By: Contributor and Editor Caroline Zhu

As the child of first-generation Chinese immigrants, I have had more opportunities to visit China than most people. However, as buying long-distance airplane tickets are expensive, I only get the chance to return every once in a while. After a long gap of three years, I finally got the chance to visit my relatives this July, where they waited to pick me up at Beijing Capital International Airport.

There, I was greeted with emotional salutations, tearful hugs, and over-excited little kids jumping up and down. My family then rushed me into a long line full of people waiting for the taxi service to take them where they needed to go. After some time, we finally got into a sleek green and yellow taxi that took us to my family’s apartment.

It was when we were getting off and my aunt was paying when I noticed something that I had never seen before. The transaction went something along the lines of this:

Driver: “That’ll be 250 RMB.”

My Aunt takes out her phone.

My Aunt: “All right, I’ll pay you using WeChat.”

The Driver points to the QR code sticker on the car door.

My Aunt types in a number and scans the code.

The Driver’s phone pings and he promptly checks it.

Driver: “All right, thank you very much.”

What you have just seen is the use of WeChat Pay, a feature of the social networking app WeChat that has over a billion monthly active users in the world. In China, WeChat Pay is hugely popular among companies, small businesses, and most of all, private citizens. Combined with rival company Alibaba’s AliPay, these two apps have hundreds of millions of active users and are dominating the mobile payment market.

In China, paying with your phone is no longer a novelty. Paying with cash is. The mobile payment market in China alone is worth 16 trillion US dollars. In comparison, according to a Forrester Research estimate, the United States only saw a meager 112 billion in 2016 in mobile payments. The difference?  In China, digital transactions are everywhere.

From the smallest vendors to fancy hotels, luxurious restaurants, and even street performers, you can find one thing in common: the little QR code sitting somewhere near the checkout. To give you even more of an idea of how prevalent mobile payment is in China, 92% of people in China’s top cities, including Beijing, Shanghai, and such, say they use mobile payment as their primary payment method. And according to Penguin Intelligence, this number is almost guaranteed to keep going up. On the other hand, The Wall Street Journal notes that the number of Chinese using cash has been down around 10% in the two years before 2018.  

Now, if this industry is so massive in China, why aren’t the US and Europe rushing to cash in? Here’s an objective quick look at the advantages and disadvantages of the mobile payment phenomenon sweeping China in our domestic context.

   

Advantages Disadvantages
  • It is fast.

No longer do you have to balance a mountain of grocery bags while trying to take out your wallet and count change, or swipe a card and sign anything. Just tap and go.

  • You don’t have to carry around a hefty wallet, cash, or cards anymore.
  • It is physically secure.

If your wallet is stolen, you just lost however much money was in there. But if your phone is stolen, or you break it by dropping it in the toilet, your payment information is still safe behind passwords and biometric authentication.

  • It is becoming widely accepted.

As mentioned before, you can pay with WeChat Pay or AliPay almost anywhere. In the US and Europe, most major retailers accept some form of mobile payment.

  • It works with rewards programs.

Most mobile wallets will automatically link your purchase to any rewards program you’ve signed up for. You no longer have to carry that string of rewards cards on your keychain.

  • It is not yet omnipresent.

In North America at least, only 36% of retailers support Apple Pay, the most widely accepted form of mobile payment there.

  • No phone = no money

If your phone dies, or gets lost or stolen, then in the meantime, you can’t make payments.

  • The elderly will be left out.

In 2018, a viral video depicting an elderly patron of a supermarket arguing with its staff about not wanting to pay by phone because he couldn’t see the screen drew sympathy from all over China. We take the risk of cutting out a generation of spenders if we rely heavily on mobile payment.

  • There is a potential risk in data privacy and financial security.

Every transaction will leave a digital record. There’s always the fear of trackers, but in China, this fear has been mostly dispelled with its many issued regulations regarding this.

 

 

Studies have shown that as consumers come to understand the advantages that come with mobile payment, they are more likely to choose it as an option. Regardless of how you personally feel about it, the reality is that mobile payment will be much more difficult to install into the daily lives of citizens in the United States than in China for several reasons.

The Chinese digital infrastructure has been more suitable for e-commerce transactions than the US since the very beginning. The Chinese government is playing an extremely active role in continuing to build and develop world-class infrastructure to support digitization as an investor and consumer. In contrast, the US still depends on banks for most non-cash payments, which are tied to consumer bank accounts. With many “middlemen” involved in the process, from banks to credit card companies to payment processors, the cost of a typical consumer’s transaction fees skyrocket. Third-party apps like Apple Pay, PayPal, and Google Pay are also connected to this process. If apps like WeChat Pay and AliPay were to take hold in the US at the same rate as in China, banks would lose over 43 billion dollars. It’s no wonder in 2018 Bloomberg published an article titled, “Why China’s Payment Apps Give U.S. Bankers Nightmares.” Significant bank lobbying would be a major barrier to broad based implementation, in the same way that the National Rifle Association (NRA) is currently lobbying for gun rights.

The United States is one of the leading models of a free market economy, and it should be at the forefront of the mobile payment phenomenon sweeping not only China but even countries like Bangladesh and Kenya, which have made huge (and very successful) steps for incorporating it into their economies.

But with a lack of awareness, acceptance, and enthusiasm, mobile payment in the US has yet to take off. Only with significant change will the US be able to enter the dawn of a cashless society.