Cash is already pretty much dead in China as the country lives the future with mobile pay

Key Points
  • Mainland Chinese stores and services are increasingly centered around mobile pay apps like WeChat Pay and Alipay.
  • Chinese mobile payment volume more than doubled to $5 trillion in 2016, according to Analysys data cited by Hillhouse Capital.
  • Mobile pay is growing so rapidly in mainland China that as a foreigner, I sometimes found it difficult to complete basic transactions without it.
  • The dominance of mobile transactions lends itself to greater data collection by the Chinese government.
Cash is already pretty much dead in China
Cash is already pretty much dead in China

Mobile pay is taking China by storm and changing daily commerce.

The transformation of a society limited to bills denominated in 100 yuan ($15) or less into one where QR payment codes abound was by far the biggest change in mainland China since my last visit four years ago.

When eating out or shopping with local friends, they paid by scanning a QR code on the restaurant table or by showing a similar code on their smartphones to the store clerk. A spices shop, museum souvenir store and seller of traditional Chinese calligraphy brushes all had signs saying they accepted mobile pay.

Rather than, "Do you take credit cards?" the question was often "Do you take Alipay? WeChat Pay?" The running joke was that street beggars would rather take a mobile donation than cash.

A dessert store worker scans a mobile QR payment code in Beijing, China, while the blue sign below promotes the store’s use of Alipay.
Evelyn Cheng | CNBC

Lack of red tape and a less developed financial system have apparently allowed mainland China to leapfrog the developed world into embracing mobile payments.

Mobile payment volume in the country more than doubled to $5 trillion in 2016, according to Analysys data cited by Hillhouse Capital in a May report. In the first quarter of this year, Alipay had 54 percent of that mobile payments market, and WeChat Pay accounted for 40 percent, the study said.

The Chinese mobile pay habit is also affecting other countries. More than 6 million Chinese traveled abroad during the "Golden Week" national holiday in early October, according to state-backed media outlet Xinhua. That puts pressure on popular tourist destinations like Japan and Hong Kong to add mobile pay services.

Just over the border in Hong Kong, I heard a few mainland Chinese customers asking a store clerk to scan their phones' QR codes while Cantonese-speaking locals paid in cash. In April, Nikkei reported that the number of stores accepting Alipay in Japan will double to 45,000 this year, according to the regional head of Ant Financial Services.

Customers can buy traditional Chinese calligraphy brushes at this Xi’an, China, store using QR payment codes. From left to right: WeChat Pay, Alipay and the QR code for the store’s WeChat account.
Evelyn Cheng | CNBC

The growth of mobile pay in China comes off a solid base of smartphone users. The ubiquitous WeChat messaging app from Chinese technology giant Tencent reached 963 million monthly active users in the second quarter. In professional settings, adding each other on WeChat sometimes replaced business card exchanges.

Alipay, which is owned by Alibaba affiliate Ant Financial Services, has 520 million users, according to its international website.

The app is linked to online money market fund Yu'e bao, encouraging users to invest and spend with Alipay. Attractive interest rates of nearly 4 percent or more have turned it into the largest money market fund in the world, with 1.43 trillion yuan ($217 billion) as of the end of June, according to state media reports citing Yu'e bao's manager, Tianhong Asset Management.

Hong Kong-based research investment company CLSA expects Chinese electronic payments volume to quadruple to 300 trillion yuan by 2021. During that time, online wealth management products' assets under management should triple to 6.7 trillion yuan and online loans could also triple to 3.5 trillion, said Elinor Leung, head of Asia Telecom and Internet Research at CLSA.

"High mobile internet and ecommerce penetration, and an underdeveloped traditional financial market will drive growth," Leung said in a Sept. 5 report.

Mobile pay is growing so rapidly in mainland China that as a foreigner I sometimes found it difficult to complete basic transactions without it.

After scanning the QR code on the table at this restaurant in Beijing, China, customers enter the payment amount in the app.
Evelyn Cheng | CNBC

When I tried to pay at a Beijing McDonald's on a late night, the only payment options were China's Union Pay credit card system, Apple Pay or WeChat Pay and Alipay. As an American visitor without a Chinese bank account, I wasn't able to find a way to use those systems and the store clerk wouldn't take my cash.

"Cash is accepted in all McDonald's restaurants across China. After our investigation, we believe this is an isolated case that happened during night shift change, and thus, all cash counters were temporarily closed," a McDonald's China Customer Care Center told me in an email.

Taxis were also nearly impossible to hail in Beijing due to the rise of Didi, a ride-hailing app that bought Uber's China operations in a deal worth $35 billion last summer. Because Didi was linked through WeChat, I couldn't use it without a Chinese bank account.

When I finally did get a taxi, the driver gave me a fake 50 yuan bill in change. Several stores also claimed three of my 100 yuan bills from a New York money exchange were counterfeit. If I could participate in the cashless society, I would not have lost about $50.

The bike unlocks after the customer scans its QR code through a bike-sharing app.
Evelyn Cheng | CNBC

The growth of mobile pay in China has supported another business: bike sharing.

Led by a few start-ups, the number of bikes stacked along the side of the street or sometimes scattered even alongside highways in China has exploded. The number of monthly active users doubled from February to more than 20 million in March, according to TrustData cited by Hillhouse Capital.

Two of the largest Chinese-based start-ups, Ofo and Mobike, say they have a combined more than 13 million bikes around the world and have each raised at least $1 billion.

Incidentally, Mobike entered the U.S. on Sept. 20 by deploying bikes in Washington, D.C., while Ofo made its first foray into the country by launching in Seattle in August.

A bicycle from bike-sharing startup ofo in the Muslim Quarter of Xi’an, China.
Evelyn Cheng | CNBC

The dominance of mobile pay also means companies like Ant Financial and Tencent have access to hordes of personal data. That data can then be shared with the Chinese government, which prioritizes control. Some parts of China have been testing a personal credit score system linked to mobile pay data.

But unless privacy issues have immediate negative consequences, convenience may trump all. A smartphone is increasingly the only thing someone in China needs to carry when going out.

Disclosure: Travel to Asia was supported by the East-West Center, the Better Hong Kong Foundation and the All-China Journalists Association.

A worker at one of many food vendors in the Muslim Quarter of Xi’an, China.
Evelyn Cheng | CNBC