Impact of China’s Mobile Economy

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How Will It Affect Cash Transactions Globally & Locally?

At China’s urban centers, renminbi (RMB) notes are out, and virtual wallets are in. The mobile economy has transformed how payments are made, rendering currency notes unnecessary to carry around, and lowering reliance on debit and credit cards. The trend has advanced from big malls and shopping districts to street vendors, musicians and beggars. Mobile payments and QR codes are even upending the tradition of hongbao, money in red envelopes gifted by guests to couples on their wedding day, now alternatively being accomplished using smartphones.

The Current Scenario

Accord stock exchange currency rising ing to global business research service iResearch, Chinese spent $5.5 trillion on mobile payments in 2016 while Americans spent $112 billion during the same year. This is despite the 39% increase in mobile payments, with major market players including PayPal, Apple, Samsung and Google.

Cashless payments also appear to be proliferating in several European and Nordic countries. Belgium’s non-cash payments account for 93% of total consumer payments, slightly more than France at 92%, Canada at 90%, Sweden at 89%, and The Netherlands at 85%. Down Under, Australia is taking steps to reduce the share of cash for low value transactions, with contactless payments via mobile phones accounting for over half of all debit card transactions.

Analysts are calling this fintech phenomenon one of the biggest innovations, with China being an early front-line. A survey by Ipsos and Tencent revealed that 14% of Chinese consumers don’t carry any cash and 26% have less than RMB100 (about $15) in their wallets. The change has come quickly given that just three years ago, people were still largely dependent on cash. Motivations can be traced to the inherent benefits of cashless transactions and attitudes to banking and credit/debit card use.

Factors Driving the Adoption of Mobile Payments

Mobile wallets make the experience of purchasing items faster, easier and more convenient than checks or cards. They remove the need for intermediaries and do away with credit card and interchange fees for consumers while reducing transaction costs for businesses.

mobile payments China has a large unbanked population – about 21% of the total population – which is still less than 64% in Indonesia and 47% in India. According to the 2014 Findex, of the world’s 500 million newly banked adults, China accounted for approximately 180 million. Credit card usage is also low and personal checks are barely used.

Mobile payments are addressing long waiting times at clinics. Universities are implementing virtual student cards to prove student status and allowing students to pay for tuition fees and meals via mobile wallets, a move that has lowered their card production and card loss costs by thousands of dollars annually.

China’s mobile payment behemoths WeChat and Alipay, besides making payments extremely convenient, have also leveraged gamification and creative offers to engage the population. Their parent companies, Tencent and Ant Financial respectively, collect users’ payment data and charge users and businesses for using their services. For the companies, the overheads to deliver the service are low and are leading to lucrative profits. Between 2015 and 2016, Tencent’s ‘other revenue’, which included mobile payments, tripled to $940 million, while Ant Financial’s daily transactions are predicted to exceed that of Visa and MasterCard by 2018.

The country is also piloting green finance projects with support from the United Nations Environment Program (UNEP), which is exploring ways to utilize digital finance for environmental benefits. By increasing efficiency and lowering costs, fintech has already delivered green finance gains for both wealthy and poor populations. This year at the World Economic Forum Annual meeting in Davos, the Green Digital Finance Alliance was launched. As one of the alliance’s founders, Ant Financial is collaborating with the UNEP to offer a green energy app that rewards users for reducing their carbon usage.

Effect on Businesses and Tourists

tourist selfie intersection street cars traffic China’s influence on the world economy is a well-recognized fact. The mobile payment revolution is being closely watched by banks, overseas businesses selling to Chinese consumers, and frequent travelers to China. As most of the influence is concentrated between Tencent and Ant Financial, their actions will also impact how global entities seeking to maintain business or pleasurable relations with the country.

Even as Chinese consumers embrace the two dominant mobile payment forces, it comes at the price of locking into the two networks or getting excluded from cashless transactions, both undesirable situations to be in.

  1. Reliance on WeChat and Alipay

Tourists and business travelers to China can expect to encounter problems making payments if they don’t have a Chinese bank account a requirement to begin using dominant mobile payment platforms expeditiously. Overseas travelers can register for a global Alipay account linked to their Visa, MasterCard or JCB credit card. However, unsuccessful phone verifications have been reported and resulted in abandoned registrations.

