A few days ago, I read the newspaper and suddenly noticed an interesting article. According to the article, an increasing amount of people in Israel are replacing their cash with a virtual mobile wallet. More than 6 million transactions, in a total amount of 600 million NIS, were paid in December 2021 via a virtual wallet. Nonetheless, the adoption in Israel of virtual wallets and mobile payments is very slow. People are still reluctant to give up on cash, and therefore many places will not arrange the proper infrastructure for mobile payments. This forces people to stick with the old method of using only cash and credit cards. This sounds like the chicken or the egg question.
However, in China the situation is the opposite. More so than in any other country, people are leaving cash and credit cards at home. As of December 2020, around 852.5 million people used mobile payment transactions in the mainland. Mobile payment has recently become the primary method of making purchases. It is so common that in some places cash is no longer accepted. In China, you can leave your home with nothing but your phone and live truly in a wallet-free reality.
For someone who does not live in mainland China, it does indeed sound futuristic. Not so long ago, I met a friend that returned from a trip to China. She told me that she arrived in China with 8,000 RMB and returned with 7,200 RMB – almost every payment she made was with her smartphone, from taxis to restaurants and shopping. When you think about it, it is quite unbelievable.
So, how is this even possible? Well, transactions from one party to another are able mainly due to Quick Response (QR) codes scanning. Every business and individual has a unique QR code and transfers are free. Paying a street vendor, person-to-person payments, a cup of tea, transportation expenses, or even day-to-day bills — all can be paid in just a few seconds with a mobile phone by simply using Alipay or WeChat Pay.
The two main competitors are Alibaba’s Alipay and Tencent’s WeChat Pay. They are the two key mobile payment systems leading the Chinese market today. They are owned by two of the most known companies in China: Alibaba (some call it the “Amazon” of China) and Tencent Holdings (the nation’s leading social media and messaging app that has more than 1 billion users). More than 90% of Chinese mobile payments are done through these two applications. They enable users convenience; it is an easy, cheap, and fast way to pay. Consumers can even enjoy a customized shopping experience – users can be informed about products and stores that line up with their consumer behavior.
Why does mobile pay work so well in China but not in other countries like Israel? Well, maybe the answer to this question is found within the popular platforms in China. If we dive into the core of Tencent’s app WeChat, it is basically an “app-within-an-app” application. Users can do almost everything in this app, from sending text messages to their friends and family, ordering food, ordering a taxi, and even scheduling a doctor appointment. WeChat started off as a social app and only years later did it become the leading payment platform it is today – meaning, users were already familiar with the app. It slowly gained their trust. Hence, the adoption of the payment option in the app was done quickly among all age and socioeconomic groups.
This “app-within-an-app” application reminded me of the idea of the “Black Box Fallacy”, as described by Jenkins’ book “Convergence Culture: Where Old and New Media Collide”. According to Jenkins, the “Black Box” fallacy is a theory that all media content will eventually flow through one black box. Essentially, all the media content that we consume is going to run through a single black box, such as the television that is in our living rooms or through the mobile phones that we carry around with us everywhere we go. The same is true in WeChat, all the content flows through this one application. The app organizes many services and media for the users and even offers a new platform for day-to-day activities – all in one place. Consumers no longer need to download many apps and register to many different accounts.
A good example of an application as a new platform for activities, even unexpected ones, occurred in 2014 when WeChat Pay took the Chinese New Year tradition of gifting money to mobile. The Chinese New Year has a unique tradition of giving children or elderly people red envelopes. The red envelopes (Hong Bao; 压岁钱) contain usually a small amount of money, and those who receive them are wished a peaceful year.
WeChat Pay created a promotion calling users to send via the app up to 100 yuan (around $15) to others using the app. The promotion showed the incredible, widespread use of WeChat and was a great success. Over 40 million virtual red envelopes, a total of 400 million yuan ($62.6 million), were exchanged within just a few days.
Recently, a new method of payment appeared in China in the form of a facial-recognition- payment (FRP; 刷脸支付). This new method, created in late August, is powered by WeChat Pay. It is also being tested and used in physical stores and other points of sales (POS). It is gaining fast popularity. Now, Chinese people do not even need their phones anymore! All they must do is upload an image of their face to a digital payment system and pose in front of the cameras at the point of sale.
There is no disagreement that China is ahead of the rest of the world in mobile payments and having a cashless society become a reality. So much has changed in only a few years, it will sure be interesting to see what new methods will be developed and adopted in the future. The world will witness how China will continue to change the landscape of transactions and digital payments around the world. To further discuss this trend and to examine what new methods may appear in the near future, feel free to contact Xinergy Global today.