Abstract
This study aims to analyse and clarify why mobile payments have been adopted in China at such a rapid pace. Unlike previous studies which focused on mobile payment functionality and the micro-level reasons for adoption, this study emphasized the macro-level and meso-level reasons with an emphasis on social relationships or guanxi to explain the widespread and rapid adoption in China of mobile payment. Initially mobile payment was widely dispersed by leveraging the trust existing in strong relationship ties (e.g. mobile ‘red packets’). In the second phase of mass adoption there was a shift toward relying on economic exchanges in the context of weak urban ties. Now in the third phase mobile payment seeks to abandon social relations altogether relying on technologies for direct human-to-machine interactions. The three successive phases show how the strong interactions between financial regulatory policy and mobile payment development have affected social relationships.
Introduction
This study investigates why and how mobile payment has spread so widely in China and how this has contributed to the alteration of the Chinese society and in particular the modes of social relationships in the country. Mobile payment refers to payment services operated from or via a mobile device under national or local financial regulation. Instead of paying with banknotes, checks or physical credit cards, today a consumer can use a mobile device (e.g. mobile wallet application) to pay for a wide range of physical or digital goods and services. A mobile wallet is linked to a debit or credit card, or it is topped up with cash. Our interest in further investigating mobile payments was inspired by a previous paper by Fortunati (2006), which found that historically, mobile payment method (in particular the prepaid system) has been a variable influencing the diffusion and adoption of mobile phones in the second half of the 1990s. We assumed that mobile payment is thus a variable important to be studied in a sociological perspective. Building on Fortunati (2006), we argue that in a situation where mobile phones are spread among almost the entire population and have shown the ability to facilitate a fundamental shift from e-commerce to mobile commerce, this variable today plays an even more crucial role than in the past in affecting social and financial inclusion and in influencing market expansion (Kalba, 2008).
Our interest was further heightened by the rich anthropological literature that has grown in the last two decades around the Institute for Money, Technology, and Financial Inclusion, founded by Maurer in 2008. However, the discourse of Maurer et al. (2013) on mobile money develops in the context of ‘developing world’, in which the mobile phone has become a means of transferring and storing value. In that context, mobile money was seen as having the potential to support financial inclusion and a key problem was thus to study mediators, intermediators and money agents who intervened in the context.
The context in which this paper moves is very different. We chose China as the country to scrutinize. China can be considered as a newly industrialized country, with a relevant technological infrastructure and innovation capacity, characterized by a capitalist system that relies heavily on information. The concept of information capitalism (Ignatow, 2012) is able to capture well the current structure of capitalism in China (Lu, 2021). This concept merges notions such as post-industrial society (Touraine, 1971), knowledge society (Drucker, 1992 [1969]), information society (Webster, 2002) and network society (Castells, 2000), and stresses the increasing importance of information in the strengthening of the process of globalization and rapid technological development. This article adopts a more sociological approach, exploring how people make use of mobile phones for this specific and crucial function (i.e. making payments) can help us understand multiple social phenomena and cultural values connected to this practice. The theme of the dematerialization of money, for example, comes to the fore, along with the changes in China’s financial structure and regulatory policy, given the progressively expanding financial flows from mobile applications and tech firms (e.g. Tencent and Alibaba).
Our theoretical framework is based on Bourdieu’s (1977) theory of social practice. Bourdieu (1977, p. 3) described his ‘theory of practice’ as ‘a science of dialectical relations between objective structures […] and the subjective dispositions within which these structures are actualized, and which tend to reproduce them’. In outlining this theory, he proposed three major conceptual categories – habitus, field, and capital – but he gave particular prominence to the role of individual and social agency. According to Bourdieu, agency, conceptualized in terms of struggles and strategies, plays a fundamental role since individuals, families and social groups are seen by him as social subjects involved in the manipulation of their position in various social fields. Our hypothesis is that in Chinese society guanxi (social relations) with all the implications of individual and social practice that it presupposes, has played an important role in the diffusion and adoption of mobile payments. Specifically, our research questions are as follows: (a) Why has the mobile phone become the new locus of payment? (b) What is the structure of mobile payment in China at the diachronic and policy level? (c) What are the socioeconomic reasons behind the more rapid development of mobile payments in China compared with, for example, that in the US? (d) How did the change of mobile payment methods affect the Chinese society as well as the modes of social relationships and vice versa?
The rest of this article is organized in five sections. In the next section, we focus on the mobile phone as the new locus of payment. Then, we outline the structure, evolution and policies of mobile payments. After that, we reconstruct the socioeconomic premises for the development of mobile payments in China, keeping as a point of reference the US. We chose the US as a point of reference because it is often used as a representation of the most advanced and strongest economic and financial system. We thus show the socioeconomic reasons for the rapid development of mobile payments in China, as well as the interaction between the regulatory regime and mobile payment development. In the next section, we outline how social relationships have been shaped by this development. The last section discusses and concludes the paper.
Mobile Phone as a New Locus of Payment
Historically, the question of money has been explored by a certain number of classics from Marx (1857–58) to Mauss (1990 [1925]), from Weber (1978 [1925]) to Simmel (1900), and in several directions. Here we draw on Marx (1857–58, 1867) and Simmel (1900), who both reflected on money's equivalence with work time. Later, the question of money was revisited by McLuhan (1964), who argued that the information society had upended the equivalence between time and labour. He suggested that labour in the form of its money equivalent was being progressively substituted by the pure movement of information. Money, as the traditional storehouse of labour, merged with the informational forms of debit and credit cards. The movement from metal coins to banknotes to credit cards is the continuous evolution of commercial exchange as information movement (McLuhan, 1964).
