Further Insights: China’s digital payments system shows what could be in store for the western world

Richard Turrin is the author of a wonderful new book called “Cashless” on the digital payment landscape in China. He will also be a judge for the upcoming Efma-Accenture Banking Awards in September. He spoke with Efma’s Boris Plantier about a number of major themes from the book.


Your description of financial services in China sounds like science fiction. How many years ahead of the US and European countries is China?

 
The speed of our new digital world makes it hard to give an exact number, but I would say that China is ahead of the West by a decade. For example, China’s new central bank digital currency (CBDC) will take about eight years to build, starting in 2014 to its presumed launch in 2022. While other countries may launch CBDCs more quickly, there is another crucial factor to consider that pushes China’s lead out many years. China has already completed the transition to using digital payments through the broadscale adoption of Alipay and WeChat Pay payment platforms. This means that both people and businesses have already migrated to digital payment platforms and made the cultural adjustment. As a result, digital payment in China is now considered perfectly normal, a gap with the West where it still retains a novelty factor and meets cultural resistance.

In “Cashless,” I refer to the existing payment platforms Alipay and WeChat Pay as Version 1.0 digital payment systems. China has nationwide adoption of these first-generation systems and is now moving to the second generation of payment through the digital yuan, which will allow for even deeper integration of digital payments within China. This is a point missed by many pundits who see China’s CBDC taking market share from the payment platforms rather than increasing the overall amount of digital payments in China. China is moving to its second generation of digital payment while the West is still tied to credit card-based systems, technology China surpassed with the shift to the payment platforms.

Another essential factor to consider is that the Chinese people are very receptive to digital innovation of all forms. This means that new digital products like the CBDC are generally welcomed and have fast adoption rates if they can show that they are more useful than existing payment methods. The challenge for China’s CBDC is that the existing payment systems are so good that the CBDC will need to show how it can improve users' overall experience. This is why I say that the launch of the digital yuan will be a bigger event in the West than it will be in China, where digital payment is already so well established.