Cash is already pretty much dead in China as the country lives the future of mobile pay right now

Cash is already pretty much dead in China as the country lives the future of mobile pay right now
People demonstrate a high security digital unit built by Motion Pay, that allows customers to pay in Chinese yuan renminbi using Chinese online money payment services "WeChat Pay", and "Alipay", where payments get converted to Canadian dollars at point of sales locations in Canadian stores and businesses.
PHOTO: Reuters

Mobile pay is taking China by storm and changing daily commerce.

The transformation of a society limited to bills denominated in 100 yuan ($20.50) or less into one where QR payment codes abound was by far the biggest change in mainland China since my last visit four years ago.

When eating out or shopping with local friends, they paid by scanning a QR code on the restaurant table or by showing a similar code on their smartphones to the store clerk. A spices shop, museum souvenir store and seller of traditional Chinese calligraphy brushes all had signs saying they accepted mobile pay.

Rather than, "Do you take credit card?" the question was often "Do you take Alipay? WeChat Pay?" The running joke was that street beggars would rather take a mobile donation rather than cash.

Lack of red tape and a less developed financial system have apparently allowed mainland China to leapfrog the developed world into embracing mobile payments.

Mobile payment volume in the country more than doubled to $5 trillion in 2016, according to Analysys data cited by Hillhouse Capital in a May report. In the first quarter of this year, Alipay had 54 per cent of that mobile payments market, while WeChat Pay accounted for 40 per cent, the study showed.

The Chinese mobile pay habit is also affecting other countries. More than 6 million Chinese travelled abroad during the "Golden Week" national holiday in early October, according to state-backed media outlet Xinhua.

That puts pressure on popular tourist destinations like Japan and Hong Kong to add mobile pay services.

Just over the border in Hong Kong, I heard a few mainland Chinese customers asking a store clerk to scan their phones' QR codes while Cantonese-speaking locals paid in cash. In April, Nikkei reported that the number of stores accepting Alipay in Japan will double to 45,000 this year, according to the regional head of Ant Financial Services.

The growth of mobile pay in China comes off a solid base of smartphone users. The ubiquitous WeChat messaging app from Chinese technology giant Tencent reached 963 million monthly active users in the second quarter. In professional settings, adding each other on WeChat sometimes replaced business card exchanges.

Alipay is owned by Alibaba affiliate Ant Financial Services and has 520 million users, according to its international website.

The app is linked to online money market fund Yu'e bao, encouraging users to invest and spend with Alipay. Attractive interest rates of nearly 4 per cent or more have turned it into the largest money market fund in the world, with 1.43 trillion yuan ($217 billion) as of the end of June, according to state media reports citing Yu'e bao's manager, Tianhong Asset Management.

"We expect China ePayments to quadruple to Rmb300tn, while eWealthmanagement AUM and eFinancing could triple to Rmb 6.7tn and Rmb 3.5tn by [2021]," Elinor Leung, head of Asia Telecom and Internet Research at CLSA, said in a September 5 report.

"High mobile internet and ecommerce penetration, and an underdeveloped traditional financial market will drive growth," Leung said.

Mobile pay is growing so rapidly in mainland China that as a foreigner I sometimes found it difficult to complete basic transactions without it.

When I tried to pay at a Beijing McDonald's on a late night, the only payment options were China's Union Pay credit card system, Apple Pay or WeChat Pay and Alipay. As an American visitor without a Chinese bank account, I wasn't able to find a way to use those systems and the store clerk wouldn't take my cash.

"Cash is accepted in all McDonald's restaurants across China. After our investigation, we believe this is an isolated case that happened during night shift change, and thus, all cash counters were temporarily closed," a McDonald's China Customer Care Center told me in an email.

Taxis were also nearly impossible to hail in Beijing due to the rise of Didi, a ride-hailing app that bought Uber's China operations in a deal worth $35 billion last summer. Again, Didi was linked through WeChat and I couldn't use it without a Chinese bank account.

When I finally did get a taxi, the driver gave me a fake 50 yuan bill in change. Several stores also claimed three of my 100 yuan bills from a New York money exchange were counterfeit. If I could participate in the cashless society, I would not have lost about $50.

The growth of mobile pay in China has supported another business: bike sharing.

Led by a few start-ups, the number of bikes stacked along the side of the street or sometimes scattered even alongside highways in China has exploded. The number of monthly active users doubled from February to more than 20 million in March, according to TrustData cited by Hillhouse Capital.

Two of the largest Chinese-based start-ups, ofo and Mobike, say they have a combined more than 13 million bikes around the world and have each raised at least $1 billion.

Incidentally, Mobike entered the US on Sept. 20 by deploying bikes in Washington, D.C., while Ofo made its first foray into the country by launching in Seattle, Washington, in August.

The dominance of mobile pay also means companies like Ant Financial and Tencent have access to hordes of personal data. That data can then be shared with the Chinese government, which prioritizes control. Some parts of China have been testing a personal credit score system linked to mobile pay data.

But unless privacy issues have immediate negative consequences, convenience may trump all. A smartphone is increasingly the only thing someone in China needs to carry when going out.

This article was first published in CNBC.

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