Building on McLuhan's analysis, we argue that, more recently, the mobile phone has further upended the concept of money. Prepaid SIM cards can be said to support McLuhan's theory, showing that money is no longer measured in terms of labour time but of mobile communication time. Prepaid cards signal a re-shifting from labour time's equivalence with money to phone communication time's equivalence with money (Fortunati, 2006). Yet, this equivalence between mobile communication and money now operates on a more sophisticated and integrated level. The mobile phone, through prepaid cards (or stored value), can now be used to pay for goods and services. It was in 2002 that several telecoms (e.g. Vodafone) first attempted a global payment system by which their clients could use mobile phones to pay for goods and services. In this context, the mobile phone began to transform itself into an electronic purse. This idea goes back to Flügel’s (1930) analysis of the small objects people carry with them in everyday life (e.g. purses, keys, glasses and handkerchiefs). The mobile phone can be considered the most recent of such objects. If, as Flügel (1930) argued, such objects always create a problem for the fashion system since it is impossible to find a stable and inclusive solution for all of them, the mobile phone can be viewed as worsening the problem. In the 1990s, telecoms, especially Telenor, thus began to think about how they could merge at least two small objects, and the solution of merging the mobile phone and the purse was identified. This solution was progressively operationalized into the digital wallet (Ling & Donner, 2009).
Since then, many operators have promoted mobile banking to form crucial future alliances. At the beginning, the mobile phone made it possible to make small payments based on the value stored in a chip inside the phone. The diffusion of smartphones, which was based on 3G and 4G networks, has enabled a shift in mobile payments, given that smartphones could navigate and transmit high-speed data around the world, providing unprecedented global connections (Agar, 2003). At least three typologies of services have been developed so far:
Mobile Remote Payment, which allows for the payment of goods or services through the use of a mobile phone. People can use it in various ways: by sending an SMS, through a pre-recorded call that allows the user to browse a list of services (an IVR call), through USSD codes or via web browsing or applications. Mobile Money Transfer, which is used for person-to-person cash exchanges (p2p) without an exchange of goods or services. This service is often used by people living abroad to send money home (although in this case, it would be necessary to distinguish between mobile money transfer and mobile remittance). This can be done using remote devices that enable the use of SMS or applications or through short-range-proximity technologies. Mobile Proximity Payment, which is the most recent type of mobile payment. It includes all electronic payments that require proximity. It uses technologies such as NFC, Bluetooth and QR code.
Given these premises, it will be interesting to consider whether the mobile phone will ultimately replace the wallet, positioning itself as an all-encompassing tool for payment. In developing countries, this has already been a reality for more than a decade (Aminuzzaman, 2002, 2005; Donner, 2005, 2007) in some ways. By contrast, mobile payment has never really caught on in the developed world. According to the last Nielsen report released on this topic (Nielsen, 2016), there are two main reasons why mobile payments are not used in older industrialized countries. The first is security concerns: for example, 46% of European consumers and 53% of consumers worldwide did not want to adopt mobile payment for this reason. The second reason relates to a general perception among consumers that they did not have a need for mobile payments or banking, as indicated by 29% and 28% of respondents at the European and global levels, respectively. Internationally, many consumers with mobile devices still preferred to pay through physical channels (25% in Europe and 31% globally). This suggests that mobile payment would have a good possibility of diffusion if more promotions are made to show the efficiency of mobile payment methods (Nielsen, 2020). The dematerialization of money has thus proceeded with a certain slowness compared to the general dematerialization of information caused by digitization processes at the social level.
According to Hart (2000, p. 323), money enables people to monitor ‘complex social networks’. Although the mobile phone as a payment tool contains many elements of ‘monetary democracy’, its full realization would require a system of bidirectional payment that includes return monetary flow – that is, the ability to not only pay but also receive payments. Over the last 20 years, however, telecoms have not been attracted to this system since it is not very rewarding financially. Yet, a system where telecoms could profit from commissions on both payments and deposits – a system that could have considerable potential for expansion – could feasibly be of interest to them. In China, such potential has been realized by Alibaba and Tencent, which are the most popular developers for mobile payments in China. From the comparative perspective of dematerialization of money in the US and in China, this paper discusses the interaction among social relationships, information and money.
Structure, Evolution and Policies of Mobile Payments in China
Mobile payment refers to electronic payment transactions conducted with mobile devices or better, as Maurer (2012, p. 7) points out, to ‘the act and the infrastructure of the value transfer’. Mobile payment connects the Internet, mobile devices and financial institutions to create a new type of payment ecosystem. It can be used to not only procure goods and services but also pay for utilities such as gas, water, electricity and phone bills. Mobile payment provides a new way to pay and has popularized electronic currencies.
Three main forms of payment have emerged in the China's payment service development: UnionPay, online payment by banking institutions and online payment by non-banking institutions. Third-party mobile payment (online payment provided by non-banking institutions) is a new payment mechanism that differs from the first two in that agencies can transact directly without passing through the bank system. Since this form of payment relies on third-party apps installed on mobile devices, it is a form of mobile payment. Two decades ago, China was basically a cash economy. To give the sense of the complex framework in which mobile payments have developed, we summarize in Table 1 information regarding the main service providers in China, such as Telecom Carriers, Financial Organizations and Third-Party Payment Platforms, their products and advantages as well as disadvantages. From the perspective of market structure, AliPay and WeChat Pay have formed a duopoly in China. 1
Classification of mobile payment service providers in China.
