China is one of the world's leaders in the adoption of

mobile payment Mobile payment, also referred to as mobile money, mobile money transfer and mobile wallet, is any of various payment processing services operated under financial regulations and performed from or via a mobile device. Instead of paying with cas ...

s. Widespread adoption of mobile payments in China has facilitated the growth of

e-commerce in China China is the world's largest market for e-commerce. Domestic e-commerce firms have the greatest share of China's market, with foreign companies having a comparatively small presence. The expansion of e-commerce in China has resulted in particular e ...

and growth in the retail banking sector. Digital payment platforms, alternatively known as

e-payments Electronic funds transfer (EFT) is the transfer of money from one bank account to another, either within a single financial institution or across multiple institutions, via computer-based systems. The funds transfer process generally consists ...

, are the main medium of

financial transaction A financial transaction is an Contract, agreement, or communication, between a buyer and seller to exchange goods, Service (economics), services, or assets for payment. Any transaction involves a change in the status of the finances of two or mo ...

in mainland

China China, officially the People's Republic of China (PRC), is a country in East Asia. With population of China, a population exceeding 1.4 billion, it is the list of countries by population (United Nations), second-most populous country after ...

. Such e-payments, conducted through third-party platforms, make use of QR codes and personal

barcodes A barcode or bar code is a method of representing data in a visual, Machine-readable data, machine-readable form. Initially, barcodes represented data by varying the widths, spacings and sizes of parallel lines. These barcodes, now commonly ref ...

. The use of physical currency and typical bank cards are relatively uncommon. The market for these platforms is characterised by a

duopoly A duopoly (from Greek , ; and , ) is a type of oligopoly where two firms have dominant or exclusive control over a market, and most (if not all) of the competition within that market occurs directly between them. Duopoly is the most commonly ...

, with WeChat Pay and

Alipay Alipay () is a third-party mobile and online payment platform, established in Hangzhou, China in February 2004 by Alibaba Group and its founder Jack Ma. In 2015, Alipay moved its headquarters to Pudong, Shanghai, although its parent company ...

holding more than 90% of China’s market share for such transactions. Several alternative, smaller platforms exist, including the Chinese Central Bank’s (PBOC’s) UnionPay application. Due to the rapid adoption of e-payment platforms in China over the last two decades, both WeChat and Alipay have become so-called super-apps, hosting a range of sub-features. This includes taxi hailing,

food delivery Food delivery is a courier service in which a restaurant, store, or independent food-delivery company delivers food to a customer. An order is typically made either by telephone, through the supplier's website or mobile app, or through a thir ...

, ticket booking, and charitable donation capability. Such platforms have, however, been criticised for making financial transactions more challenging for foreign visitors, whilst having several

surveillance Surveillance is the monitoring of behavior, many activities, or information for the purpose of information gathering, influencing, managing, or directing. This can include observation from a distance by means of electronic equipment, such as ...

implications for its users.

Development

China is one of the world's leaders in consumer internet and mobile payments. In most parts of the developed world, credit cards have been popular since the second half of 20th century but were not widespread in China. China's wide adoption of mobile payments without significant credit card usage is an example of

leapfrogging Leapfrogging is a concept used in many domains of the economics and business fields, and was originally developed in the area of industrial organization and economic growth. The main idea behind the concept of leapfrogging is that small and incre ...

development. The increase of mobile payment systems such as

and WeChat Pay have facilitated the rapid rise of e-commerce in China. Mobile payment platforms help simplify the transaction process and ensure the security of transactions to win the trust of consumers. Therefore, the mobile payment system has completely changed the daily life of the Chinese people and the future business model. The rise of e-commerce has in turn facilitated the further rapid adoption of digital payment and mobile wallets.

History and emergence

Alipay was launched in 2004 as part of Alibaba Group’s Taobao.com. In 2005, it began strategic cooperation with several Chinese banks and later received a payments

business license Business licenses are permits issued by government agency, government agencies that allow individuals or companies to conduct business within the government's geographical jurisdiction. It is the authorization to start a business issued by the loc ...

from the PBOC in 2011, solidifying its role in the rapidly expanding mobile payment ecosystem. In 2013, WeChat Pay, developed by

Tencent Tencent Holdings Ltd. ( zh, s=腾讯, p=Téngxùn) is a Chinese Multinational corporation, multinational technology Conglomerate (company), conglomerate and holding company headquartered in Shenzhen. It is one of the highest grossing multimed ...

, entered the market, enabling users to make various daily transactions. By August 2015, the WeChat app had 600 million monthly active users, dominating the Chinese social app market. UnionPay entered the e-payment market later, in 2017, with its QuickPass contactless payment system, but did not significantly innovate beyond pre-existing technologies.

