Mobile Payments are Changing the Shape of Chinese Banking, Data Privacy, and Consumerism

Over the course of the last decade, China replaced the U.S as the flag-bearer for grossly-overindulgent consumer culture. According to CNN, China’s private debt reached 6.7 trillion at the start of 2018, comprising an incredible fifty-percent of China’s gross domestic product. Yet, if you walk the streets of China, you would be hard-pressed to find vendors who accept credit cards. In fact, the use of wallets in general have declined in their use by the country’s 1.3 billion people. Why? Mobile payments.

When you check out items at the grocery store, you won’t be greeted by a card reader at the register. Instead, you’ll likely find a tablet with a QR code posted on the screen. Using an app such as Alipay or WeChat, you can scan your code and pay for the items right from your phone. No hassle, no fuss. Just scan and go.

Yes, mobile payment is convenient. And this convenience has engendered pretty significant popularity. WeChat Pay and Alipay, China’s two largest mobile payment platforms, boast more than 1.4 billion monthly users combined. But that’s not necessarily a good thing. The idea of a “cashless society” has many far-ranging implications that could affect everything from product marketing and consumption patterns to banking to data privacy, so naturally, it comes with its caveats and concerns.

Understandably, Chinese banks are starting to worry. Mobile payments are, to put it bluntly, much more convenient. No need to carry around credit cards or withdraw cash. No need for businesses to install expensive card-readers and registers. They just need to print a QR code and tape it somewhere by the door.

Unfortunately for these traditional banks, it is fruitless for them to battle against the use of mobile payments. First, smartphones will continue to serve as the platform for China’s monetary transactions for the foreseeable future, as evidenced by the $17 trillion handled in China’s mobile payments market last year, per Bloomberg News. Fighting mobile payments in favor of cash withdrawals and credit cards is out of the question. Moreover, Chinese banks will not be able to successfully create their own mobile payment apps. In order to break into the industry, they have to deal with the behemoths WeChat Pay and Alipay. The parent apps of these platforms, Taobao and WeChat, were already used by incredibly large proportions of the Chinese population. The ubiquity in their functions has only accelerated the rate in which they have become ingrained in Chinese society, with both apps used for anything ranging from messaging to ride-hailing to bike-sharing to travel-booking. Chinese people use these apps quite a lot. This means that whatever mobile payment apps traditional Chinese banks offer will be stamped out by the competition as soon as they are introduced.

The dominance of Alipay and Wechat Pay means banks are missing out on all the transaction fees that have traditionally made the industry so profitable. Furthermore, as a Bloomberg News article explains, with both Tencent and Alibaba developing their own money-market funds and banking units, banks are also being siphoned of their deposit and withdrawal fee revenue streams. In short, Chinese banks are suffering. In an article by Hong Kong’s South China Morning Post, a Chinese banker complained, “We are losing money and, worse, customers. Alipay and WeChat have become a duopoly that is impossible to fight.” With the mobile payment industry showing no signs of slowing down, Chinese banking will take a serious toll unless President Xi Jinping decides to jump in and exercise damage control.

For all the wounds banks have suffered and will continue to suffer at the hands of mobile payments, consumers are likely to be hurt as well. First, there is the issue of data privacy. As noted by a Business Insider article, the wide-variety of functions offered by Taobao and Wechat has allowed apps to collect all sorts of consumer information in order to build detailed user profiles for ad revenue. After several years, the apps’ parent companies, Alibaba and Tencent, are sitting on a war chest of consumer data, which can present some problems.

App users are naturally growing uncomfortable with the constant profiling. While unwanted surveillance has long been a staple of China’s online experience, it seems consumers are starting to desire greater privacy. According to a New York Times article, business leader Li Shufu stated, “There’s no privacy and information security these days… Pony Ma [founder of Tencent] must be reading our WeChat messages every day.”  The frustration is certainly understandable. Surveillance has encroached on consumers further and further as new technologies such as facial recognition have developed. The Chinese government also continues to tighten its stranglehold over citizen behavior. As discussed by a CNBC article, a credit score program titled “Sesame Credit” was released by Alibaba in early 2017, which rewards and punishes users for good and bad behavior, such as expediting loan approvals for paying a bill on time or restricting travel access for a traffic violation. As expected, the program has met heavy backlash, accused of being “Orwellian” in nature especially by Western observers. It is likely Chinese consumers are feeling more and more suffocated by recent developments in personal data collection. Mobile payments will only tighten the grip.

Users are also worried about the problem of data breaches. Chinese newspaper The Beijing Youth Daily conducted a survey in 2017 that found the leakage of personal data to be the number one concern among consumers. Emily Rauhala argues in a Washington Post article that QQ Browser, an online browser run by Alibaba and fellow tech-giant Baidu, tracks a disconcertingly large amount of consumer data yet stores them using unsafe techniques that leaves the data susceptible to attacks. According to the New York Times, increasing cases of internet fraud have inspired politicians to advocate for tightened data security. The consequences of a leak are compounded by the sensitive types of information mobile payments have allowed Alibaba and Tencent to collect. Whether it be payment histories or checking account information, mobile payments have allowed both companies to develop user financial profiles that could devastate millions if inadvertently exposed.

Mobile payments are about consumers and their effect on Chinese consumerism has been transformative. First, mobile payments have opened up the playing field and introduced more competitive firms into the mix. As a 2017 study and survey conducted by the Hong Kong Trade Development Council (HKTDC) notes, mobile payments make online payments easier and faster. Mobile payments also have a variety of functions such as advertised discounts and comparative pricing. These functions have allowed a number of competing businesses, Chinese and foreign, to enter the fray, opening up more purchasing options for consumers.

The convenience online shopping and mobile payments has changed consumption patterns as well. For one, the variety of options allows consumers to tailor their own unique purchases. In fashion, it has become a trend in China for shoppers to look towards less well-known, and usually foreign, brands to create their own individualized style, which results from the introduction of more firms through the popularization of online shopping. This phenomenon is referenced in China as “haitao”. In the same study by the HKTDC, survey responses included, “I would spend a lot of efforts finding clothes via haitao; their prices are better and (my) hope is they are unique,” and “I would look for some foreign designer brands. Once (I) have found (brands) that suit my style, (I) would keep on buying.” Mobile payments have made online shopping easier and more accessible than ever, and its effect on the consumer landscape is tangible and lends itself to some exciting prospects.

However, by using the apps WeChat and Alibaba to access their online shopping and mobile payments, users expose themselves to the advertisements posted by the apps that generate so much revenue, which has led to frivolous spending. In a separate study also conducted by the HKTDC, up to 85% of respondents admitted to participating in promotional ‘gimmicks’ such as buying unrelated goods outside of their planned purchases to receive coupons. 35% admitted they are often attracted to “guess what you like” advertisements, advertisements derived from looking at user histories and “guessing” their preferred areas of purchase. Even social media can incentivize impulse buys. 53% of respondents agreed that when their friends share a product with them through social platforms such as WeChat Messages, they feel pressured to buy them. When using mobile payments, users are met by a barrage of external pressures in the apps themselves, which can then lead spending on things the user doesn’t actually need. As mentioned earlier, private debt is a big problem for Chinese citizens and it doesn’t look like mobile payments are going to help much.

There is no question that mobile payments are going to persist in China, where they will probably remain for quite some time. Their use by the Chinese people has become incredibly widespread, and this widespread usage engenders some significant implications, both in the present and the future. What is certain is that mobile payments have shaped China’s landscape in more ways than one and the growth of the sector has only just started.