In 1999, China's mobile payment pioneer, China Mobile, partnered with financial institutions, including the Industrial and Commercial Bank of China (ICBC) and the China Merchants Bank (CMB), to pilot mobile payment services in Guangdong Province. This was China's first attempt at mobile payment. In the same year, e-commerce also first appeared with the launch of e-commerce marketplaces, such as 8848 and Alibaba. In 2002, China Mobile tested small-sum mobile payments in Guangzhou, and banks started to partner with mobile phone companies for mobile payments. However, due to a low level of smartphone adoption as well as complicated operating procedures and a lack of confidence in e-commerce, these attempts were not further promoted, and overall mobile payment development was initially slow (Lian et al., 2017).
In 2003, Alibaba developed Alipay to solve the issue of trust that hindered the growth of e-commerce. When it was first launched, the primary feature of Alipay was escrow payment. By taking money from buyers and holding it until the orders were fulfilled by sellers to the satisfaction of buyers, Alipay solved the issue of sellers not getting paid and buyers not getting products. This seemingly simple feature was the critical reason for Alibaba's and Alipay's later success, as well as for the national diffusion of first e-commerce and then m-commerce. With advancements in infrastructure and technology, there have been continuous breakthroughs and developments in mobile payment in China. In 2006, third-party online payment began to assume a mobile form as users started to access the Internet through mobile devices in addition to traditional computers. This initiated a new chapter in the development of Internet finance. In 2008, five years after it was launched, Alipay had acquired 100 million users, or 40% of all national Internet users. This number was even higher than the number of users (80 million) during that period in the marketplace (Taobao) that Alipay had created to serve originally. Alipay's transaction value reached 130 billion RMB in 2008. During that time, mobile Internet was not as widely used, with only 118 million people having access. At the same time, Internet payment, mobile phone payment, NFC payment and SMS payment were all available in the market.
Responding to these new business models and security risks, the financial regulatory authorities, represented by the People's Bank of China (PBOC), have issued a series of policies related to industry standards, pilot schemes, operation risk management and financial services. The key milestones are summarized in Table 2.
Key milestones in government policies in response to mobile payment development.
From the table above, it can be seen that at the beginning of the development of mobile payment, the loose policy environment gave this industry great room for growth. From 2011 to 2016, the policy made use of mobile payment more as a supplement to traditional financial institutions. The regulations did not provide many rigid restrictions, and showed greater tolerance for financial supervision, which is a great advantage for China's mobile payment system, as there was room for experimentation and development. During this period, the government perceived the rapid expansion of Alipay and WeChat Pay as ‘financial innovation’, which aligned with the overall national strategic direction. The formulation of relevant industry standards and the construction of infrastructure were also conducive to the growth of these two giants. After 2016, the policy's supervision on clearing institutions, financial institutions, payment institutions and acquisition of outsourcing institutions had been further tightened, and all online payments had gradually been included in the regulatory system. This move lowered the systemic risks within the financial industry and also facilitated the development of a digital credit society. Under this circumstance, market chaos gradually eased, and under standardized regulation, the growth of the mobile payment sector has slowed, but in the long run, it has developed stronger service capabilities by adhering to the policy red line. Market-oriented institutions (such as Alipay and WeChat Pay) could further consolidate their existing advantages under strict standards, which is also conducive to the transformation and upgrading of the entire mobile payment industry.
Having benefited from the popularization of mobile Internet and favourable government policies, mobile payment has grown rapidly. In the first half of 2013, there was a liquidity crunch in China's financial sector (the so-called ‘money shortage’) and the subsequent rise in the interest rate. During that time, ‘Yu Ebao’, which provide users with the opportunity to invests mainly in money market funds, was launched and greatly boosted the growth and activity of Alipay users with its convenience and high yield. From 2013 to 2019, the amount of mobile payment (value) grew 34 times – from less than 10 trillion in 2013 to 347.11 trillion in 2019 – and the growth rate peaked in 2015 at 379%. The average growth rate during that period was a stunning 138%. 2 Alipay's strategy shift to mobile in 2013 and WeChat's red packet marketing campaign in 2014 both played critical roles in this process (Figure 1).
Mobile payment development (mobile payment amount, absolute numbers; growth rate, percentages) in China from 2013 to 2019. Source: People’s Bank of China (2012–2019).
Before the launch of WeChat, Tencent (the company that launched WeChat) had a successful instant messaging product, QQ, and also a third-party payment platform, Tenpay. Before the smartphone era, QQ was used on desktops and laptops, and Tenpay was used as a payment portal for Tencent's insignificant ecommerce business as well as for payments in Tencent's gaming business. The market share of Tenpay was far behind that of Alipay. The situation did not improve even after the launch of WeChat (which, unlike QQ or other previous instant messengers, was revolutionary in part by being purely mobile) by Tencent in 2011, which soon practically became the national instant messaging app. According to iResearch, in 2014, the market share of Alipay was 82%, while Tenpay's was only 11% (iResearch, 2017). After more than a decade of rapid development, mobile payment in China has spread to all aspects of economic and social life. By 2020, China had generated 123.22 billion mobile payment transactions, amounting to 432.16 trillion RMB. China's mobile payment penetration in 2018 reached 86% and was ranked first in the world. In the US, meanwhile, mobile payment apps had adoption rates of less than 10% (Pricewaterhouse Coopers, 2019; Rooney, 2019).
