Lu Jingyi has cut cash from her life for the most part.
“My smartphone is an all-around tool,” said Lu, a games developer in China’s Shenzhen. “I hardly ever need my wallet.”
Whether at the supermarket, the pharmacy, or the cinema – bills hardly ever change hands. Lu simply pulls out her smartphone, scans a code and transfers the money digitally.
Welcome to the future of payment. While in Germany the pros and cons of cash are still being discussed, in China’s Pearl River Delta it’s been out of fashion for some time.
With its smattering of fishing villages, this area was chosen over 30 years ago as the country’s first special economic zone. Now it drives the world’s second biggest economy.
At its heart lies Shenzhen, which has since ballooned to a 10-million-strong metropolis. It’s home to China’s tech heavyweights including Tencent, Huawei and ZTE.
It’s only natural that the city’s tech-savvy residents would have been among mobile payment’s early adopters and multipliers. But the rest of China is catching up, and open attitudes towards online payment have helped.
Around 86 percent of respondents in a survey by market research firm Nielsen said they bought and paid for products online in the last six months.
The global average is half that rate at 43 percent.
Although the online survey couldn’t possibly be representative of the offline population, it still illustrates how much internet-based services dominate in China.
It’s a paradox. But China’s lead in the world of digital transactions could have been borne out of the country’s more backward-looking qualities. The banking sector is still dominated by huge, state-owned institutions.
“Credit and debit card usage aren’t widespread. Mobile payments have allowed this stage to be skipped,” said Liu Xiangliang, director of the Data Center of China Internet, a market research company.
The smartphone is turning into everyone's personal finance center.
The market has grown exponentially. Last year, around 10 billion yuan, or €1.35 billion, in digital transactions were completed, a 70 percent jump year-on-year, according to industry tracker iResearch.
China’s big internet companies, like retailer Alibaba and game and chat service developer Tencent, use lavish discounts to entice customers into using their mobile payment systems.
Alibaba’s financial arm, Ant Financial, is leading in this field. Alipay has brought the company 450 million users a month. The company also performs a bank’s classic functions. The app helps users manage investments.
Tencent, Alibaba’s most relevant challenger, has its own unique set of advantages. Tencent’s mobile payment system is linked with its WeChat messenger, which has a 760 million-user base.
The smartphone is turning into everyone’s personal finance center. Apart from mobile payments, taxes and utility bills can also be settled. Hospital costs can be transferred and corresponding health insurance reimbursements received.
In Beijing, Mr. Zhou mans his food stall. The scent of Szechuan pepper and sesame oil permeate the air. He ladles out batter from a plastic bucket and pours it onto his heated pan. With a wooden stick he spreads out the mixture into a smooth pancake, called a “jianbing.”
Here too, customers fish out their smartphones to pay. Mr. Zhou says his business would lose a lot of money if he couldn’t process mobile payments – but the new system may yet cause him problems. Like many small business owners in China, he doesn’t pay sales tax.
For Beijing’s regulators, it’s too complicated to track every sale made in every business. But the new modes of payment have given the financial authorities better tools, as every transaction leaves a digital footprint.
Microbusiness owners like Mr. Zhou are often registered as private persons in the mobile payment systems, and are able to avoid transaction costs.
But that may change. Since July 1, all users need to register for digital payment systems with their real names. Companies are required to vet the registrations. The next step would be to assess whether the accounts are for commercial use, based on the volume of transactions. These data could land with the financial authorities.
But Mr. Zhou isn’t all too worried. “If they really want to impose taxes, that could ruin me. It wouldn’t only affect me, but hundreds of thousands of small business owners,” he said. “The financial authorities wouldn’t dare.”
Critics are also wary that digital payment systems will be used to lay the groundwork for blanket surveillance. But regulatory authorities say they’re simply in a better position to protect ordinary people’s money.
In February, a financial platform managed to cheat 900,000 investors out of an estimated €7 million in what investigators called the biggest pyramid scam in the world. It was based on a peer-to-peer platform, where users lend and borrow money from each other. As many investors suddenly wanted to withdraw their capital, the systems’ operators tried to siphon off a big amount before the portal collapsed.
Despite such scandals, the peer-to-peer sector is growing rapidly. China’s biggest platform, Lufax, was valued at $19 million during its last financing round.
“We have a bright future ahead of us,” Lufax chief Gregory D. Gibb said.
As with the mobile payment systems, it was the state banking system’s problems that gave rise peer-to-peer platforms. Private individuals and mid-sized business had struggled to gain access to credit, peer-to-peer platforms filled in the gap.
“In the future, more capital will go to private companies. This will strengthen China’s real economy,” said Gibb.
China’s fintech innovations have already reached Germany. In June, Ant Financial launched a partnership with German company Concardis, which operates around half a million cashless payment terminals in 210,000 locations.
Cash registers at European chains like Saturn, Douglas and Louis Vuitton will soon bear the Alipay logo alongside Visa and MasterCard. So perhaps German consumers may eventually consider cash to be obsolete like their Chinese counterparts do.
Stephan Scheuer is Handelsblatt’s China correspondent, based in Beijing. To reach the author: firstname.lastname@example.org