All it took was a trip to the coffee shop on a recent visit to Shanghai to see how far ahead China’s mobile payment services have become, especially when compared to the West. When I arrived at a downtown Starbucks, I found myself at the end of a long line of customers, assuming I’d have a long wait for my coffee. But the line moved swiftly as customers ahead of me whipped out their smartphones to pay with WeChat Pay.
The line stalled when I reached the cashier I pulled out a 100 RMB note to pay. The cashier, clearly annoyed, held the note up to examine it and check it for authenticity while customers behind me scowled for slowing things down by using cash. Why would anyone use cash in China in 2017?, their annoyed looks seemed to imply.
The point was driven home when, just a few blocks away, I encountered another coffee shop, serving gourmet coffee. I’ll get my coffee here the next time, I thought to myself. But my hopes were dashed when I saw a sign clearly warning off dinosaurs like myself. “Scan code – no cash acceptable,” a sign at the window read. Without an active Alipay or WeChat Pay account at the time, I was simply out of luck. With only cash in my wallet, I was no longer welcome in many stores in China.
Why would anyone use cash in China in 2017?
With more than 30 percent of China now using Internet payment systems, the country has come a long way since when I first joined Alibaba in 2000. At that time, I was living in Shanghai and had to pay my rent the old fashioned way – by waiting at a bank in rows of chairs for as long as an hour in order to deposit the money into my landlord’s account. But the e-commerce revolution that Alibaba helped create has now led to what for many has become a cashless society. Ask a young person in China’s cities if they use cash, and a growing number of them will tell you that the majority of their payments are made online. No wonder that mobile payments in China were more than fifty times that of the US in 2016.
But the reason to pay attention to China’s fintech sector is not because of the 5.5 trillion - yes trillion – dollars in online payments made last year in China. It is for what this huge amount portends.
The real opportunity lies beyond the initial fintech frontier of online payments. The most exciting opportunities, and greatest potential pitfalls, lie in the financial sectors that are just beginning to get disrupted by China’s tech leaders. From wealth management to banking to insurance, China’s fintech revolution is happening at a breakneck pace, filling the vacuum left by China’s creaky state-backed banks and financial institutions.
To understand the financial industry of the last 20 years, study the West. To understand the financial industry of the next 20 years, look at China. As it is in China where the real financial innovation will be taking place and the country offers a fascinating window to the future of finance.
Porter Erisman is the former Alibaba Vice President and author of Alibaba's World. He will be presenting at the upcoming FundForum International in Berlin on the topic of Asian innovation in financial services.
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