How and Why Has China Implemented Mobile Payment More Than the US?
As we explained before, we chose as a point of reference the US in the hope of shedding more light on China's apparently inexplicable leap forward regarding the topic of mobile payment.
In 2016, China's mobile payment market reached 22.8 trillion USD, compared to 112 billion USD in the US (Finance Finland, 2018). According to these figures, China's mobile payment market was 204 times that of the US and was the largest in the world. China clearly has the fastest-growing mobile payment system in the world.
The lag in the US in mobile payment development is probably due to the payment-method inertia produced by the spread of credit cards. Since the 1950s, the credit card system in the US has become increasingly sophisticated, giving rise to the two largest credit card organizations in the world: Visa and Mastercard. As the credit card market has matured in the US, people have long cultivated the habit of using credit cards for payments.
Although the mobile payment industry started early in the US, consumers' behaviours and habits have changed slowly, since the credit card system was already well established. Currently, the US mobile payment market is more receptive to long-distance mobile payment than proximity payment applications, as people probably think the latter is safer when transacted with a credit card. Traditional payment companies prefer the status quo, merchants do not want to invest in new payment infrastructures, and consumers rely strongly on credit cards and cash. Comparing mobile payment in US and China, Zhang et al. (2018) found cross-cultural differences: American users turned out to be more rational and risk-averse, while Chinese users were more affected by social influence. In the US, mobile payments have no clear and general added value compared to paying online or offline with a credit card. American consumers are thus more willing to revert to traditional methods of banking than to try new technologies. While low awareness and knowledge of the potential benefits of mobile payments might be a factor explaining this behaviour, security is another important factor weakening the adoption of new technologies, especially when dealing with bank accounts (Shin et al., 2014).
The diffusion of credit cards in China is a different story. China's credit card industry has come a long way since the first domestic credit card was launched by the Bank of China in 1985 – the Great Wall Card. Compared to developed countries, however, China's credit card industry fell behind in terms of the number of cards issued, transaction value, service, technology and security. This slow development is attributable to regulatory policies as well as cultural values resistant to credit. China's state-owned commercial banks were very cautious about issuing credit cards in the early stages. However, banking reform progressed at the beginning of the new century when China joined the World Trade Organization (WTO), and financial opening up was accelerated. For example, under its WTO membership, China was required to implement reforms by 11 December 2006, which included the removal of all of the geographic and customer restrictions on renminbi (RMB) businesses and the elimination of restrictions on the ownership, operation and operational form of foreign-invested banks. Although some restrictions were removed, foreign banks still faced problems establishing branches in China, including onerous representative office requirements; branch-level capital reserve, liquidity and deposit requirements; foreign exchange deposit/exchange asset ratio limitations; and lengthy branch application procedures (Howson & Ross, 2003). In 2011, the China Banking Regulatory Commission issued the ‘Measures for the Supervision and Management of Credit Card Business of Commercial Banks’, which emphasized ‘the supervision of credit cards, strict review, and discouraging credit card issuance’ (China Banking Regulatory Commission, 2011). In addition to policy factors, the lack of credit culture and credit use scenarios can explain why credit cards did not flourish. First, while credit cards are essentially credit products, commercial banks had difficulty granting credit to users. Similar to other developing countries, China had a large population working in the informal sector. They had no credit history data and were excluded from the central bank's credit reporting system (Chorzempa, 2018). Second, influenced by a culture of ‘diligence and thrift’, Chinese consumers had been more accustomed to saving than to using credit. Spending according to one's income was an ideology that was prevalent in China, and people tended to pay in full (in cash), even for ‘big ticket’ items, such as cars and houses (Worthington, 2005). Revolving credit use and petty instalment use were closely related to attitudes about credit cards, money and debt. Risk attitude has been found to efficiently predict petty instalment use (Wang et al., 2011). In addition, there were fewer use cases for credit cards, and higher costs were required to install a credit card terminal POS machine. In 2009, POS penetration in the US (86,258 per 100,000 adults) was much greater than in China (229 per 100,000 adults). 3
Compared to the US, credit card penetration continues to be low in China, although debit card penetration is actually much higher (Figure 2). In 2019, Chinese people held an average of 5.50 debit cards but only 0.53 credit cards. With a credit card, consumers can use the card number and card validation code (CVC) and other simple information to easily complete online payments. However, in China, the anti-money laundering system and credit foundation were not well established, and the use of debit cards for online payments required complex passwords and an additional U-Disk, a physical network security device provided by banks. By contrast, since 2010, it has been much simpler to pay via third-party payment gateways. These first became popular with the rise of e-commerce (especially Taobao), where payment gateways (Alipay for Taobao) provided a user-friendly and convenient connector for people with different debit and credit cards to pay online merchants using relatively simple passwords and SMS verification codes for small-sum transactions. Since then, third-party payment gateways have gradually replaced debit and credit cards as the preferred means of payment.
Number of debit and credit cards (average number) held per person worldwide in 2019. Source: Bank for International Settlements, PBOC, 2021.
With the onset of the era of mobile Internet, third-party payment gateways continued to lead the market by going mobile. After 2011, it was increasingly common for payments to be conducted via WeChat Pay and AliPay, either by the consumer scanning a QR code provided by the merchant or the merchant scanning a QR code in the consumer's app using a barcode scanner attached to the POS system. For many urban Chinese, smartphones have replaced their wallets, becoming de facto ‘digital wallets’.
