Why China is at the centre of the digital payment revolution

It’s 7:30am and I’m on my way to work in downtown Beijing. I stop at a nearby café for some breakfast and a coffee and then cycle to the office on one of the many rent-a-bikes to be found dotted around the Chinese capital. At midday I head for lunch at a nearby restaurant, before stocking up on fruit from a street vendor. Later that evening, I hail a taxi to meet friends for dinner and, feeling charitable, on my way home I stop to give a homeless man the equivalent of £1. All this has been achieved using just a smartphone, with not a banknote, coin or credit card in sight.

This scenario may be difficult to imagine in the UK and across much of the developed world but in China it is fast becoming the norm, rather than the exception. Apps such as the ubiquitous messaging service WeChat allow users to link their bank cards to their online profiles. This means quick and easy payments in restaurants, bars, shops and just about everywhere else, by simply scanning a QR code. The correct amount is then transferred directly and instantaneously to the recipient’s account.

This system also works for people-to-people transactions. Beijing taxi drivers all accept mobile payments and even local beggars eagerly hold up QR codes next to their tin cups, accompanied by signs reading “WeChat payment accepted”. In many cases, vendors and individuals prefer the convenience of a quick and easy electronic payment to fumbling around with coins and banknotes, especially as the largest denomination banknote stands at a relatively low 100 RMB (around £11), meaning carrying around large amounts of cash can become cumbersome. For services such as shared bicycles, paying on your phone is the only option.

While many Western countries are being slow to move to a cashless society, the pace of change in China has been substantially quicker, with mobile payments having become de rigueur in the last couple of years. Between 2015 and 2016 such payments in China more than quadrupled to $9 trillion, according to Chinese research firm iResearch. By contrast, mobile transactions in the US over the same period of time increased by just 40% to a comparatively measly $112 billion. John Artman, editor-in-chief at Beijing tech website Technode, says there are two ways to look at the rising popularity of online payments in China. “In the context of the country’s turbulent modern history, Chinese people are very used to change, and also want a better quality of life. This means they adapt to new technologies very quickly. Chinese tech companies are also very good at gamifying their products and offering incentives to attract users, offering discounts if users pay through the respective payment methods.”

China’s rapid growth in mobile payments also comes off the back of a huge bedrock of smartphone users, with over 900 million people using WeChat on a daily basis. In addition to messaging and transferring money, the app allows users to top-up mobile phone credit and pay utility bills. It also features services from third-party operators, meaning you can book trains and flights, buy movie tickets and even have food delivered without leaving WeChat. Such is the scale of the app’s impact on modern urban China that adding each other on WeChat is fast replacing business card exchanges in professional settings.

Of course, such a reliance on smartphones and mobile payments is not without its drawbacks. Without access to wifi or mobile data the whole system becomes useless. Additionally, both WeChat Pay and its main competitor Alipay only allow for Chinese bank cards to be linked, meaning foreigners visiting China will have to continue to muddle through with cash and cards.

Watching your money

And, as with the increase in an individual’s digital surface area in the West, state surveillance is also a concern. With social networks in China being closely monitored by the government, users are worried about the amount of information that authorities can potentially gain access to: “Although it’s difficult to say what actually happens with user data, China is trying to build a digital society where all behaviour online and off can be connected to the person via their ID number,” says Artman. “On one hand, this allows businesses to trust that users are who they say they are and allows certain innovations to take root faster, such as micro-lending and P2P lending. On the other hand, the future ability of the Chinese government to monitor and control behaviour is concerning.”

It seems Beijing has multiple reasons for monitoring the use of app payments. The system’s convenience and ease of use may soon be tested as China’s financial regulators finally begin to catch up with the rapid rise of online payments, no doubt conscious of the double-edged sword they represent: essentially eliminating the perennial problem of counterfeit currency while simultaneously providing channels for tax evasion and money laundering.

Currently, phone payment transactions do not have to pass through China’s central bank’s clearing system, making it difficult for authorities to counter fraud. This is likely to have contributed to the rapid growth of online payments in China, where the culture of cash bonuses and backhanders (untaxable, naturally) remains rife, despite official protestations to the contrary. Being able to instantaneously send and receive large sums of money without the need for declaration only makes it easier to avoid tax. However, in 2018, this loophole is set to be tightened, which may cause companies and individuals to be more guarded about how they move their money around.

But in China at least, it appears that sheer convenience trumps any lingering doubts over privacy and official interference. Wallets are increasingly being left at home, as a smartphone becomes the only accessory needed to fulfil one’s day-to-day needs. When it comes to the rise of a cashless society, the Middle Kingdom is firmly at the centre of the movement. For now, Western societies remain at the periphery, waiting to interpret the socio-economic dividend of such technological advances.

James Hunt is a Beijing-based journalist