China Is on Track to Fully Phase Out Cash
Experts believe it won’t be long before China, the first country to introduce paper money, becomes the first to go totally cashless.
Photo: Aurelien Foucault
In a poky sex toy shop in Sanlitun shopping district in central Beijing, a placard with a QR code is strategically placed next to a pink, vein-knobbled dildo called the Super Emperor, and a clitoral pump. Just scan your phone, and walk out with your purchase.
The cigarette vendor across the street accepts smartphone payments too. A fast-moving queue of customers purchase smokes by scanning their phones over a tatty cardboard QR code.
All the bars in Sanlitun, equal parts seedy and swish, still take cash, but have likewise implemented cashless pay, largely through the ubiquitous WeChat and Alipay app, as primary payment platforms. Beijing taxi drivers accept smartphone payments too.
No one in the area uses physical money, for sex toys or otherwise. Largely due to China's vibrant fintech landscape, the recent rise of phone payments in the country has shunted cash onto the endangered list, perhaps somewhere alongside the pangolin.
"Pretty much every shop, restaurant and bar accepts WeChat and/or Alipay these days," said Yuhan Xu, a 30 year-old Shanghai-based radio researcher who has used her smartphone to pay for almost all her purchases since early 2016. "Even a small pancake stall does that," she added. "I don't need to carry cash."
Many experts believe it won't be long before China, the first country to introduce paper money, also becomes the first to phase it out to become fully cashless. But when will this moment come?
Of China's 1.35 billion population, 710 million are internet users. The results of a survey by the Beijing Youth Daily newspaper released in March found that, like Xu, 70 percent of internet users polled thought carrying cash was not necessary.
The apps fuelling this cashless trend are Tencent's WeChat and Alibaba's Alipay. Launched in 2011, WeChat is a multi-function app based around a messaging system that incorporates WhatsApp and Twitter-like elements. The app is phenomenally popular in China—the majority of WeChat's roughly 889 million monthly-active users worldwide are based in the People's Republic. Chinese users of apps like WeChat tend to not be put off by the personal data storing and sharing that goes on in them. Snooping by authorities is pretty much accepted.
In August 2013 WeChat's payment function was introduced; in-store payments were launched in September 2014. WeChat Pay lets users link their WeChat accounts with their bank accounts; they can spend money through the app in physical and online retail stores—usually scanning in-store QR codes at IRL stores—as well as transfer funds to and from other users. "I'll WeChat you my share" is perhaps the most commonly-uttered phrase in Beijing restaurants these days.
Tencent says that over 600 million users use its mobile payment services, which include WeChat Pay; Reuters estimated that $556 billion worth of transactions were made via the app in 2016. Alipay, which functions in a similar way to WeChat Pay, has around 270 million monthly active users, with around 175 million transactions going through the service every day.
"The younger generation has never read a physical newspaper, and similarly in the future they'll never use cash."
It's hard to not notice the change. Every lunchtime in Beijing queues of phone-waggling customers zip past tills with a "beep", and no fiddling for notes. QR codes are printed on cards and taped onto chicken wrap stalls outside metro stations. In the eastern Shandong province, panhandlers have been spotted with QR codes hanging around their necks. No loose change? Just scan here.
"We're at a tipping point now," said Rhia Liu, 25, an analyst with China Tech Insights, an organization that conducts research for Tencent. "The younger generation has never read a physical newspaper, and similarly in the future they'll never use cash."
Last month China Tech Insights released a report after polling Chinese WeChat users, that again underlined the rise of mobile payments. It found that in 2015, 65 percent of users spent less than 500 yuan ($73) a month through WeChat Pay, but in 2016 the figure had dropped to under 40 percent. Forty-five percent of users said they used WeChat Pay because they didn't carry cash, with around 60 and 55 percent saying they used it because it was "fast" and "easy" respectively.