Explosion in Growth

Alipay first gained traction in 2011 with the introduction of its

smartphone app A mobile application or app is a computer program or software application designed to run on a mobile device such as a phone, tablet, or watch. Mobile applications often stand in contrast to desktop applications which are designed to run on d ...

, enabling seamless payments at retailers, cafes, and restaurants. This went further in 2012, when digital red packet distribution through WeChat Pay ahead of

Chinese New Year Chinese New Year, or the Spring Festival (see also #Names, § Names), is a festival that celebrates the beginning of a New Year, new year on the traditional lunisolar calendar, lunisolar Chinese calendar. It is one of the most important holi ...

became a viral sensation, further popularising e-payments. Such red packets are used in

East Asian East Asia is a geocultural region of Asia. It includes China, Japan, Mongolia, North Korea, South Korea, and Taiwan, plus two special administrative regions of China, Hong Kong and Macau. The economies of Economy of China, China, Economy of Ja ...

cultures to gift small amounts of money to friends and family. In 2016, more than 32.7 billion red packets were sent via WeChat alone were sent over 6 days of the New Year holidays. The cultural significance of Red Packets sparked wider Chinese society’s initial interest and many first-time engagements with e-payments, boosting the appeal of digital transactions.

Wider implementation

Alipay and WeChat Pay now dominate the Chinese market as the primary digital wallet options for most consumers, overshadowing traditional

debit Debits and credits in double-entry bookkeeping are entries made in account ledgers to record changes in value resulting from business transactions. A debit entry in an account represents a transfer of value ''to'' that account, and a cred ...

and credit cards. Three key factors contributed to this surge in implementation of such e-payment systems, rapidly transforming the country from a cash-based

economy An economy is an area of the Production (economics), production, Distribution (economics), distribution and trade, as well as Consumption (economics), consumption of Goods (economics), goods and Service (economics), services. In general, it is ...

to a digital one. Primarily, there was a supply shortage of 'typical' payment services in China. Compared to the financial systems of other countries, China has a low credit card penetration rate, and card payment services were often slow and inefficient, leaving a vast majority of small and medium-sized businesses and low-income individuals dependent on cash for transactions. Unlike contactless and card payment methods such as

Apple Pay Apple Pay is a mobile payment service by Apple Inc. that allows users to make payments in person, in iOS apps, and on the web. Supported on iPhone, Apple Watch, iPad, Mac, and Vision Pro, Apple Pay digitizes and can replace a credit or debi ...

, a printed QR code and

internet connection Internet access is a facility or service that provides connectivity for a computer, a computer network, or other network device to the Internet, and for individuals or organizations to access or use applications such as email and the World Wide ...

is sufficient for merchants to conduct transactions, enhancing accessibility and promoting e-payment uptake. Another factor was China’s favourable

regulatory Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. Fo ...

environment. Until 2010, when the PBOC introduced a regulatory framework covering digital payment platforms, there were limited restrictions on mobile payment development. This led to greater levels of innovation from Chinese firms, with the government issuing nearly 270 third-party payment licences between 2010 and 2020. Lastly, the high level of

smartphone A smartphone is a mobile phone with advanced computing capabilities. It typically has a touchscreen interface, allowing users to access a wide range of applications and services, such as web browsing, email, and social media, as well as multi ...

ownership and widespread technological advancement was vital to the implementation of digital payment platforms in China. By 2017, smartphone penetration in China neared 70%, a level comparable to

developed nations A developed country, or advanced country, is a sovereign state that has a high quality of life, developed economy, and advanced technological infrastructure relative to other less industrialized nations. Most commonly, the criteria for evalu ...

, and markedly higher than other

developing countries A developing country is a sovereign state with a less-developed Secondary sector of the economy, industrial base and a lower Human Development Index (HDI) relative to developed countries. However, this definition is not universally agreed upon. ...

Brazil Brazil, officially the Federative Republic of Brazil, is the largest country in South America. It is the world's List of countries and dependencies by area, fifth-largest country by area and the List of countries and dependencies by population ...

and

India India, officially the Republic of India, is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area; the List of countries by population (United Nations), most populous country since ...

Functionality

QR codes and barcodes

QR codes and matrix barcodes are an efficient way to make or receive E-payments, where users simply scan a merchant’s QR code with a mobile app, select the payment amount, and confirm. These codes facilitate all types of daily

micropayments A micropayment is a financial transaction involving a very small sum of money and usually one that occurs online. A number of micropayment systems were proposed and developed in the mid-to-late 1990s, all of which were ultimately unsuccessful. A s ...

