How China learnt to love digital payments

Whereas most Western countries have spent the past few years familiarising themselves with QR codes, mobile payments and embedded finance – especially during all the disruption of the pandemic – China has been quietly consolidating its massive lead, completing the push which has taken digital payments from the coastal megacities out into the regions. 

However, it’s also a development which has left China’s payments almost entirely in the hands of two giants: Alibaba and Tencent. 

So, what does this all mean for users of digital payments in China? And what lessons are there for Western payments providers hoping to emulate that kind of dominance? 

China’s payments revolution has reached a key milestone over the past couple of years: the number of users of online payments systems has now exceeded China’s share of economically active citizens. 

This means that the use of online payments is now so widespread and so firmly embedded in daily life that even those with no active source of income – the under-18s, the unemployed and the elderly, for instance – are now also using these systems as part of any transactions they do carry out.

Another key measure of how firmly embedded online payments have come to be in Chinese life is the frequency with which they are used. One-eighth of the Chinese population reports making online transactions seven or more times per day, and even at the lower end of the usage spectrum, more than half report making at least one online transaction per day.

So, where are these transactions being made? Well, a fairly familiar mix of online and in-store shopping is undoubtedly involved, but it’s also worth noting the proportion of the population using online payments as part of their interactions with utilities and the state. It’s this kind of broad-based approach to adoption which has enabled online payments to catch on so widely. 

Another important factor driving the adoption of online payments in China is the widespread availability and usage of mobile internet, including 5G, mainly via smartphones.

Having made some impressive progress over the past few years, China is now rapidly approaching 80% of the population having access to the internet on the go, enabling online payments to be made whenever and wherever suits them.

However, perhaps the most dramatic single factor driving the adoption of online payments in China is convenience. After all, two of China’s biggest names in ecommerce, messaging and social media – Alibaba and Tencent – are fully bought-in to payments, having embedded payments options within their existing apps. Usage has naturally flowed from these additions, handing the two giant corporations a neat duopoly over online payments in China. 

So, what lessons can Western companies take from this?

Fundamentally, for online payments to catch on, convenience, practical access and clear use-cases will all be required. It’s a formula Elon Musk would do well to remember, for instance, as he sets about trying to embed payments into Twitter and create what he’s calling “X, the everything app”. It’s also, as it happens, a reasonable model for any big-tech venture.