How Did the Change of Mobile Payment Methods Affect Chinese Society and Vice Versa?
In this chapter, we will focus on the interrelation of regulatory, economic and social factors to illustrate how the development of mobile payments has affected Chinese society and how the peculiar structure of Chinese society has in turn shaped this development. In the last 10 years, the rapid development of mobile payment (a critical component of the entire Internet finance infrastructure) has attracted attention from researchers around the world, but existing studies have focused mainly on descriptive or micro-level analysis. Previous research on mobile payment adoption has especially focused on functionality. Chen (2008) found that perceived usefulness, perceived ease of use, perceived risk and compatibility were antecedent factors influencing mobile payment use. A study in Portugal found that compatibility, perceived technology security, performance expectation, innovativeness and social influence had significant direct and indirect effects on mobile payment adoption and recommendation; moreover, performance expectancy, trust in mobile payment and mobile data cost (which had a relatively larger effect) were found to affect continued use (Oliveira et al., 2016). A more recent survey of Chinese retail workers found that decreased transaction costs and increased work efficiency had a strong positive influence on retailers' adoption of mobile payment; whether or not consumers adopted mobile payments ranked second in terms of the influence on retailers' adoption (Zhang & Sun, 2018). In summary, to the extent that social factors have been considered in existing research on mobile payment adoption, the main focus has been on peer pressure and personal connections while the effects of social practices have not been sufficiently explored.
In China, as we have seen in the previous section, traditional cultural habits and national financial policies play important roles in payment practices. We argue, therefore, that social practices are key factors in explaining the development of mobile payment, at least during the first two phases. In the first phase, the practice of sending and receiving red packets gave a big push to mobile payments. Historically, the social practice to exchange red packets has always been widespread in China. Red packets with monetary gifts were given during traditional holidays or special occasions, such as weddings, graduations, and the birth of a child in Chinese and Asian societies. Red, which is a lucky colour in traditional Chinese culture, is the colour for the envelop/packet that contains hundreds or thousands of RMB. For new families, students entering new school or cities, or newborns, the red packet represent both symbolic blessing as well as material financial support from relatives and friends. On 26 January 2014, Tenpay launched a red packet feature in WeChat Pay, its front-end product within WeChat. Using the chat function on a mobile app, users could send and receive red packets, performing this entrenched traditional practice. Tencent made WeChat red packets even more interesting by introducing an element of luck: when users sent red packets to a group, they could have the amount either evenly spread or randomly distributed. This element of uncertainty turned out to be addictive: corporate WeChat groups used red packets to liven up the atmosphere or establish connections, extended family WeChat groups used red packets to convey blessings from afar during the holidays, and some newly established (regarding as weak ties) WeChat groups used red packets to spark discussions or start ice-breaking games. Therefore, red packets quickly proliferated throughout WeChat groups. More than five million WeChat users (out of a total of 396 million) participated in sending and receiving red packets within the first two days after the launch, with a total of 16 million red packets sent. After this initial success in 2014, WeChat Pay partnered with China Central Television (CCTV) for the 2015 Spring Festival, driving penetration even further.
Twenty million WeChat users joined the red packet campaign on 18 February 2015 on the eve of the Chinese Spring Festival. On that day, they sent a total of 1.01 billion ‘pieces’ of electronic red packets through WeChat Pay (powered by Tenpay), 200 times more than during the same period of the 2014 Spring Festival (People’s Daily, 2015). Since people need to top up or withdraw from their WeChat Pay accounts to participate in these campaigns, the more people participated in sending and receiving digital red packets, the more debit cards were linked to WeChat Pay. After the Spring Festival of 2015, WeChat Pay acquired more than 100 million users. It took four years and 10 months for Alipay to reach the same user number.
In the first quarter of 2015, Alipay had a market share of 77%, while Tenpay had 14%, for a combined market share of 91%. As WeChat Pay grew, in the first quarter of 2017, Alipay's market share dropped to 54% while Tenpay rose to 40% (94% combined) (Analysys, 2017; Figure 3). In 2015, and especially in the first quarter of that year, both the transaction count and transaction amount of non-cash payments rose significantly (Payment & Clearing Association of China, 2019; Figure 4). This can be attributed to WeChat Pay's red packet campaign during the Spring Festival.
Market share (percentages) of Alipay and WeChat Pay in China's mobile payment market. Source: Analysys, 2014–2019.
Growth trend in the number and amount of non-cash transactions in China, 2008–2018 (percentages) (Payment & Clearing Association of China, 2019). 4s
WeChat Pay's red packets continued to grow rapidly in 2016 and 2017. With Alipay also launching a red packet function in 2016, the practice of giving digital red packets became well established in China. Since then, people not only have been sending electronic red packets during major festivals but also have been sending them in everyday life as a token of appreciation or for fun.
At the end of 2018, China had 1.75 billion mobile phone users (with some having more than one phone). The number of mobile broadband (3G and 4G) users grew from 580 million in 2014 to 1.31 billion at the end of 2018, an average growth rate of 22% per year. In July 2019, the Ministry of Industry and Information Technology reported that compared to five years prior, the average download speed of fixed and mobile Internet had increased six times, and Internet costs had decreased by more than 90%. Users consumed an average of 7.2 GB of mobile data per month, or 1.2 times the global average. These factors laid the infrastructural foundation for the increasing adoption of mobile payments in China (People’s Daily, 2019).
