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China is often mentioned as having the potential to become the world’s first cashless society thanks to the near omnipresence of QR codes among brick-and-mortar retailers, enabling consumers to use smartphones and digital payment platforms like Alipay to complete transactions.
More than a few anecdotes have floated out of China about residents who have gone for days, if not weeks, without cash by using smartphones for all purposes, often without even leaving messaging platform WeChat.
But is the complete elimination of cash in the Middle Kingdom something that could actually happen, or more of a pipe dream being pushed by the country’s digerati?
According to data from iResearch Consulting Group, the transaction value of mobile payments made via third-party services in China—like Alibaba affiliate Ant Financial’s Alipay and Tencent’s WeChat Pay—totaled RMB58.8 trillion ($8.85 trillion) in 2016. iResearch projects that mobile payment transactions will increase substantially in the next few years, hitting RMB229.0 trillion ($34.47 trillion) by 2019.
Consumers are increasingly accustomed to paying for everything from their rent and utility bills to groceries and taxi rides using mobile payment apps. A recent survey by FT Confidential Research found that 82.6% of urban residents in China used Alipay as one of their three main payment methods, while 64.3% used WeChat Pay. Less than half named cash as one of their top three methods.
Both Alipay and WeChat Pay are pushing the idea of a cashless world pretty hard. Alipay anointed the first week of August “Cashless Week” as part of a marketing ploy to push its service, while WeChat Pay tagged one day, August 8, to serve as “Cashless Day.” As part of the promotions, both services gave consumers incentives to use their payment platforms, some in the form of cash rewards.
These payment services have also found some success by encroaching on financial services once reserved for traditional banks, including peer-to-peer (P2P) transfers and wealth management. As a result, entities like state-owned banks and bank card processor UnionPay have seen their share of revenues from the sector dwindle.
But Ant Financial and Tencent may have overplayed their hand when planning to promote their ideal of a cashless world. Earlier this month, the People’s Bank of China (PBC), the country’s central bank, issued a new rule requiring that all payments made through third-party platforms like Alipay and WeChat Pay would need to pass through a new, independent clearing house starting in June 2018. The move appears to be a way for the government to regain oversight over the country’s burgeoning digital payments sector.
Despite all of the cheerleading of digital payments, consumers in China have not quite given up on cash. According to a June 2017 survey of internet users from YouGov, 86% of respondents used cash to make in-store purchases. That was more than the 73% who said they used a mobile payment app.
Understandably, there are some variations in the adoption of a cashless lifestyle in China. A study by Tencent Research Institute, Ipsos, and Chongyang Institute for Financial Studies at Renmin University of China (RDCY) found that the Post-90s generation (roughly ages 18 to 27) carries an average of RMB172 ($26) on a daily basis. By comparison, the Post-80s generation carried an average of RMB328 ($49), while those in the Post-70s generation had an average of RMB479 ($72) on them each day.
The study also found geographic variations in attitudes toward cash. Mobile payment systems were most widely adopted in China’s Northern and Eastern regions.
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