, from temple donations and

street food Street food is food sold by a Hawker (trade), hawker or vendor on a street or at another public place, such as a market, fair, or park. It is often sold from a portable food booth, food cart, or food truck and is meant for immediate consumption ...

purchases to bill payments, peer-to-peer transfers, and business transactions. They also offer an accessible, high-quality service experience to users thanks to their simplicity, security, and reliability. However, the QR code payment system lacks universality, favouring e-payment giants Alipay and WeChat Pay. Both of these platforms have separate sets of QR codes, and do not permit for interoperability, preventing greater levels of competition between platforms. WeChat Pay strategically suspended intermediary transactions for “risk control”, forcing merchants to connect directly and sidelining third-party partners. Regulatory authorities face a dilemma, as many consumers rely heavily on these platforms, resulting in an imbalance of power that complicates reforms.

Facial Recognition

E-payment in China is continually evolving, with

facial recognition Facial recognition or face recognition may refer to: *Face detection, often a step done before facial recognition *Face perception, the process by which the human brain understands and interprets the face *Pareidolia, which involves, in part, seein ...

emerging as a potential successor to QR codes. With this latest

technology Technology is the application of Conceptual model, conceptual knowledge to achieve practical goals, especially in a reproducible way. The word ''technology'' can also mean the products resulting from such efforts, including both tangible too ...

, users no longer need to pull out their phones; a quick scan of their faces completes the payment. Facial recognition payments, powered by

artificial intelligence Artificial intelligence (AI) is the capability of computer, computational systems to perform tasks typically associated with human intelligence, such as learning, reasoning, problem-solving, perception, and decision-making. It is a field of re ...

biometrics Biometrics are body measurements and calculations related to human characteristics and features. Biometric authentication (or realistic authentication) is used in computer science as a form of identification and access control. It is also used t ...

, and 3D sensing, frees users from phone dependency. Alipay’s “Smile to Pay” system, launched in 2017, exemplifies this

innovation Innovation is the practical implementation of ideas that result in the introduction of new goods or service (economics), services or improvement in offering goods or services. ISO TC 279 in the standard ISO 56000:2020 defines innovation as "a n ...

, completing transactions within seconds and streamlining the shopping process. However, QR codes still make up most transactions, and facial recognition has not yet become a normalized, widespread payment method.

Business Model

Multifunctionality

China's e-payments constitute a unique business model, emphasizing numerous functionalities over the expansion of the social network. E-payment platforms have created comprehensive ecosystems around their digital wallet services, enabling users to order food, book taxis, pay bills, schedule medical appointments, and even make charitable donations. This “app-within-an-app” model transformed these platforms into mobile lifestyle hubs that address nearly every aspect of daily life. Such apps, particularly Alipay and WeChat Pay, act as independent operating systems, with millions of lightweight apps functioning like integrated

web pages A web page (or webpage) is a World Wide Web, Web document that is accessed in a web browser. A website typically consists of many web pages hyperlink, linked together under a common domain name. The term "web page" is therefore a metaphor of pap ...

. However, the rise of e-payments worsened digital

inequality Inequality may refer to: * Inequality (mathematics), a relation between two quantities when they are different. * Economic inequality, difference in economic well-being between population groups ** Income inequality, an unequal distribution of i ...

, as those without smartphones or mobile payment accounts may struggle to access basic services in an increasingly digitised country.

Contrast with Western Models

China’s e-payment model, a fusion between payment platforms and

social media Social media are interactive technologies that facilitate the Content creation, creation, information exchange, sharing and news aggregator, aggregation of Content (media), content (such as ideas, interests, and other forms of expression) amongs ...

sites with subsidiary functionalities, contrasts with Western platforms. E-payment platforms have successfully connected people and businesses through the app-within-an-app model, leading to higher transaction conversions. For instance, while

Starbucks Starbucks Corporation is an American multinational List of coffeehouse chains, chain of coffeehouses and Starbucks Reserve, roastery reserves headquartered in Seattle, Washington. It was founded in 1971 by Jerry Baldwin, Zev Siegl, and Gor ...

may post general offers on

Facebook Facebook is a social media and social networking service owned by the American technology conglomerate Meta Platforms, Meta. Created in 2004 by Mark Zuckerberg with four other Harvard College students and roommates, Eduardo Saverin, Andre ...

in non-Chinese markets, WeChat enables an integrated experience where users can view their favourite drinks or locate nearby stores in-app, significantly increasing profitability. This may inspire Western social media to follow similar trends in the future.