From a macro-perspective, in this first phase, mobile payment in China was popularized by social relationships, or guanxi – the networks of personal connections that the Chinese are bound to and that reproduce themselves through perpetual gift-giving processes. In traditional Chinese society, characterized by ‘particularism and hierarchy’, norms and laws had to reflect the hierarchical relationships between individuals; as such, there were no universal standards applied equally to all people (Fei, 1992/1947). Thus, guanxi is a key socio-cultural concept for understanding the social structure of Chinese society, since it is a fundamental strategy to operationalize and handle social relationships contrasting possible anomie resulting from a society that is so big. Simmel (1908) in the analysis of social structure introduced the intermediate concept of social circles, which include family relationships, relatives relationships, school and university relationships, friends, acquaintances connected to recreational, social and political activities and so on. Guanxi corresponds to the network of social relationships coming from the various social circles, which each individual in China builds. Even today, people continue to perceive their guanxi networks as the very foundation of the society they live in, rather than merely as instrumental webs of particular ties (Yan, 1996). Guanxi, embodied in the form of WeChat Pay red packets, is key to understanding China's rapid adoption of mobile payment.
To capture key changes in current Chinese society, we drew on Granovetter’s (1973) analysis, which divides relationships into ‘strong ties’ and ‘weak ties’ according to four criteria: time, emotional closeness, familiarity and reciprocal exchange. We could argue that in the massive process of urbanization, Chinese society has gradually transitioned from interactions dominated by ‘strong ties’ like those typical of rural villages to those dominated by ‘weak or absent ties’, more typical of the new urbanites, a vast majority of which are migrant workers. In this process, the further transformation from a ‘society of acquaintances’ to a ‘society of strangers’ is an important manifestation of China's social change that has also affected money. Meanwhile, in fact, money has also undergone adaptation and change along with the transformation of the social relationship structure.
The importance of and reliance on strong ties in the traditional society is an important factor in the continued existence and use of cash, as well as an entry point for the innovation and popularization of mobile payment in the present society. In the initial promotion of mobile payment, Alipay mainly focused on the gradual spread and construction of the ‘trust relationship’ between sellers and customers. Tencent, meanwhile, chose to focus on ‘strong ties’ (e.g. traditional ties among family and friends) by launching a ‘Red Packet War’ during the 2014 and 2015 Spring Festival, aiming to shift the custom of handing out red packets from offline to online. ‘Grabbing red packets’ and ‘issuing red packets’ are traditional, collective behaviours in China, and those who do not participate are often seen as isolated individuals. Therefore, through ‘strong ties’, Tencent led a large number of users to sign up for WeChat Pay. Since then, the use of digital red packets has become popularized, and many other third-party mobile payment apps have since adopted it as a marketing tool.
In addition to the many early adopters of mobile payment, the real breakthrough in mobile payment penetration came about in the second phase of mobile payment as a result of late adopters, many of whom were migrant workers. Li (1996) documented that migrant workers used their traditional social networks of kinship and local relationships to facilitate rural–urban mobility. Traditional currency, or physical cash, is not well suited for maintaining the strong ties that migrant workers leave behind, including regular economic interactions such as alimony to parents, education expenses for children and other money-related social obligations, such as sending money home for emergency. Mobile payment has helped to overcome the inconvenience and inefficiency of paper money in the contexts of internal migrations. This ease of use has fostered the rapid adoption of mobile payment by the migrant worker community. Furthermore, as a result of complex interpersonal relationships, one person's use of mobile payment often leads to its adoption by many acquaintances. Thus, the myriad strong ties and economic interactions seen in China during the phase of the rural–urban shift have given rise to the massive use and popularity of mobile payment. It is clear that mobile payment is more than just a tool: its adoption reflects the particular social characteristics of a particular society in a particular stage of its development.
While physical cash can still compete with mobile payment in the context of strong ties, because the maintenance of this type of relationships tends to require in-presence encounters: for example, when going to a ceremonial occasion such as the wedding of a friend or a relative, the Chinese still tend to use real red envelopes encapsulated in real money to express their blessings and joy. For weak ties, mobile payment has a clear advantage over physical payment, since they do not imply the same need of physical presence. In China's urbanization process, a large number of migrant workers have entered cities which they are not familiar with, while leaving behind strong ties represented by parents and children (including acquaintances from their hometown). For these migrant workers in the cities, as we already mentioned, physical money has a lot of limitations when it comes to maintaining relationships with ‘strong ties’ and carry out daily economic transactions with them, whereas mobile payment makes up for physical money's spatial and temporal latency. If physical money can still compete with mobile payment in terms of maintaining relationship in strong ties, in weak ties connection mobile payment shows a clear advantage over physical money, which is the core reason why mobile payment can continue to be integrated into people’s daily life after its popularization and will occupy the mainstream of payment for a long time in the future.