"People basically run their lives through smartphones in China," said Ben Cavender, senior analyst at Shanghai-based China Market Research Group. "If you compare the US to China in terms of how people access the internet, China is much more heavily slanted toward smartphones. People are already spending so much time on their smartphones; it's logical for them to have the tools they need in one place."
Looking at the nature of the unique, highly-controlled online environment in China helps to explain why Chinese society has become increasingly cashless. Many globally popular social media and messaging apps, including Facebook, Instagram, and Twitter are blocked in China by the government's infamous Great Firewall, giving Chinese firms like WeChat a free run at market dominance.
Whereas in many countries users look to various apps to perform tasks—Instagram for photo sharing, WhatsApp for messaging friends, Twitter for sending messages publicly—in China these are usually all done through one app: WeChat. Introducing the payment function to an app so widely and thoroughly used already has made using it to replace cash an easy, natural step.
The rise of online WeChat payments as well as in-store payments has helped galvanize the shift away from paper money. China has a vibrant e-commerce landscape—online sales in the country were estimated to be around $900 billion last year—bolstered by such retail giants as the eBay-like Taobao and a young generation of businesspeople utilising online payments to maximize their markets.
"Firms such as Alibaba have done an amazing job of bringing people into the economic fold," said Zennon Kapron, founder of Asia-focused market research firm Kapronasia. The company works with the Better Than Cash Alliance, a network of businesses and government bodies based at the United Nations that promotes transitions to digital currency from cash.
"If you look at platforms such as Taobao and T-Mall… the number of small enterprises able to sell their goods [is huge]," Kapron said. "You can be a merchant in Xinjiang selling spices and you have an audience that is effectively all of China.
"You have a young generation very online and adept at using mobile phones, and incredibly intelligent entrepreneurs coming to market with interesting solutions that are changing the way people consume," Kapron added. "All that has driven payments away from cash."
The question is: When are the final coins and notes in China going to be placed in the big piggy bank in the sky? Estimations from the analysts I spoke to ranged between five and 13 years.
Liu, the China Tech Insights analyst, has reached that point already. She said the last time she had used cash was one week ago—and only because Beijing metro train card top-up points don't accept mobile payments. She even pays her rent via her smartphone.
"Within five years first-tier cities will have full penetration of this cashless trend."
Liu's research found differences between levels of mobile payment use by users in first- and second- tier cities compared to those in third and lower tier cities. "Within five years first-tier cities will have full penetration of this cashless trend," she said. The infrastructures in lower-tier cities are not ready to achieve the same penetration, according to Liu. Nevertheless, "the trend will grow to these regions, but it will take more time for them to adopt it."
Kapron reckons that by 2030 China will be "for all intents and purposes, cashless." He added that the process will quicken when the central government decides to announce that a cashless society is its aim, which he believes would make sense economically for the country.
"Governments globally want to go cashless," he said. "Cash is expensive to produce, and it doesn't lend itself to transparency or security. China is looking at a kind of 'e-RMB' [digital currency], and will be pushing toward that."
Wang Pengbo, finance analyst at research firm Analysys, predicts that China will be effectively cashless in "five to ten years" and that this is a positive thing for business, the government, and the public.
As well as making China-wide transactions easier for the retailers currently riding the e-commerce wave, ditching cash cuts out the cost for firms and banks of creating and managing paper currency. An anti-corruption drive President Xi Jinping is spearheading could benefit too, with digital transactions easier to trace than the journey of bags stuffed with cash. Counterfeit money, which is common in China, would be a problem of the past.
"China is arguably the biggest 'cash free' society already; now you can go without cash in big cities and a lot of third party payment companies [such as WeChat and Alipay] are developing fast," said Wang. "The central bank is promoting this concept of 'going cashless' and the government has been doing a good job of guiding e-commerce."
If any more evidence of a society becoming cashless than a walk around central Beijing observing the relentless smartphone scanning was needed, Wang provides it.
"I read a news article the other day about a burglar who broke into three shops in a row," he said. "He could only find a few hundred yuan to steal."
Just about enough to buy a Super Emperor.