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  • Writer's pictureLeaf Digital

From Cash to Mobile Payment – Skipping the Credit Card Era

Person holding a phone displaying an Alipay QR code

The transformation towards a cashless society in China has been unmistakable, as electronic payments have become ubiquitous across the nation. This seismic shift extends beyond the urban centers, reaching deep into the rural heartlands as well, where it has revolutionized the way residents and small businesses conduct transactions.

Amidst economic challenges like deflation, currency fluctuations, and youth unemployment, the prevalence of digital payments stands as a beacon of resilience in the world's second-largest economy. With an annual electronic transaction volume soaring to an astonishing US$434 trillion, and over 80% of daily consumption transactions flowing through mobile platforms, China's embrace of digital payment systems is nothing short of revolutionary By skipping traditional payment methods like credit cards, China has propelled itself to the forefront of digital payments, leveraging smartphones and scannable QR codes to facilitate transactions on a massive scale.

China's Mobile Payment Landscape: A Global Trendsetter

As you can see in the graph below, China has made a quick transition from Cash to Mobile Payment. In June 2023, the adoption rate of mobile payments among the internet users in China was over 87,5%.

Share of mobile internet users using mobile payment in China

China's transition to a cashless society is epitomized by its widespread adoption of mobile payment platforms, transforming how transactions are conducted across the nation. Chinese individuals widely utilize mobile payment platforms for various purposes, including settling restaurant bills, ordering food delivery, making online and offline purchases, as well as paying bills and for various services. As of June 2023, approximately 943 million individuals in China were actively utilizing mobile payment services. While the rate of new user adoption had started to slow down post-2017, the onset of the COVID-19 pandemic resulted in a surge of new users. Nearly all mobile payment users (99.8%) engage with these platforms daily, with usage frequency ranging from one to three times daily (54.9%) to exceeding ten times per day.

Leading the global trend with a penetration rate of 38.3% in 2023, the highest among 44 surveyed countries, China's vibrant payment app market is widely embraced by retailers, restaurants, and e-commerce platforms. The distinct business landscape, featuring numerous small enterprises, has fostered a notable leapfrog effect, skipping widespread credit card adoption and directly transitioning from cash to payment apps. Despite this remarkable mobile payment adoption, the overall annual transaction value per customer remains higher in the United States and various European countries, including the UK, Portugal, and Scandinavian nations. 

User penetration rates and transaction values in the mobile sale segment in 2023

Several factors have contributed to China's dominance in digital payments, including rapid digitalization, a growing middle class with increased disposable income, and a thriving e-commerce ecosystem. Moreover, the integration of digital payments into social networks and payment platforms, along with substantial investments in fintech and technological advancements, has further fueled this growth.

Alipay and WeChat Pay are the absolute favorites, with Alipay boasting 1.3 billion users worldwide and offering innovative features like facial recognition payments. WeChat Pay, integrated in WeChat, provides a versatile interface and extends its services to include various financial products.

QR Codes are widely used for making and receiving payments. This simplicity and accessibility have fueled the widespread adoption of mobile payments in China, making it easy and fast for anyone with a mobile device.

Foreigners' Challenges with China's Cashless Society

Foreign tourists visiting China encounter hurdles in navigating the country's predominantly cashless payment ecosystem. Despite efforts to promote acceptance of foreign cards like Visa and Mastercard, accessibility remains a concern for international visitors.

In July 2023, WeChat Pay and Alipay, China's dominant mobile-payment providers, finally opened their platforms to overseas tourists and foreign residents, allowing them to link credit or debit cards issued by Visa, Mastercard, and select international operators. This move marked the end of years of restrictions on foreign credit cards due to Beijing's stringent financial and data controls. However, non-Chinese card users still face limitations, including restrictions on individual transfers and transaction fees associated with international card usage.

However, payment-related issues present significant challenges for foreign visitors to China, impacting both tourism and economic exchanges. Many tourists, particularly those from Europe and the US, remain hesitant to provide personal data for mobile payment apps due to privacy apprehensions. Conversely, visitors from Southeast Asia exhibit a greater inclination towards utilizing mobile payments during their time in China.

Efforts are underway to address these challenges and improve payment services for overseas tourists in China in order to boost tourism and business. Proposed measures include enhancing the convenience of mobile payment options and expanding acceptance of international credit cards. However, specific details regarding implementation and timelines for these improvements are yet to be announced.

Embrace Mobile Payment or Fall Behind

As the country embraces mobile-first principles and surges ahead in fintech advancements, foreign businesses who want to succeed in China are presented with a compelling imperative: integrate mobile payment options or risk falling behind. The surge in digital payments underscores the pressing need for businesses to adapt to evolving consumer preferences. With mobile payments becoming ubiquitous in daily life, foreign businesses cannot afford to overlook the significance of offering seamless, cashless transaction experiences to their customers. By embracing mobile payments, businesses can not only meet the demands of today's digital consumers but also chart a course toward sustained relevance and competitiveness in an increasingly digital economy.

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