With China's urbanization rate approaching 60%, a large number of Chinese live in a society where they do not have meaningful social relationships, a ‘society of strangers’ where their frequent interactions are with couriers, delivery people, taxi drivers, co-workers, customers and so on. These interactions are typically characterized by profit motives, which is another key characteristic of the ‘society of strangers’. These transient relationships are usually accompanied by a large number of small monetary transactions. Since people are reluctant to have unnecessary verbal or physical contact with strangers, or to spend too much time maintaining relationships with them, mobile payment provides a good solution for serving these ‘weak’, or better, ‘absent ties’. In the case of migrant workers, they often enter the cities because of the huge economic disparities between urban and rural areas. Motivated largely by economic interests, it is often difficult for them to integrate into the urban environment. Therefore, the need arises for a way to quickly and easily deal with the economic interactions brought about by various ‘weak or absent ties’. The use of electronic money has become a consensual and shared decision between consumers and store owners. In short, in contemporary urban life, where ‘weak or absent ties’ can quickly emerge and disappear, traditional banknotes are often seen as ‘clumsy’ while mobile payment is coming to be viewed as indispensable ‘infrastructure’. The 290 million increase in the number of migrant workers in the past 40 years laid the foundation not only for accelerated urbanization but also for the transformation of social relationships as meditated by technology.
During 2016–2017, we arrived at the third phase of mobile payments, characterized by a shift toward human–machine communication. For example, in China's shopping malls, customers usually select merchandise and then show the QR code and wait for the salesperson to scan it. With the bio-authentication functions of newer smartphones, such as fingerprints and facial recognition, as well as staff-less convenience stores, mobile payment has become even more convenient, since it has further replaced cash and debit/credit cards in China's urban areas. In 2019, China's automated retail market valued at 26.2 billion yuan, surging from 1.7 billion yuan in 2014. The automated store is a new concept of retail, which requires no personnel and no cashier. Consumers could pay for their purchases via mobile applications (Ma, 2021). Automated retail is a combination of technology, capital, supply chain, etc. With the increasing investment in technology costs, retail related technologies will become more and more effective, which will accelerate the ‘unmanning’ of the entire retail industry. This eradicates any form of social ties, because it reduces embedded economic relationships to relationships only between people and merchandise or between people and machines. This last phase has further strengthened not only the dematerialization of social relationships but also the dematerialization of money in China. This is highly significant when we consider that until 40 years ago China was mainly a rural country.
At the beginning of the birth of mobile payment, China maintained a cautious and positive attitude, supported the development of this emerging technology and carried out overall financial security risk prevention and control, such as strengthening the construction of telecommunication infrastructure to create a favourable external environment for the development of mobile payment. Other facilitating measures include the cooperation between the industry and information technology department and the central bank, strengthening the prevention and control of policy risks of mobile payment, establishing and improving the relevant policies and regulations system for the development of mobile payment industry, etc., so as to guide and regulate the healthy and orderly development of China's mobile payment industry and meet the needs of market and industrial development. In this framework, the development of mobile payment has altered future financial policies and the role of China's banking system, and this begins to show tensions and contradictions among the dominant social actors in the related sectors. To complete our analysis, we need to illustrate and discuss the main features/steps of the three regulatory levels regarding mobile payments. Table 3 summarizes this transformation.
Macro-, meso-, and micro-level regulations in relation to mobile payment.
Table 3 documents, first, the consistent regulatory effort, in the form of infrastructure or policy, entrenched by the Chinese government to create the legal framework at macro, meso and micro levels to accompany the development of mobile payment. Through the construction of communication infrastructure, market access system, information protection system and other supporting systems, the government not only ensured the normal operation and continued upgrade of the national financial system, but also enhanced the safety of the industry as well as the corporate entities within, and therefore provided trust and system guarantee at the national level for the more rapid flow of mobile payment funds and the reform of social relations. However, behind the booming development of mobile payment and the convenience it brings to users, there are rising security risks and gaps in the policy supervision of mobile payments, such as user privacy data leakage, online fraud and money laundering, inconsistent mobile payment standards and corporate misappropriation of consumer prepayment funds. Regulators may face difficulties in implementation and non-compliance risk in reality. This will probably lead to the problem of unclear and disorderly development of the industry in the near future. Initially, China's legislation also had shortcomings such as unclear regulatory bodies and inadequate legal provisions. If the industry is to remain healthy and grow rapidly, it needs a policy that constantly follows up on regulation but at the same time encourages its development.
Discussion and Conclusion
Let us recall our initial research questions to guide this final discussion. Our first research question was: ‘Why has the mobile phone become the new locus of payment?’ Our analysis shows that this device has become the locus of payment because as one of the closest instant communication devices to the human body, cell phones have become an important tool for the unfolding of relationships. Chinese people regard guanxi as the underlying logic of social institutions, and cell phones and the communication software on them are undoubtedly the most important way to weave and maintain relationships in daily life. Through bringing the traditional social practice of sending and receiving red packets online into the form of electronic red packets, WeChat Pay (and therefore WeChat) brought strong ties existing offline onto the mobile instant messaging app so that the relationships were recreated virtually and can be maintained more easily. This made mobile payments popular nationwide, thus making cell phones the most important payment tool in China. Coming to our second research question, ‘What is the structure, even at diachronic and policy level, of mobile payment in China’. Our discourse pointed out and documented that over the past decade the Chinese government has been proactive in developing infrastructure and supporting technological innovation in the financial sector, keeping an eye on the potential social impact of the technology and governing it. This process of social change can be clearly seen in the institutions involved in mobile payments, the range of policies and the simultaneous development of the mobile payment industry. To answer to our third research question, ‘What are the socioeconomic reasons for a development of mobile payments more rapid in China than in US?’. We examined how and why China has been so successful in implementing and adopting mobile payment while areas such as the US have fallen behind in this regard. We have shown that this development hinged not only on technology or economics but also – and especially – on society, policy and culture. To answer to our fourth research question, ‘How did the change of mobile payment methods affect Chinese society as well as the modes of social relationships and vice versa?’, we have shown that in the first phase, strong ties gave an initial boost to mobile payment penetration while weak ties made mobile payment indispensable in the second phase. We have seen, moreover, that when the ties of kinship and hometown no longer provide a primary means for people to survive and thrive, the importance of such ties declines, and there is an emerging trend where human–machine interaction is favoured by corporations to replace weak ties. Over the course of these three phases, mobile payment came to integrate traditional guanxi principles with ‘modern’ commercial logic, thus making China into the world's largest ‘light cash’ society with the highest rate of mobile payment adoption.
