On the Brink of a Cashless Society?
By Irene Zeng, Director, Head of Sales – Global Banking Corporates, Greater China Global Liquidity and Cash Management, Asia-Pacific
The environment in Hangzhou, China today is similar to many other cities around the world: building sites become shiny new shops, offices and apartments; new infrastructure moves people faster than ever, and a vibrant community of people work, study and spend their leisure time. But in one important respect, Hangzhou is quite different.
A blueprint for China and beyond
In addition to being the home of Chinese technology giant Alibaba and payment service provider Alipay, Hangzhou is a virtually cashless city. Almost everything including utilities, taxis, public transport and retail, services can be paid via smartphone. Naturally, many of Hangzhou’s citizens experience quite a culture shock when they visit other cities and have to pay by cash or card. However, the expectation is that paying with mobile will become more the norm in other Chinese cities. How will this rapid and profound shift in the way that people and businesses pay for goods and services affect corporate treasurers?
Although the pace of change can be quicker in some markets, the migration away from cash collections has been well-received by most businesses, not only within China but also globally. Electronic collections are now cheaper, more secure and notably accompanied by richer data. This can all be harnessed to offer intelligence and insight into customers and their behaviours to target marketing campaigns, design incentive programmes and formulate strategies. As regional and global corporations gain experience and recognise the value of electronic collections in one city or country, they are able to transfer this experience to their operations elsewhere, which further accelerates adoption.
Fig 1 - Benefits of migration to electronic collection
Catalysts of change
In many respects, the shift towards electronic payments and collections is neither new nor surprising. Consumers and businesses have a wide range of electronic payment and collection methods available to them, including cards, direct debits, ACH and wire payments, as well as, in a growing number of markets, instant and mobile payments. However, there are three closely-linked trends that are now driving cashless societies at an unprecedented rate:
First is the ubiquity of smartphones. Over half of China’s population accesses the internet through a smartphone , five times the number of the United States. The growth in smartphone usage is a global trend: China is the 26th country globally ranked by percentage of smartphone penetration, with countries or areas such as the Netherlands, Taiwan, Hong Kong, Norway and Ireland all seeing penetration rates above 90% , illustrating the scale of change and opportunity.
Related to this is the use of social media, such as WeChat, which in China offers integrated payment capabilities through WeChat Pay – another trend that is taking shape globally. For example, in March 2018, WeChat’s owner Tencent announced that WeChat had one billion active users. They spend around a third of their total smartphone time on WeChat, equivalent to around two hours a day.
Another closely related trend is the level of adoption, and speed of growth in e-commerce. China represents nearly half of the world’s e-commerce  which accounted for more than 23% of retail sales in 2017, of which 75% – over $1tr - will be transacted via smartphone. This figure is expected to increase to 40.8% by 2021 .
These phenomena are not only relevant to corporations that have local operations in China; other markets, such as India, Hong Kong and Singapore are also experiencing similar trends. What is different, however, is the drivers of change in each market. In China, for example, the trend towards a cashless society is being driven by market forces; however, in countries like India the digitisation of payments is the result of government or central bank initiatives. For example, the Indian government was keen to use demonetisation as a way to increase transparency in the economy and encourage financial inclusion. One important illustration of this has been the government’s support for the Immediate Payment Service (IMPS), an instant, interbank electronic funds transfer platform.
1 51.7 percent, Newzoo's Global Mobile Market Report, April 2017
2 Zenith’s Mobile Advertising Forecasts 2017
3 eMarketer, 2017
4 eMarketer, 2017