The anatomy of the cashless craze in China
Thanks to China’s millennial consumers, mobile commerce is booming. If you are considering a visit to China, take heed.
Seated on a low stool outside Shanghai’s Xintiandi metro station, tousle-haired music student Wang Hui prepares for a day’s busking. His instrument of choice, the erhu, dates back over a thousand years. By contrast, the QR code (a matrix barcode) taped to his tips box could hardly epitomise a more contemporary trend.
Hui doesn’t object to receiving cash from passers-by for his dulcet efforts. But the preferred method of payment is definitely a c.
“All they have to do is swipe the QR code,” he says. “It’s simple. And most Chinese have got their phones in their hands anyway, so the gesture to give something is almost spontaneous.”
Today, China is transforming itself into a cashless society. In 2016, Chinese consumers spent 4.7 trillion euros through mobile payment platforms. This staggering sum represents 50 times the amount spent by American smartphone users over the same period.
While consumers in the West still cling to credit and debit cards, their counterparts in China are leveraging the so-called late-mover advantage, leapfrogging plastic and moving straight from cash to mobile payments. The Chinese now use smartphones to pay for everything from meals and movie tickets to taxi fares and fuel. At some Buddhist temples, visitors can even boost personal karma by donating with a swipe of their RedMi or iPhone.
“I use my smartphone multiple times each day to pay for pretty much everything,” says Selina Chan, director of marketing communications at The Langham Hotel in Shanghai. “It’s got to the point now where it feels strange to visit the ATM or have a pocket full of change.”
The digital demographic
China’s rapid transition to mobile payment is largely being driven by the country’s millennials, who now account for over 30 per cent of the entire Chinese population. Born in the 1980s and 90s, this vast army of educated, increasingly wealthy and digitally engaged consumers is forcing a growing range of companies – both Chinese and Western – to re-examine how they do business.
Like their demographic counterparts in the West, Chinese millennials spend much of their life online. What differentiates them is their mobility. According to research by Deloitte, around 97 per cent of China’s millennial generation now own smartphones. Deloitte’s figures show that more than half of this generation access the internet through their smartphone over 26 times a day, and 10 per cent over 100 times a day.
Demonstrating a willingness to adopt new mobile apps and websites, millennials have underpinned China’s m-commerce boom, embracing new lifestyles that have revolutionised the way they consume content, communicate, shop, and eat. More than half of all digital commerce in China – worth an estimated 636 billion euros in 2016 – is now carried out by smartphone users.
“Through their use of mobile platforms, as well as their increasing spend on health, technology, travelling, service, education, and luxury products, Chinese millennials are changing the very nature of retail in China,” says Zennon Kapron, director of Asia-based financial research firm Kapronasia.
With many consumers still averse to using credit cards, and more and more Chinese stores and restaurants going cashless, making a mobile payment is, in a growing number of cases, the most practical option.
“There’s a saying in China: ‘Don’t eat next year’s food this year’,” says 33-year-old Shirley Jiang, public relations manager at the Bolian Resort & Spa in Chongqing. “Many Chinese don’t like to be in debt. I use my mobile to pay because I don’t want a credit card, and the payment is safe and fast. With one swipe of my finger, I can unlock a QR code that can be scanned by the vendor immediately. It takes less than 10 seconds.”
A tale of two platforms
Only a few years ago, Joyce Yang, a 28-year-old office worker from Shanghai, paid her landlady with a massive wad of banknotes. Paying the utilities for her apartment involved trips to three different banks, where she would pay with yet more cash. “It was a huge waste of time,” she says. “I didn’t like walking around with so much cash either.”
Today, thanks to Alipay, Yang’s financial frustrations are a thing of the past. Using China’s most popular online payment platform, she pays her landlord, and her utilities, by smartphone. “For me, Alipay is incredibly convenient,” she says. “It’s a total no-brainer to use it.”
Today, more than half of all daily money transactions in China are made using Alipay or rival WeChat Pay. Together, the two platforms currently service around 90 per cent of all Chinese mobile payments.
The battle between Alipay and WeChat is a story of two different business models. Alipay was launched in 2004 as an internet-based payment service using the e-commerce platform Alibaba, and developed for mobile with the Alipay app five years later. By 2016, Alipay was processing 175 million transactions per day, 60 per cent of which were completed through a smartphone.
If the strength of Alipay comes from Alibaba’s portfolio of e-commerce businesses, then the strength of WeChat Pay is underpinned by the huge popularity of the WeChat app (China’s answer to WhatsApp and Facebook combined). Released in 2011 by internet service provider Tencent, WeChat now boasts over 900 million active monthly users. Using the WeChat Pay wallet, they enjoy pretty much the same benefits as Alipay users.
Alipay and WeChat Pay are now evenly balanced, with both platforms making forays into the international market. Who will come out on top remains to be seen.
“There has been a dramatic shift over the past year as WeChat Pay has leveraged its social media advantage to drive mobile payments,” says Zennon Kapron. “Overseas, a lot will depend on the partnerships that each platform is able to develop.”
A recent survey found that over 30 per cent of Chinese internet users now believe their country will witness the end of cash within the next decade. If that point comes, the country that gave us paper money will have come full circle.
Text and photos Daniel Allen