Cashless

Zhang Xinyu

In February, Alipay declared that China would become a cashless society within five years. Its official accounts on Weibo and WeChat send out periodic notifications saying how many days remain until that time (currently a bit more than 1600), a countdown as portentous as the one that was launched for the Beijing Olympics in 2008. But to anyone who has spent time in China of late, it may seem as though that goal has already been reached.

Mobile payments have spread to every corner of China, from coastal cities to inland villages, accepted everywhere from luxury fashion shops to streetside fruit vendors. Though mobile payments have been around for several years now, within the past year they have become quietly and suddenly universal.

You would be hard pressed to find a young person who doesn’t use a smartphone for making payments. A survey released this past week by Tencent’s own research arm in combination with IPSOS and a Chinese university revealed that 84% of people now say they feel comfortable leaving home without any cash on hand, knowing that they can generally rely on their phones to make most any purchase they need. And they are certainly using them. According to McKinsey, there were $790 billion worth of mobile payments in China last year, 11 times that in the US. That already gigantic amount can only be set to grow this year.

Faced with the prospect of Alipay’s cashless society, rival WeChat Pay has been offering its own small incentives to try to win over users. In the fight between them, though, the two companies can do little more than move users back and forth. A typical smartphone user in China is sure to have Alipay installed, as well as have activated WeChat Pay through WeChat (which has roughly 900 million users). The most the companies can expect is that, when users go to a cashier to pay, they’ll glance at whatever promotions might be on offer and choose to pay with the app that gives them the better deal. Actually winning exclusive loyalty, however, is probably too much to hope for, and Alipay and WeChat Pay could easily wind up burning through piles of cash to do no more than keep the status quo between them.

Of course, as with any app, there is still a certain group of people who have never used Alipay or WeChat Pay, and who won’t ever be converted to active users, no matter how many special offers and incentives the companies put forward. They are the elderly, the technophobes, and all the other people who, for whatever reason, either don’t have or aren’t proficient in using smartphones. And the turn towards a cashless society, having come on so much faster and more thoroughly than even its advocates may have anticipated or wished for, has left them on the outs.

The Inconveniences of “Convenience”

Smartphone ownership rates are near saturation in China, at least among the adult working population. But outside of that there are almost 500 million elderly and children, making up roughly 35% of the country’s total population.

The elderly in particular (who make up 16.7% of the population) can find it hard to navigate the new landscape of ride-hailing, O2O food ordering, shared bikes, and mobile payments. In 2014, as ride-hailing apps were battling it out for supremacy, the founder of Alibaba, Jack Ma, complained that his own mother could no longer get a cab, because they were being forever snatched up by younger, savvier people who could hail them from their phones.

And yet even Alibaba has made a faux pas or two of its own in the pursuit of its “new retail” philosophy. Alibaba recently expanded into the grocery business with its Hema supermarkets, where customers can either shop in person or via an app and have their groceries delivered. Several months ago, however, older customers in Shanghai raised complaints when they went to the cashier to pay: the stores do not accept cash, only Alipay.

It perhaps isn’t a problem of technology, strictly speaking. In 2005, when China issued a new generation of redesigned banknotes, some vendors who missed out on the news were surprised when customers handed them olive green one yuan notes and mistook them for a poorly and lazily executed counterfeit scheme. The current situation isn’t too different; it is essentially a matter of giving people more forewarning, or time to learn and adapt to the change. But then, paper money designs don’t change with the kind of frequency that mobile payments apps do.

To make matters worse, those who still depend on cash face not just greater hassle, but real economic disadvantages. Movie tickets, for example, are as a rule cheaper when bought online than in person, so much so that one offline ticketseller admitted that: “We make our money from those who can’t buy online.” And so it is with many other goods. Above all, those without mobile payment apps are almost entirely frozen out of using any of the major ecommerce sites for shopping.

Those without mobile payments apps could, in theory, choose not to go to the movies, or not to shop at Hema, or take their chances with flagging down a cab. But the rapidity of change and growth in mobile payments suggests that, even if this coerced asceticism were acceptable, it might not work much longer. Already some of the basic infrastructure, from the Beijing subway to social insurance accounts, is moving towards becoming “cashless.”

Cash Is Doomed—Just Not Yet

For all their success, Alipay and WeChat Pay are not unassailable. They could yet be challenged by banks and credit card companies. And as private companies, if they truly do come to dominate payments, they may draw the unwanted attention of the government and China’s central bank. Many have defended cash on the grounds of protecting consumer privacy, but at least as compared against the current mobile payment options, cash also has the virtue of being a kind of public utility: something that is guaranteed to be “accessible” to everyone in a way that the services of a private company are not.

There is thus reason for the mobile payment companies to tread a little more cautiously. But they may also be feeling a little less combative.

In 2015, Jack Ma declared that Alipay would be the end of cash. But perhaps that is no longer the goal. The CEO of Ant Financial—which owns Alipay, and is itself under Alibaba’s umbrella—has said: “No matter if a consumer uses cash, bank cards, or an electronic wallet, we should provide them what they need most. We advocate giving the world greater and more equal opportunities, including the equality of choosing how people pay.”

Unexpectedly, the closer Alipay has come to displacing physical money, the less aggressive it has become. And that may be for the best. The country as a whole needs time to catch its breath, and let everyone, vendors and consumers, young and old, get used to a world without cash.