Foreign businesses face the challenge of getting to Chinese consumers through Alipay and WeChat or risk not being able to accept payments. Tencent, for instance, expects merchants to provide a ton of information and has a strict underwriting process to safeguard against money laundering. Businesses maintaining interests in other countries will be forced to pursue a multi-pronged payment acceptance approach that accommodates credit cards, Google, Facebook and/or Apple prevalent in the west.

  1. QR code scams

Understandably, a section of consumers is hesitant to switch to mobile payments for safety reasons. Currently QR codes are to blame for over 23 per cent of Trojans and viruses. It is easy to infect QR codes with viruses and difficult for consumers to verify the authenticity of QR codes through visual observation. According to the Southern Metropolis Daily, around 90 million yuan was stolen via QR code scams in Guangdong this year.

WeChat and Alipay have been at the receiving end of suspicions for QR code scams in China. While both have stated their commitment to user security, it is possible that the scams don’t originate at the mobile payment platforms, rather stem from consumers’ use of other mobile applications to scan fake QR codes first. But as scams can be a deterrent to mobile payments adoption, WeChat and Alipay can consider educating users on this aspect.

  1. Wooing Chinese consumers

Chinese tourists are the world’s largest outbound tourist group, spending billions on foreign travel annually. Their demand for mobile payment overseas has seen WeChat and Alipay partner with major foreign companies. Alipay has global agreements with Uber and Marriott, and this year, partnered with Yelp in Las Vegas, New York, Los Angeles and San Francisco.

It also has a joint venture with South African mobile payment platform Zapper, allowing Chinese nationals in the country to use Alipay in over 10,000 Zapper-affiliated stores. The move comes on the back of the increasing interest in African tourism among the Chinese; visits to the African continent grew by 38% in 2016. Parent company Ant Financial is known for its global investment drives across the United States, India, Japan, South Korea, and Russia.

WeChat is available in 13 foreign countries, and Tencent recently expanded WeChat’s e-commerce platform in the UK, its first being in Milan.

The mobile payment giants’ global partnerships have positive implications for businesses in those countries for a very good reason. Not only do Chinese nationals love to travel, they are also more affluent than the general population, more aware of foreign brands, and enthusiastic about trying out new brands.

  1. How Chinese banks are reacting

People’s Bank of China (PBoC), the country’s central bank charged with issuing and administrating the yuan has been wary of mobile payment networks’ influence on expanding cashless transactions at physical merchants. In 2015, PBoC ordered a 5,000-yuan cap on purchases made via an online payment provider during a single day. Payments enabled through QR codes are limited to 200 yuan per day.

Click to view “The Great Firewall: Rise of Mobile Payments in China” male mobile phone traffic traffic

Last year, Sweden criticized its banks for reducing their cash handling services in haste and reiterated the legal requirement to keep providing this option to the banking public.

The bank also took a stringent view of Alipay’s ‘cashless week’ promotion, which in a report to its regional offices, was stated as being disruptive to the normal currency flow of the yuan. Some branch offices reportedly contacted Ant Financial’s marketing department in advance with a request to tone down the promotion and prevent cash rejections. Still, Alipay has been relentless in its pursuit and intends to win the endorsement of all physical merchants in Tianjin, Fuzhou, Guiyang, Hangzhou and Wuhan by the end of 2017.

It is not clear how local rules will affect overseas payments. The possibility of relaxing restrictions on the back of slowing economic growth and weakening capital outflows is high.


Like you, ITI Manufacturing understands the importance of staying informed and updated on industry news and economic trends. If your company, or start-up business, would like to chat with a China manufacturing expert, give us a call toll-free at 888-574-6823.

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Rebecca Wells,

National Accounts Manager

Rebecca Wells joined the ITI team in 2021 as a National Account Manager. Rebecca has over 25 years of experience with customer relations and retention as a Project Manager, National Account Manager, and Sales Manager in the Packaging and Retail Industries. She is a Michigan native but considers herself a Texan after calling Houston home for over 15 years. Rebecca enjoys staying active with her family playing tennis and running on the weekends.