China's Great Leap Forward in Global Mobile Payments
Paradoxically, it was the country's reluctance to adopt conventional banking that led to almost universal adoption of mobile payments.
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During a recent cab ride on business in China, my driver relayed to me that his riders almost never pay him in cash, and when they do -- because it is so rare -- he becomes quite suspicious, fearful that they may be paying him with counterfeit bills. Indeed, most people in China don't carry a wallet at all. There's no need to tote around cash or credit cards because the vast majority of people in the country pay via apps on their phone, for everything from cabs to food orders to doctor bills, and far beyond.
One could even say that payment methods in China are years ahead of most other countries, East and West. It's the closest thing to a "cashless society" on the planet. China's roughly 1.4 billion people comprise just under 20 percent of the world's population, but the country will account for the majority of the proximity mobile payment user base globally this year, according to data from eMarketer.
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Long detached from the global financial services sector, China has in recent decades developed an advanced fintech ecosystem that has catapulted the country to the front of the pack in mobile payments, with many emerging markets now looking to China amid a global fintech revolution. What explains China's outsized leadership in the payment space?
From far behind to far ahead.
Until relatively recently, the notion that China would be recognized for its advanced financial services tools would have been highly implausible. Prior to the economic reforms of the late 20th century, there were almost no private banks in the country at all. But these financial gaps are actually the very thing that made China ripe for innovations in payment technology and behavior.
Without legacy financial systems such as robust banking or credit and debit card services, China was fertile ground for citizens to leapfrog straight to cutting-edge fintech adoption. It's much easier to persuade people to use mobile payment services if they're not wedded to credit or debit cards -- payment vehicles that simply never caught on in China.
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Moreover, as the world's largest mobile market, China is home to a population that expects an app for any essential task. In the new China, a mobile phone is not merely a convenient connection to the world; it's essential to your daily routine. From the vantage of mobile-savvy consumers, the thought of banking middlemen would seem out of place -- a mindset that has also fueled the significant rise of online and P2P lending in China.
In many ways, this skipped generation of traditional payment technologies shares similarities with the African market, where a lack of banking infrastructure also propelled phone payment popularity. And what was born of necessity may just transform financial services worldwide.
Cards are going away (for ecommerce).
Though the rest of the world lags behind China in mobile payment penetration, such behavior is growing everywhere, with credit and debit card payments for ecommerce expected to drop online by 46 percent worldwide by 2019, according to a report by the United Nations Conference on Trade and Development. Significantly, Western tech behemoths have been entering the space, and that trend will likely rise.
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The sophistication and entrenchment of the Western financial services system have so far inhibited wholesale mobile payment disruption. Still, the eye-opening cashless payment model in China, the growing commercial, cultural and tourism links between China and the rest of the world and the eagerness of the global tech giants to get in on the mobile payment game will likely disrupt the Western status quo. All this, while also spurring the development of even more sophisticated mobile payment technologies, creating a virtuous cycle tilted toward cashless options.
Cultural habits around money die hard.
Nonetheless, for mobile payments to gain footholds in more markets, a diverse mix of cultural, historical and economic issues will need to be resolved. In Germany, for example, a deeply ingrained aversion to debt and historical fears surrounding currency stability have helped maintain a largely cash-based society, according to a survey taken by the European Central Bank last year. Other Westerners cherish the perks of their credit cards and may not buy into the value proposition of mobile payment services … at least, for now.Still, the convenience and plain financial sense of cashless societies suggest that the West will only find itself playing mobile catch-up for the foreseeable future. China's leadership in the field takes on additional poignance when considering the global competition between China, the U.S. and other players for preeminence in a range of innovation spheres, including AI and electric or autonomous vehicles. Are payments just one leg in an international race for tech supremacy?