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From: Johnny Canuck7/16/2017 11:56:05 PM
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n Urban China, Cash Is Rapidly Becoming Obsolete


A Shanghai clothing market that allows customers to pay using the apps Alipay and WeChat.
Yuyang Liu for The New York Times
SHANGHAI — There is an audacious economic phenomenon happening in
It has nothing to do with debt, infrastructure spending or the other major
economic topics du jour. It has to do with cash — specifically, how China is
systematically and rapidly doing away with paper money and coins.
Almost everyone in major Chinese cities is using a smartphone to pay for just
about everything. At restaurants, a waiter will ask if you want to use WeChat or
Alipay — the two smartphone payment options — before bringing up cash as a
third, remote possibility.
Just as startling is how quickly the transition has happened. Only three years ago
there would be no question at all, because everyone was still using cash.
“From a tech standpoint, this is probably one of the single most important
innovations that has happened first in China, and at the moment it’s only in
China,” said Richard Lim, managing director of venture capital firm GSR
A customer scanning a QR code to pay for breakfast using WeChat, a messenger app that has become
essential for everyday life. Yuyang Liu for The New York Times
There are certain parts of the Chinese internet that have to be seen to be
believed. Coming from outside the country, it’s hard to comprehend that
Facebook or Google can be completely blocked until you are forced to do without
them. It’s tough to fathom how critical the messenger app WeChat is for
everyday life
until the sixth person of the day asks to scan your QR code
— a sort of bar code — to connect the two of you.
What’s happening with cash in China is similar. For the past three years, I have
been outside mainland China covering Asian technology from Hong Kong, which
has a very different internet culture from the mainland. I knew that smartphone
payments were taking over in China, as the statistics were stark: In 2016, China’s
mobile payments hit $5.5 trillion
(, roughly 50 times the
size of America’s $112 billion market, according to consulting firm iResearch.
Even so, the attendant cultural shift was graspable only in person. I recently
moved to Shanghai and felt the change with cash acutely because my first few
weeks in the metropolis of more than 20 million were spent cut out of the system.
Because of an issue with my bank, I couldn’t immediately link my account to WeChat, which has become a virtual wallet for so many.
That meant I had to navigate China the way I would have three years ago: with a
stack of red 100-renminbi notes.
A QR code is scanned to pay for a taxi ride using Alipay. Yuyang Liu for The New York Times
At coffee shops and restaurants, I held up lines as I fumbled out my wallet and
peeled off the bills to give the cashier. If I was hungry I had to go outside and find
a restaurant, while bowls of noodles, groceries and coffee materialized at our
office, ordered by my colleagues and paid for on the phone. If I had to get
somewhere, I couldn’t use my phone to unlock one of the ubiquitous bicycles that
are a part of China’s bike-sharing craze.
Even the buskers were apparently ahead of me. Enterprising musicians playing
on the streets of a number of Chinese cities have put up boards with QR codes so
that passers-by can simply transfer them tips directly.
“It has become the default way of life now,” said Shiv Putcha, an analyst with the
research firm IDC. “Literally every business and brand in China is plugged into
this ecosystem.”
The IAPM mall in central Shanghai. Mobile payments reached $5.5 trillion in China last year.
Yuyang Liu for The New York Times
Some Scandinavian countries have also weaned themselves from cash but still
use cards frequently. In China, the change has been to phones. One friend didn’t
realize how reliant she had become on mobile payments until her bank called her.
She had left her A.T.M. card in the machine three weeks earlier and had not
noticed its absence.
In practical terms, this means Tencent and Alibaba’s financial affiliate, Ant
Financial, the two Chinese internet companies that run WeChat and Alipay,
respectively, are sitting atop a gold mine of staggering proportions. Both
companies can make money off the transactions, charge other companies to use
their payment platforms and all the while collect the payments data to be used in
everything from new credit systems to advertising.
Mr. Lim said that according to recent data, Ant Financial and Tencent were set to
surpass credit card companies like Visa and Mastercard in total
global transactions per day in the coming year. The key is that both companies
are able to provide payments on the cheap, partly by allowing smaller vendors to
make use of a simple printout of a QR code or their phone, instead of an
expensive card reader. A back-end system that stores a record of user accounts,
instead of having to communicate with a bank, also keeps costs down.
While Tencent does not break out what it makes from mobile payments, in the
fourth quarter of 2016 the “other services” item in its earnings almost tripled
from a year earlier to 6.4 billion renminbi, or $940 million, driven largely by
mobile payments.
Customers line up at a Shanghai food vendor that supports WeChat and Alipay. Yuyang Liu for The New York Times
There are some potential future problems with China’s sweeping embrace of
online payments. As the country builds its entire consumer economy around two
private smartphone payment platforms, it is slowly locking out people unable to
get onto those networks, and locking itself into those companies.
At the simplest level, that makes life difficult for tourists and business travelers
who are unlikely to open a bank account in China and so will find it hard to turn
their phones into wallets.
More broadly, it means things could get harder for foreign and local businesses
alike. Foreign companies hoping to sell to Chinese consumers now must deal
with Alibaba and Tencent or risk being unable to take payments. Likewise,
Chinese companies reliant on Alibaba and Tencent have to build out separate
structures to deal with the world of Facebook, Google and credit cards that still
dominate elsewhere.
There is a corollary for what could happen here. In Japan in the early 2000s, flip
phones could do everything from stream cable TV to pay at stores. But because
the phones were so advanced, Japan was slow to adopt smartphones, and it went
from tech giant to tech laggard in 15 years.
A street key maker who accepts mobile payments. For many small businesses, the technology has helped keep
costs down by using a QR code instead of an expensive card reader. Yuyang Liu for The New York Times
Now in Japan those flip phones, which are still being used, are called Galápagos
phones (
because they evolved perfectly for an
isolated environment.
No doubt aware of this, Alibaba and Tencent are pushing to expand beyond China
to ensure their newest innovation doesn’t go the way of the dinosaurs. Still,
competition is most likely looming.
“The million-dollar question is: Will Western firms decide to build a system and
compete?” Mr. Lim said. “The answer is probably yes.”
Buildings for Tencent, the parent company of WeChat, in Caohejing Hi-tech Park. Yuyang Liu for The New York Times
Until then, new arrivals like me have to deal with being locked out of China’s
online payments infrastructure.
Earlier this month, though, I lucked out using cash. As I was trying to get a pile of
stuff from Ikea back to my new apartment, a cabdriver looked skeptically at the
huge rolled-up mattress pad I was planning to load into the back of his car.
“I’m not sure I can take you,” he said to me. “I can only take cash.”
“That’s all I have,” I said to my fellow Luddite, who grumpily agreed to ferry me
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