My mom and I spent a few weeks in Shanghai this past winter, visiting family and gorging ourselves on dumplings. A lot had changed since I was last there in 2015: the skyline was denser, fusion restaurants were more popular, and there was much more law and order. But the biggest change was the technology: mobile payment was everywhere, in noodle shops, high-end boutiques, Didi (China’s “Uber”). It extended to buying a car, trading stocks, even paying panhandlers.
So how did mobile payments become so ubiquitous in the most populated country in the world?
It’s because in China, credit cards never gained the popularity they see elsewhere in the world and because the infrastructure for mobile payments was already in place.
Most of the world was slow to adopt credit cards in the 90s, and China was already far behind in development. By the time their infrastructure had caught up, it was designed to fit in the digital era, with a mobile-first mentality. Because of China’s censorship of huge American corporations including Google, Amazon, Twitter, and Facebook, it became much easier for their own domestic companies to grow. They’ve managed to pump out huge monopolies including Baidu (Chinese Google), Alibaba (Chinese Amazon), and WeChat (Chinese Facebook + Twitter + Instagram). AliPay was initially developed to make it easier for customers to buy and sell on Alibaba, a process that was a huge barrier without credit cards. PayPal’s story was similar, as they only became successful as an alternative to sending physical checks on eBay’s platform.
Over the last 15 years, mobile payments in China have grown into a $16 trillion market dominated by China’s two biggest tech giants Tencent (owner of WeChat pay with 600m users) and Alibaba (owner of AliPay with 400m users). Mobile payments in China totaled $9 trillion in 2016 while mobile payments in the US saw only $112 billion in mobile payments. In 2017, 23.1% of sales in China were processed online, making them the most digitized shoppers in the world while in the US, only 9% of sales were online. The leading companies in America are PayPal (owner of Venmo) and Apple Pay; even combined, their userbase (297m) doesn’t even touch AliPay’s platform, let alone WeChat’s.
The technology that the Chinese mobile companies use is much more accessible than Apple Pay’s. Apple uses NFC (Near Field Communication) technology, which requires every vendor to purchase an NFC device in order to accept mobile payments. WeChat and AliPay use QR codes, which means that anyone with a phone can send and receive payments. It’s much easier for merchants to accept mobile payments when the only barrier is setting up an account. Although NFC payments are more secure because the data is better encrypted, QR codes are still safe enough and are often protected through another layer of security via a passcode.
Alipay has also recently launched smile to pay, a device that is able to recognize all of its customers’ faces like Apple’s Face ID. The video shows consumers putting on wigs and heavy makeup with no luck at spoofing the device. While the technology could be revolutionary, allowing customers to go to restaurants and malls without bringing their phones or wallets, it also straddles the line between cool and creepy. With the amount of data that Alibaba and WeChat have on their customers and the extreme authority that the Chinese government exhibits on its corporations, that kind of data could be used to create a Black-Mirror-esque world where a face scan could reveal everything from a person’s name to their credit score.
The US Market
It is unlikely that the US market will catch on anytime soon. Although many Americans would agree that it would be nice to not carry around a wallet, there currently isn’t a need for mobile payments. Besides a few food trucks and small restaurants that only accept cash, credit and debit cards work at almost any vendor in the US. Only 12% of Americans showed a preference for using cash, as opposed to pre-mobile-payment China, where there weren’t any options other than paper money.
The closest thing we have to China’s mobile payments in the US are Venmo and Apple Pay. Although Apple Pay is one of the leading mobile payment platforms, it is unlikely to become truly ubiquitous for 1 main reason – it’s exclusive to iPhone users. The most likely candidate for bringing this mobile-culture to America is Venmo. Although it only has about 23m users on its platform currently, it’s growing rapidly and has been expanding its offerings. It became popular as a method of sending payments between devices, but is now partnering with companies and websites to allow users to pay for services both online and in-store. Their recent partnership with Uber now allows users to pay for their rides and Uber Eats with their Venmo account. A completely card-free society still seems like a distant future, however, as Venmo did take a step in the opposite direction by launching the Venmo card, a debit card that allows users to make card transactions using their Venmo balance.
We’re already in a new era of technology. Counterintuitively, it’ll probably take much longer for developed nations with infrastructure dating back to the industrial revolution to completely digitize, than less developed nations, who are building their systems in the digital age. It’s no longer a matter of if the world will ever be completely digitized, but rather a question of when.