Apple CEO Cook Rekindles Speculation of an Alibaba Alliance

Rumors of an alliance between China's e-commerce powerhouse Alibaba and Cupertino, Calif.-based technology giant Apple are heating up again — and are coming from a very high-placed source.

Apple CEO Tim Cook discussed his company's pursuit of relationships with Chinese banks and Alibaba ahead of launching Apple Pay in China, the Xinhua news agency reports. Cook is in China this week to address Apple's new environmental initiatives with Chinese officials.

The report also reinforces what Cook and Alibaba CEO Jack Ma hinted at in October of 2014 when both planted the seed of future cooperation during a technology conference in California.

Cook has become more interested in the Chinese market, with plans to have more than 40 retail stores in place in China by the middle of next year.

Neither Apple nor Alibaba responded to inquiries by deadline.

One challenge facing Apple in China would be regulations and fees that would make it difficult to establish a revenue stream for Apple Pay. In the U.S., Apple negotiated favorable rates with issuers.

In November, Alibaba vice chairman Joseph Tsai told reporters in China that his company was working out details regarding how Apple Pay could operate in China under the country's regulatory restrictions.

Such details potentially centered around Apple Pay operating as a payment affiliate to Alibaba, allowing iPhone users in China to use Apple Pay but pay their the bills through accounts held with Alipay, Alibaba's payments affiliate.

"Obviously, the political and business environments differ from the U.S., but you can easily see where both parties could get a benefit from a partnership," said Richard Oglesby, senior analyst at Double Diamond Payments Research.

Alibaba is a major player in browser-based payments, but Apple could help facilitate app-based payments to help Alibaba in that arena, Oglesby said.

In addition, Alibaba would have a significant interest in a presence at the point of sale, possibly through Apple Pay, as a way to begin converting China's vast cash-payment market into mobile payments, Oglesby added.

"Alipay, as an online player, would be in a good position to go offline because the market is much less developed than it is in the U.S.," Oglesby said.

Apple debuted Apple Pay in the U.S. in October, bringing a Near Field Communication contactless payment system to merchants and consumers that combines fingerprint authentication, tokenization of card data and transaction routing across major card network rails.

Four months before the Apple wallet's launch, there was some speculation that Apple might actually debut Apple Pay in China through UnionPay, but the U.S. system became the first in operation.

While it has been known that Alibaba was considering some type of partnership with PayPal in an attempt to get some e-commerce footing in the West, it is unclear how that would affect any relationship with Apple.

In addition, major U.S. card networks Visa and MasterCard have some obstacles to get around in dealing with UnionPay's monopoly in China, but could potentially be in a position to benefit as partners with Apple Pay.

"The major card brands are going to want to get into China and, to whatever extent the brands and Apple could help each other out, they will try to do so," Oglesby said. "But clearly, Tim Cook is looking at it as Visa and MasterCard can't deliver China to him now, so he has to go through the local players."