We emphasize that studying the role of social practice in technological diffusion concerns not only the micro-interrelations among personal connections and technological functions (e.g. peer pressure or social influence interacting with perceived usefulness and ease of use) but also the traditional culture and rituals embedded in social practices. Chinese citizens live in a network of culture and meanings within which the diffusion of mobile payment was the ferrying of traditional rituals in everyday life. Mobile apps by Tenpay, which mimic the traditional practice of sending and receiving red packets, have surpassed those of the previous market leader and have further spread mobile payments across multiple sectors. The process of mobile payment diffusion in China presented in this study can be further illuminated by Polanyi’s (1968) concept of ‘embeddedness’. Using the evolution of mobile payment as a lens to understand general economics dynamics, we can see that the development of technological, financial and social institutions in China has provoked a rapid process of embedding and re-embedding mobile payment into the information capitalism, and disembedding it from the society, see the recent tensions between Alibaba and the central government (The Economist, 2020). Mobile payment first took off by leveraging trust and by embedding itself in strong ties (via red packets). The exchange of red packets enabled mobile payment's widespread diffusion in China. In the second stage of mass adoption, mobile payment re-embedded itself into weak ties. In the latest stage, currently underway, mobile payment tends to be dis-embedded from social relations (guanxi), in a form that prevails in private financial sector, and coexists with emerging technologies such as facial recognition and artificial intelligence for direct human-to-machine interactions especially in the urban context. The outcome of this process of mobile payment development, profoundly rooted in information capitalism, is the weakening of the role of physical cash as a transactional medium, and a drive of the country towards a cashless society as people increasingly accept digital credit granting and virtual credit cards. This ongoing dematerialization of money can have enormous consequences for people's everyday lives. In particular, traditional Chinese culture promotes ‘diligence and thrift’ and prohibits ‘extravagance’ and ‘self-indulgence’ – values that may collide with the world of digital capital. It remains to be seen, therefore, what cultural values and social practices are being promoted by modernized China.
In the framework of modern, globalized capitalism, newly industrialized countries that did not experience all the phases of capitalist development often must find ways to transform a society that in many ways has remained pre-capitalist. One possible way is to connect traditional cultural practices to the world of innovation, thus reducing the range of novelty to be metabolized by people. This is how Tenpay guided the development of mobile payment in China – by connecting it with the traditional practice of sending and receiving red packets. These examples show how industrialization and modernization in China are the result of co-construction between traditional culture/society and the capitalistic system. However, as Fortunati et al. (2008) have previously argued, research often focuses on changes in local cultures and societies and not on changes in the capitalistic system. Paradoxically, in newly industrialized countries such as China, which skip many of the typical stages of industrialization, modernization often develops its own peculiarities and becomes hybridized with pre-modern forms.
The strong point of this analysis is that it is timely and offers a fresh perspective on the topic of mobile payment that will play a relevant role not only at the technological level but especially at the social level. This article combines historical perspectives and compares the cultural differences between China and the US and identifies the role of ‘guanxi’ in the rise of mobile payment and the role it will play in the future. Starting from the original social attributes, this perspective combines China's actual usage, cultural characteristics and regulatory environment. It is a useful supplement to the traditional technical perspective and enriches the understanding of mobile payment as a tool. One of the limitations is that our current historical combing and theoretical interpretation are mainly concentrated in the local Chinese context, and other external factors in different countries, including specific political and cultural environments, may produce different development paths for mobile payment. Therefore, in further research in this field, the conclusion of this article should be expanded to other similar countries (such as East Asian countries with cultural similarities) as much as possible, and it is hoped that this conclusion can have a broader explanatory nature. This paper uses a relatively macro descriptive framework. In fact, mobile payment use involves a large number of different types of stakeholders, such as the government, big corporations, small and medium-sized enterprises and many daily consumers, who have accumulated rich experience and experience in the process of practice. Its discourse builds a scaffolding that in any case needs to be filled with empirical research at all levels – government, industry, markets and users. Future research should take these groups into account to expand our perception and understanding of the adoption of mobile payment technology, and even focus on how this technology ultimately affects people's lifestyle and reshapes social culture. The task of future research in this field will be to carry out a myriad of studies on these directions, not only in high-end or high-tech environments but also within the sector of small- and medium-sized enterprises, which account for over 80% of the labour force in emerging markets and thus represent a key target market for expanding financial inclusion. Finally, the latest other payment technology fields include biotechnology payment, digital currency, cryptocurrency and so on, which are still developing rapidly. In the future, the concept of mobile payment could be expanded, paying attention to the latest technology development and social practice of mobile payment. Only these studies will enable us to understand better how Chinese society on the move will further change itself and shape the payments of the future.
Footnotes
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The author(s) disclosed receipt of the following financial support for the research, authorship and/or publication of this article: This work was supported by the The National Social Science Fund of China (Grant No. 19BXW098).
Notes
Author Biographies
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