China’s Cashless Society: What It Means For The Future of Payments
Mobile Payments In China
China’s booming mobile payment market is well-documented. SCMP reported 81 trillion yuan (US$12.8 trillion) of mobile transactions between January to October 2017, surpassing the 58.8 trillion yuan transacted in 2016 alone. And the trend has held fast – even red packets are being given in digital formats during Chinese New Year. Governments and banking institutions are in awe of China’s cashless payment ecosystem. Other economical lions like Singapore and Hong Kong are working toward advancing their own technological capabilities.
An Ipsos-conducted study reveals just how much China has managed to reduce cash usage in favour of mobile payments.. The study found that 52% of Chinese use cash for up to just 20% of their monthly spending. Even more telling is that 74% of the people stated they could get by for more than a week with less than 100RMB in cash – 14.85 USD! Singaporean consumers on the other hand make up to 60% of their payments using cash and cheques.
So should the rest of the world “keep up with the times?” The answer is yes, and no. To talk about adoption in countries, we need to examine why it rose up in China to begin with.
China’s Rise of Mobile Payments in Context
Back in 2012, 96 percent of payments in China were made in cash. The growth in mobile payments only started in 2014. The situation in 2018 is a stark contrast of what it once was – 85.2 percent of payments were made via mobile payment modes. AliPay and WePay, run by the two largest internet conglomerates AliExpress and WeChat dominate 92% of all mobile payments market share combined. Third place national payment provider UnionPay trails far behind from the two ahead of it.
With any form of adoption, an incentive must exist to do so. In China, the incentive was an easy, risk-free payment mode. In China, cash counterfeiting has long been a thorn in the authorities’ necks. Shops frequently had to take pains to check the authenticity of every note. A year ago, China made what was its biggest bust of counterfeit money ever. Sleight-of-hand scams involving counterfeit money have also been reported. Even banking infrastructure are not completely safe, with at least one reported instance of a businessman receiving fake notes from an ATM in Shanghai.
Banking penetration is additionally not thorough and is especially so for rural areas, where banks are not easily accessible. The ubiquity of mobile phones is an aspect that has helped facilitate the spread of mobile payment modes.
China’s mobile payment ecosystems effectively bypasses established banking systems. A May 2018 Bloomberg report estimated that banks in the US alone would have their revenue eroded by some US$43 billion a year if US mobile payment apps grew the way they did in China.
“Traditional” payment providers and market players are well aware that mobile payment platforms are emerging as a significant threat to their revenue streams, currently dominated by the fees they collect from every transaction.
Every Pro Has its Cons
China is commonly seen as a reflection of a future ideal of a mobile, cashless society. However, the road to this is not smooth and even introduces new issues along the way.
To begin with, it is virtually impossible to expect the entire populace to be fully adept with the resources for mobile payments. In particular, a number of circles, such as the elderly and those from rural towns pose the greatest risk of being left behind by China’s burgeoning technological progress. Volunteer and support networks have come up to aid these segments, however the problem is foreseen to grow as the ageing population grows and lifespans increase.
To encourage adoption, the platform must be able to cater to the lowest common denominator. In China’s context, the platform must be a feature-rich one-stop ecosystem yet be easy to set up and navigate. This latter consideration in particular is the reason why less secure QR codes are favoured over near-field communication (NFC) payment modes in China. It enables customers to make payments without the need for a phone with NFC capabilities – a common requirement for Western payment modes such as Apple Pay and Google Pay, and frequently only available on high-end models.
The ease of QR codes also minimises the need for small retailers such as food stalls and small businesses to maintain dedicated hardware, further reducing costs. However, QR codes have been subjected to attacks that infect phones with malicious software or direct users to phishing sites.
Additionally, some retailers and even tourist attractions have also declined cash payments altogether due to the ubiquity of mobile phone payments – and possibly, the convenience of not having to deal with cash and its associated woes. The problem has been significant enough for the Central Bank to issue a warning to errant players that cash was still legal tender.
Mobile Payments, Cryptocurrencies, and Adoption
At 2017’s National Day Rally in Singapore, Prime Minister Lee Hsien Loong highlighted the threat of fragmentation in the mobile payment playing field as retailers jump on board with their own implementations, guided by their own business needs. Singapore’s response was a unified QR code combining several prominent wallets.
A closer look at this situation will show that there are parallels between this and the adoption of cryptocurrencies and blockchain. Out there, hundreds of tokens each vie for a slice of the cake, each with their own benefits. Coupled with the highly volatile prices of cryptocurrencies, even Bitcoin and Ethereum, and it is not difficult to see why mainstream usage is still some way off
However tech-savvy and wealthy Venezuelans have turned to Bitcoin as a substitute of the national currency Bolivar, which hyperinflated by 1.3 million percent in 2018 alone. What does this mean?
For adoption to take place, the people find a reason to, and an alternative that works. Regardless of whether it’s mobile payments, or blockchain adoption, this fundamental rule is rooted in human psychology and will always hold true.
Catching Up With The Times
Do countries indeed need to catch up to China’s mobile payment models? What is the incentive to? The approach to facilitating any adoption then needs to go beyond merely saying that cash is dated and technology is the way to go. For many people, cash just works, as places like Singapore have found out – even if the entire coffeeshop apparently is the first in Singapore where one can go cash-free.
Businesses and entities alike must consider how to weave this into technology to replace deeply-rooted habits without us even realising it. In order to kickstart mainstream adoption, market players must remain dedicated to a long-term cause beyond bottom lines and revenues.