to support additional mid-range models "in the future".

One advantage of Samsung Pay is that it is compatible with both field communication (NFC) technology as well as magnetic strip technology, meaning retailers will not have to upgrade their point-of-sales terminals.

Small market share

Another challenge for Samsung is that it currently has a low smartphone market share in China compared to rivals such as Huawei. This could limit adoption of Samsung Pay as the service is only available on devices made by the company.

"Samsung's market share in the Chinese smartphone market has fallen to under 10 percent, lower than several local brands such as Huawei and Vivo, as well as Apple," Daniel Gleeson, senior mobile analyst at IHS, told CNBC by email.

"While Samsung has said it plans to support Samsung Pay on mid-range devices, at the moment only its newer flagship Galaxy S and Note ranges support Samsung Pay. This has to be a top priority for Samsung as most of its users in China own mid-ranged or older flagship models."