According to a report published by the Boston Consulting Group, in 2016 Chinese residents used mobile payment apps to transfer approximately $8.5 trillion. Put in perspective, that is 70 times more than the figure transferred by U.S. residents. In addition, Forbes reported that 40 percent of Chinese consumers carry below RMB 100, or approximately less than $16, in cash regularly. PayPal conducted its own research on preferred payment methods in 2017 and found that only 25 percent of Chinese consumers still preferred cash during financial transactions. This all goes to show how substantially China’s monetary preference has changed from cash to mobile payments.
East Asian social media giant WeChat and the world’s dominating e-commerce behemoth Alibaba Group have found ways to tap into hundreds of millions of Chinese consumers by taking advantage of the tremendous surge in Chinese smartphone users. This extends to mobile payment applications as well. Alipay, Alibaba’s mobile payment system, and WeChat Pay dominated 94 percent of mobile payments made in 2016, according to Hillhouse Capital Group. Public transportation, including Chinese buses and subways, all accept Alipay as a form of primary payment. Small business owners, like restaurateur Ma Zhiguo in Hangzhou, China exclusively accept WeChat Pay and Alipay as a means of limiting the business’ exposure to robberies, accepting counterfeit money and small change. Even social payments, including donations to beggars, street performers and religious institutions such as churches or temples, are frequently made through the mobile payment apps.
As complex as the inner workings of these e-commerce programs are, they are still user friendly. Besides transferring money, one can also purchase items using these mobile apps. Alipay and WeChat Pay work through the scanning of QR codes, which are currently replacing barcodes, and directly transfer funds from customers to vendors. The mobile apps even allow users to create groups and simultaneously split payments that are made through their services.
It has become easier for money to move freely between consumers and suppliers in the Chinese economy through Alibaba and WeChat. These companies have gone on to create greater financial change for their current and potential customers. After the tremendous success following Alipay’s creation, Alibaba decided to allow its users to invest excess funds into Ant Financial Services Group. Ant Financial is the most valuable financial technology company in the world, and it owns and operates both Alipay and Yu’E Bao, a money market fund. After two years, Yu’E Bao has become the world’s largest money market fund, with over 520 million users and $165 billion under management.
A plethora of economists and financial analysts are preparing for mobile payment applications to take off in the United States like they did in China, but some are skeptical. One hindrance to the widespread adoption of mobile payment apps is that U.S. consumers are more concerned about their privacy than Chinese consumers are. The idea of privacy protection and preservation is absent in China, since the Chinese government monitors everything that its citizens do online, and controls what information they have access to.
Besides that, many Chinese consumers would probably suggest that the issue of privacy is insignificant compared to the convenience that these applications provide.
For example, as a result of the recent Equifax breach in the United States, Congress chose to host hearings regarding citizens’ personal privacy. On the other hand, China just proposed and passed even more stringent internet regulations.These regulations add on to Article 4 of the policies released by the Cyberspace Administration of China, which states, “Providers of information services through internet chat groups on the internet, and users, must adhere to correct guidance, promoting socialist values, fostering a positive and healthy online culture, and protecting a favorable online ecology.” Facebook and WhatsApp were banned in China using Article 4. In other words, the U.S. government and people are concerned with their own personal privacy, while the Chinese government and people do not regard one’s personal privacy, at least on the internet, as important.
Whether or not the mobile payment applications popular in China will propagate in America, the reception from Americans is certain to be mixed. Stephen Giangrande, a Macaulay Honors junior at Baruch College, stated that “I am hesitant to give my personal information to corporations, like mobile payment applications because they can manipulate my information for profit.” Another Baruch junior, Josh Perloff, said “Monopolizing financial technology industries has always been something to remain fearful of.”