China is living in the cashless future. Up until three years ago, cash was king, but since the release of Tencent’s WeChat Pay and Alibaba affiliate Ant Financial’s Alipay, Chinese consumers have quickly adopted mobile payment technology. In mainland China, whether you’re grabbing a snack from a closet-sized corner store, visiting a Buddhist temple, or buying clothes at a shopping mall, you’re likely to see the little black and white square QR code that lets you pay with your phone.
China is leading the world in mobile payments. According to iResearch, the country saw USD$9 trillion in mobile payments volume in 2016 alone. Alipay leads the market with 54% share, and WeChat Pay follows with 40% share. The use of cash has decreased 10% over the past two years. Alipay humorously noted that fewer users are shopping for wallets than ever before on e-commerce platform Alibaba.
But the mobile payment heyday may be facing a regulatory crackdown in 2018. On Dec. 30, the People’s Bank of China raised the reserves of mobile payment funds that it puts in escrow from 20% to 50% so that it can better track how the funds are being used. Tencent and Ant Financial currently rack in millions of yuan in interest fees from the money consumers leave in their accounts, a figure that will diminish considerably with the new measure. The two digital payment giants reportedly park USD$75 billion of consumers’ funds in commercial banks or other financial accounts with higher interest rates than the centralized bank, allowing them to rake in gains.
The People’s Bank of China also introduced caps on the number of funds users may spend via mobile payment each month. The measure was passed in late December, and limits payments to three transaction limit tiers set at 500 yuan ($77), 1000 yuan($154) or 5,000 yuan($769). Although an Ant Financial spokesperson said in an emailed statement that the company fully supported the measure, it’s undoubtedly bad news for both tech giants, which use promotional incentives to encourage mobile purchases.