Mobile payments are indeed the future, and the world’s most populous country is already leading the way in driving a few more nails into the coffin of cold, hard cash. Chinese state-run news media company Xinhua reported that “In the second quarter of 2017, third-party mobile payment transactions amounted to 23 trillion yuan (about 3.46 trillion U.S. dollars), up 22.5 percent from the previous quarter.”
Early this year, Financial Times reported that China mobile payments are nearly 50 times larger than those in the United States, and the continued growth of mobile payments in China would have certainly helped increase the gap even further.
It’s a combination of factors that has revolutionized the payments world in China. The growth of smartphones, messengers like WeChat, owned by Tencent that also double up as mobile payment service providers, and Alipay, the mobile payments service of Alibaba, the number one e-commerce platform in the country, have all helped Chinese users embrace payments services without much resistance.
Alibaba and Tencent now control 92.8% of the mobile payments market, with the former holding the lion’s share of the market at 53.7%, while Tencent walks away with a not-too-shabby 39.1%. Both these companies have used technology to makes things easy for Chinese customers to move money through their smartphones.
Alipay says that it has 520 million users globally, while WeChat is expected to capture 500 million users by 2017. The combination of Alibaba and Tencent has nicely covered two important demographics, business to consumer and consumer to consumer, and it has certainly helped the market grow at an extremely fast rate.
The other factor that has also played a huge role is credit card usage in China. Credit Card penetration was expected to grow from 16% in 2014 to 44% in 2025. So even if the credit card usage were to grow at the forecasted level, it will still lag penetration in the United States, where nearly seven out of ten Americans own credit cards, with a large segment of the population owning multiple cards.
For the major portion of users in developed countries, mobile payments are an alternative option, which makes adoption speed a little bit lower. But in China, for a lot of customers, mobile payment is the most convenient alternative to cash.
Despite the current size of the mobile payments market in China, there is still plenty of room for further growth. According to figures released by China Internet Network Information Center, China had 724 million mobile phone users at the end of June 2017. More than 35 percent of them often make mobile payments, while 31.8 percent still prefer using cash or credit cards.
Only one-third of Chinese smartphone customers are using mobile payments services, so, as more and more users start using such services, it will encourage even more users to try it out, thereby expanding the market even further.
Technology has certainly helped the cause here and, clearly, China is leading the way in killing the use of cash.
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