FX International Payments
By Samuel Greengard
Major U.S. payment card companies have applied to the Chinese government to enter the mobile payment services marketplace, at a time when the country is already undergoing enormous financial change. The 2017 Mobile Payment Usage in China Report, collaboratively produced by market research firm Ipsos, Tencent Research Institute, and Chongyang Institute for Financial Studies of Renmin University of China, noted that the number of transactions taking place through non-banking mobile apps increased from about 3.8 billion to more than 97 billion from 2013 to 2016.2 This represents a compound annual growth rate of over 195 percent.
China is well-positioned for a boom in mobile payments. According to Ipsos, 40 percent of Chinese carry less than the equivalent of $15.70 in cash at any given moment.3 What's more, among young people, cash is even less popular. The average person born after 1990 carries two-thirds less cash than their counterparts 60 or older. Altogether, 52 percent of respondents said less than 20 percent of their monthly spending was conducted using cash. However, only two major Chinese firms have offered mobile payment services, the Ipsos report notes.4
Mobile payment services providers considering China – and U.S. small businesses that might trade in China using such services – are also eyeing a more affluent society. Although per capita income in China is still relatively low – it stood at $4,044 in 20175 – there's a rapidly growing middle class and an emerging upper class. The size of China's population, approximately 1.39 billion,6 combined with the fact that 95 percent of the country's Internet users already rely on mobile platforms for payments,7 translates into hundreds of millions of viable consumers. Tech savvy younger consumers are particularly eager to use Chinese mobile payment services.
Yet, demographics are only part of the picture. Mobile payment systems are a good fit because China's banking system is still relatively underdeveloped. At present, less than 10 percent of Chinese citizens have access to credit from a financial institution.8 In addition, many small-to-medium-sized enterprises (SMEs) have been underserved. The World Bank reports that, historically, less than 25 percent of the commercial loans extended by Chinese banks went to SMEs in 2012, despite the fact that they account for over 60 percent of China's GDP.9
In fact, the transition to a cashless society is taking place quickly in China. Online market research service eMarketer predicts that about 80 percent of smartphone users in China will be using mobile payments by 2021, compared to about 31 percent of U.S. consumers and 22 percent of German consumers.10 "Mobile payments at the POS [point of sale] appeals to the Chinese consumer, as it is perceived to be faster, more convenient and safer than cash," according to the eMarketer analysis.11
Allowing foreign companies to provide mobile payment services will send financial ripples beyond the boundaries of China. Already, many Chinese consumers already use mobile pay, typically via QR codes, to order food, settle doctor bills, hail rides, pay utility bills and buy goods. Outside providers are expected to bring new innovations and expand the mobile payment ecosystem. For example, there's growing interest in integrating loyalty programs into apps and mini-apps, notes an American Banker article.12
There's also growing demand for cross-border mobile payments. "The B2C cross-border e-commerce market in China has seen significant growth in the past few years," a Stanford University white paper reported.13 For instance, B2C cross-border e-commerce in China rose to $86 billion in 2016 from $57 billion in 2015, representing more than 4 percent of China's total retail e-commerce market, according to eMarketer stats.14 "Chinese consumers have increasingly been turning abroad" to buy goods, the Stanford report added. By 2020 China is expected to become the largest cross-border B2C market, with estimations of transaction volume of imported goods ranging from $150 billion to $245 billion.15
In less than five years, China has transitioned from a cash-based society into a leader in mobile payment services and cashless transactions. In 2018, the government is opening the door for foreign payment card companies to provide China mobile payment services, which may simplify the ability for U.S.-based small businesses to trade in China.
Samuel Greengard is a veteran journalist who has contributed to many business and technology publications. He is also the author of two books: The Internet of Things (MIT Press, 2015) and the AARP Crash Course in Finding the Work You Love: The Essential Guide to Reinventing Your Life (Sterling, 2008).
1. "IMF report for China," International Monetary Fund World Economic Outlook Database; http://www.imf.org/external/pubs/ft/weo/2018/01/weodata/weorept.aspx?pr.x=35&pr.y=12&sy=2017&ey=2018&scsm=1&ssd=1&sort=country&ds=.&br=1&c=924&s=NGDPD%2CPPPGDP%2CNGDPDPC%2CPPPPC&grp=0&a=#cs1
2. 2017 Mobile Payment Usage in China Report, Ipsos, Tencent Research Institute, and Chongyang Institute for Financial Studies; https://www.ipsos.com/sites/default/files/ct/publication/documents/2017-08/Mobile_payments_in_China-2017.pdf
5. "Order from Chaos: What's happening with China’s fintech industry?," Brookings Institution; https://www.brookings.edu/blog/order-from-chaos/2018/02/08/whats-happening-with-chinas-fintech-industry/
6. “China Population,” Countrymeters; http://countrymeters.info/en/China/
7. "Order from Chaos: What's happening with China’s fintech industry?," Brookings Institution; https://www.brookings.edu/blog/order-from-chaos/2018/02/08/whats-happening-with-chinas-fintech-industry/
9. “Enterprise Surveys: China 2012,” World Bank; http://www.enterprisesurveys.org/data/exploreeconomies/2012/china
10. "eMarketer Projects Surge in Mobile Payments in China," eMarketer; https://www.emarketer.com/Article/eMarketer-Projects-Surge-Mobile-Payments-China/1016695
12. "Lessons from a Mobile Payments Revolution," American Banker; https://www.americanbanker.com/news/why-chinas-mobile-payments-revolution-matters-for-us-bankers
13. "U.S.-to-China B2C E-Commerce: Improving Logistics to Grow Trade," Stanford University Graduate School of Business; https://www.gsb.stanford.edu/sites/gsb/files/publication-pdf/vcii-white-paper-us-china-ecommerce-imrpove-logistics-grow-trade.pdf
14. "China Embraces Cross-Border Ecommerce," eMarketer; https://www.emarketer.com/Article/China-Embraces-Cross-Border-Ecommerce/1014078
15. "Cross-Border E-Commerce To Reach $1 trillion in 2020," Alizila; http://www.alizila.com/cross-border-e-commerce-to-reach-1-trillion-in-2020/