Accessibility Concerns

Chinese digital payment infrastructure has proved challenging for foreign visitors to adapt to. As this system and its unique use of QR codes is unconventional for most tourists and visitors, studies have documented a high degree of initial confusion and difficulty in foreigners effectively engaging with these platforms. Given the difficulties experienced by foreign visitors, Chinese

consulates A consulate is the office of a consul. A type of mission, it is usually subordinate to the state's main representation in the capital of that foreign country (host state), usually an embassy (or, only between two Commonwealth countries, a h ...

and

embassies A diplomatic mission or foreign mission is a group of people from a state or organization present in another state to represent the sending state or organization officially in the receiving or host state. In practice, the phrase usually denotes a ...

have begun providing official guidance on the usage of such e-payment platforms. What official guidance does not note is the difficulties associated with using these platforms without a Chinese phone number. Despite the ubiquitous nature of Alipay and WeChat in China, both apps have limited functionality for those without mainland bank accounts or phone numbers. WeChat and Chinese telecom providers are known to block accounts registered with foreign numbers, due to the prevalence of

spam Spam most often refers to: * Spam (food), a consumer brand product of canned processed pork of the Hormel Foods Corporation * Spamming, unsolicited or undesired electronic messages ** Email spam, unsolicited, undesired, or illegal email messages ...

accounts in foreign-registered accounts. A number of features within WeChat (including payments to certain merchants) require a Chinese phone number for full functionality. Additional limitations exist for users without a Chinese bank account, as non-resident users cannot transfer money to peers or send red envelopes. This poses a serious obstacle to foreign visitors, who may become financially stranded if their respective e-payment means are no longer responsive, or if they lack a local phone number.

Philanthropic Usage

The introduction of native e-payment platforms in China has aided philanthropic programmes. ‘Handy’ philanthropy (a term used to describe charitable deeds done using technology) gives e-payment users the ability to engage with wider charitable missions within society.

WeRun

WeChat’s ‘WeRun’ function, for example, allows users to ‘donate’ their steps from

walking Walking (also known as ambulation) is one of the main gaits of terrestrial locomotion among legged animals. Walking is typically slower than running and other gaits. Walking is defined as an " inverted pendulum" gait in which the body vaults o ...

running Running is a method of terrestrial locomotion by which humans and other animals move quickly on foot. Running is a gait with an aerial phase in which all feet are above the ground (though there are exceptions). This is in contrast to walkin ...

. WeRun tracks the users’ daily steps and assigns them a monetary value. With corporate donations, these values become real charitable donations. This concept engages with the human desire to feel good about oneself while also encouraging

competition Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indi ...

amongst friends. Larger than competitors Mi Band or Fitbit Tracker, WeChat dominates this charitable market in China.

The Tencent Foundation

Aligning itself with the Chinese state’s goals of responsible citizenship in 2006, Alipay’s parent company Tencent has also pursued philanthropic initiatives, particularly through its launch of the Tencent Foundation. The Tencent Foundation was the first internet-based public welfare initiative to be founded in China. With a focus on improving access to education, its ‘digital wallet’ function saw a tenfold increase in charitable donations, from 10 million yuan to 100 million yuan, between 2006 and 2016. Alternatively, ‘Tencent Charity Hiker’, which launched in 2014, was designed to encourage students at fifteen universities to hike for charity. As a result, 2.43 million yuan was raised by 60000 donors in just one month.

Privacy and data risks

Concerns have arisen due to the extensive nature of the data collected by these platforms, which gathers transaction history, location, and other social patterns, giving the Chinese state the capacity to create comprehensive profiles of individual behaviours. While data profiles may enhance users’ experiences by personalizing services, this prompts questions about data ownership and consent. The lack of transparency regarding data-sharing practices in China exacerbates such concerns, leaving users unaware of how and by whom their information is accessed.

Cybersecurity Threats and Data Breach Risks

Digital payment platforms like Alipay and WeChat Pay have become increasingly susceptible to hostile

cyberattacks A cyberattack (or cyber attack) occurs when there is an unauthorized action against computer infrastructure that compromises the confidentiality, integrity, or availability of its content. The rising dependence on increasingly complex and inte ...

. Despite advanced security measures, the scale and extensive nature of these platforms’ user bases make them vulnerable to sophisticated threats. A significant incident in 2018 underscored these risks when a fraudulent third-party application exploited vulnerabilities in Alipay’s QR code system, enabling the unauthorized collection of users’ financial data and unapproved financial transactions.Chen, M. and Grossklags, J. (2022). Social Control in the Digital Transformation of Society: A Case Study of the Chinese Social Credit System. Social Sciences, nline11(6). https://doi.org/10.3390/socsci11060229

References

{{Reflist Economy of China Economic history of China Mobile payments in China Online payments E-commerce in China