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Mobile Payments in China

No More Cash 

Until about two decades ago, overseas visitors to China had an odd experience paying merchants: credit cards were accepted only in hotels or big merchants. To pay petty cash (like buying stuff at the corner of the street or paying their taxi fare), people had to prepare a bundle of cash. It could be wrinkled, damp or even with dirt-marks if people had to pay for these items. To ensure that they didn't accept forged notes, merchants and taxi drivers performed forensic-style scanning of the notes: looking for watermarks or other counterfeit features before accepting them.

When foreigners visit China nowadays, they realize how convenient mobile payments are within the country: they scan QR codes from merchants using their smartphones, authorize payments with a facial scan, and wait for a confirmation beep/message to settle the transaction within seconds. While many overseas phone users are familiar with ApplePay and GooglePay, they might find Chinese mobile payments more convenient and straightforward. Service providers/merchants use their mobile phones to display their QR codes or simply a small poster to show the QR codes at kiosks (known as “Customer Scan”). Alternatively, customers can show the QR code (known as "Customer Show") from their phone and merchants will scan it for payment. As a result of this arrangement, merchants of all types and sizes could participate: no POS machines are needed, which discourages small businessmen from joining.


Miracles on Special Soil

A recent survey estimates Chinese mobile payments reach 1 trillion transactions a year (transaction revenue equal to 400 trillion RMB x 55.5 trillion USD). Within the country, AliPay, WeChatPay and UnionPay are the top three most popular mobile payment methods.

Alibaba Group was established in 2004 when e-commerce was introduced. Alibaba was initially set up as a platform for selling Chinese products to domestic and overseas distributors. Later, another platform called "Tao Bao" (Chinese for "Seeking Treasures") was developed for B to C. With the rapid growth of online e-commerce transactions and the increasing number of buyers and sellers involved, a third-party payment vehicle was urgently needed to ensure that both parties' rights were reasonably protected. This circumstance led to the development of Alipay. In the beginning, Alipay looked very similar to PayPal, but slowly Alipay became more than just a third-party payment system for online purchases, but also a means for cashless transactions.

As one of Tencent's most important projects, WeChat was developed in 2011 as "WeiXin" (Micro Message). In addition to being a social network app, WeChat attached many gadgets, called mini-programs: one of them was WeChatPay. Through the Identity Authentication (scanning ID and associated to telephone number) progress during registration and associating other information accessible through personal information: telephone and utility bills, airline or train tickets, loans, etc., one could make the payment transaction security with just one finger (or just scan the face). The user could even transfer a small amount to someone he knows (based on his WeChat account) through WeChatPay.

UnionPay (a.k.a. China UnionPay) is one of the biggest payment card issuers and managed 93% of all card payment in China (figures in 2021). Through mobile UnionPay app, card users could link their UnionPay card and make payment via digital payment process.  

More than 90% of mobile payment transactions within China were make via Alipay and WeChatPay, their dominance was a result of their low barrier to account opening: only need to link a bank account (owned by the same person) rather than a credit/debit card (which is also an option). Compared to other countries, China has a much smaller number of users of credit/debit cards. With AliPay and WeChatPay, money could be kept in a "Wallet" as cash but sent in real-time to a designated account or vice versa. It is no longer necessary for users to concern about fake money, carrying a bundle of cash, or keeping good records of where their money has gone.

Because of the popularity of mobile payments and coverage, the authority also noticed the potential threat if the system collapsed. So in 2018, the People's Bank of China (PBOC) introduced a requirement that all mobile payment transactions must be cleared through the Online Settlement Platform for Non-Bank Payment Institutions, a centralized clearing house, rather than peer-to-peer transactions.


Enhancing The Experience of Overseas Visitors

Locals enjoyed mobile payment ease, but overseas travelers encountered many problems. As mobile payments became more popular, cash became less and less accepted from merchants (particularly small ones): small shops carried very little cash for changes; merchants and services could only be paid via mobile devices, etc. Though the authority has repeatedly stressed that cash payment is still an official payment method that merchants should not refuse, popularity of cash payment dipped quickly. According to interviews, many overseas visitors are concerned that their credit card will not be accepted outside of the hotels where they are staying. In fact, some survey reports indicate that complicated mobile payment registration discourages travelers from visiting China.

As a result of these concerns, the authority has loosened the Identity Authentication Process and the strict regulation of bank accounts associated with mobile payments. According to the authority, the annual quota for AliPay overseas users has been raised from US$ 500 to US$ 2,000 (convert to RMB via credit card) per year without ID authentication. The single transaction limit for overseas travelers could be increased from $1,000 to $5,000 with ID authentication (cumulative spending from $10,000 to $50,000).

Additionally, the authority promised to improve the authentication and approval process so that foreigners would have an easier time getting their wallets ready. The General Office of the State Council published a guideline on improving payment services and enhancing payment convenience on March 7 as part of the country’s high-level opening-up agenda. The final goal is to provide diversified payment methods to satisfy the needs of the elderly and also foreign visitors.

A “Guide to Payment Services in China” published by People’s Bank of China can be found at the following link: http://www.pbc.gov.cn/en/3688110/3688172/5188125/5274061/index.html.

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