Cash has done its dash as China gets mobile

China’s headlong rush into e-commerce is providing insights into the future of business in the west.

China’s headlong rush into e-commerce, particularly mobile commerce, is now providing insights into the future of business in the west.

Mobile payments have become so widespread in China, particularly using the ubiquitous WeChat, that the problem in parts of China now is not the acceptance of tap and go-style commerce, but the acceptance of cash.

China’s central bank is now being forced to step up action against businesses that refuse to take cash, as the world’s second-largest economy moves closer to a cashless society.

In its latest move, the People’s Bank of China last week announced that any seller who refused to take cash would be punished, although it did not specify what the punishment would be.

It also urged people to report to the central bank any instances of retailers refusing to accept cash.

The move comes as China has rapidly become the world’s largest mobile payments market with many day-to-day transactions, including shopping, paying bills and buying lunch, now being handled by phone.

The spread of smartphones in China as well as the outdated nature of the official banking system has led to the changes.

The latest figures from the Chinese Ministry of Industry and Information show that mobile payments reached a record $US12 trillion for the first 10 months of last year.

A report by UBS earlier this year estimates that the mobile payment market in China could rise to more than $US34 billion ($46.4bn) by 2020.

A report by global market research firm Ipsos estimates that there are already 890 million people making mobile payments in China.

The mobile payment market is dominated by Alibaba’s Alipay and Tencent’s WeChat Pay, which have some 80 per cent of the market.

The move towards a cashless society has already yielded well-known stories in China about the side effects, such as beggars accepting money on their smartphones and robbers coming into stores only to find that there is no cash in the till.

But the situation has also caused problems for people wanting or needing to pay with cash, as many retailers push cashless payments because of convenience and the potential to reduce cash-handling.

Another incentive for retailers has been concern about counterfeiting.

Retailers often regard the red 100 yuan notes (about $20) with suspicion, with many putting them through scanners before they accept payments.

Unsuspecting tourists to China (Australians please note) have occasionally found themselves being scammed by taxi drivers who take a 100 yuan note, pretend to process it, then hand it back, insisting it is counterfeit and demanding a new note, while actually switching the real note with a counterfeit note.

This can go on for some time, with tourists offering drivers new notes while he hands them back fakes.

China is often predicted to become the world’s first cashless society but the central bank needs to make sure that cash is still accepted.

Tourists, the elderly and people from rural areas are among those who can find themselves unable to pay if they can’t pay by mobile phone.

“Cash has been rejected for some consumers in tourist attractions, restaurants, retailers and other industries,” the central bank said in July. It announced plans to crack down on retailers rejecting cash, giving them one month’s grace to comply.

“This damages the legal status of the yuan and hurts consumers’ rights to choose payment methods,” it said.

The central bank has said that it will make some exemptions for retailers refusing to accept cash, including those that are understaffed.

But the bank warned that businesses and individuals should not hype-up the “cashless society” when promoting non-cash payment.

While Alipay and WeChat pay dominate the market, there are an estimated 270 different mobile payments platforms operating in China — a number the central bank is keen to reduce.

Earlier this month several mobile payment services including Alipay were fined by the Shanghai branch of the central bank for unspecified violations of the rules on mobile payments.

“Alibaba and Tencent have revolutionized payments by embedding them into a broader ecosystem of e-commerce, fintech and social networks,” UBS notes in its report, The road to the cashless society: Shifting Asia, released earlier this year.

“They have been able to leverage their large user bases amid rising smartphone penetration.”

The report notes that the rapid growth of mobile payments has allowed e-commerce giants like Alibaba and Tencent to expand their role in the financial services market, challenging the established banking system.

“User-friendly technology and impactful promotional campaigns have created a digital lifestyle among young and old in China,” it says.

It notes that this will be further enhanced with the move towards payment by facial recognition technology, which is already being pioneered in China by Alibaba.

The report notes that the rapid take-up of mobile payments in China is beginning to expand overseas, driven by the rise in Chinese tourism.

As more Chinese travel overseas, including Australia, outlets catering to them are moving to accept Alipay and WeChat.

In a recent visit to Australia by a group of journalists from China, one of their main complaints was the problem in getting Alipay and WeChat accepted here.

The cashless society is coming faster than we think. Instead of being behind the rest of the world, China is showing us what it will look like.