HANGZHOU, CHINA – (Photo by VCG/VCG via Getty Images)
A new report just released by the United Nations-based Better than Cash Alliance offers compelling evidence and lessons on how successful business models leverage existing platforms to drive the adoption of digital payments. The study revealed that two far reaching applications, Alipay and WeChatPay, enabled nearly US$3 trillion in Chinese digital payments last year, representing a 20-fold increase in the past four years.
So why all the fuss? Hint: social networks and e-commerce platforms, in a country of 1.3 billion people, can make a whole lot of noise! The data shows that digital payments, using existing channels such as social media can provide access to a wider range of digital financial services, expanding economic opportunity throughout China and neighboring countries. The potential global impact is staggering: a 2016 McKinsey report estimates that digital finance could add 3.7 trillion US dollars to GDP across all economies in aggregate by 2025, a 6% boost that would create 95 million new jobs. For China, it could generate a 4.2% GDP boost by 2025: an additional trillion dollars.
Our new study highlights the rapid growth of Alipay and WeChat Pay, payment products which are embedded within e-commerce and social networks and boost not only digitization, but also financial inclusion and commerce. Both companies allow users to easily initiate a wide range of transactions directly from their mobile phones: paying bills, transferring money to friends or family, or conducting business with new customers. Users are also able to access a range of digital finance products and services, such as savings, investment and credit features.
For us at the Better than Cash Alliance, such examples link to our mission to help advocate that countries move from cash to digital payments to reduce poverty and drive inclusive growth. They also help illustrate how greater use of digital financial services can accelerate financial inclusion for populations, particularly women. Documenting experiences from China also help impart valuable lessons with our members and partners eager to expand the digital payment ecosystem. We know from our research that digital payments are critical for reaching people outside traditional financial systems, and that the move to digital payments allows companies and governments to reduce costs, improve efficiency and increase transparency. Additionally, the big data generated through these platforms can build credit scoring and enhance credit access particularly for low-income, financially-excluded populations.
Given its large population, China at first glance seems like a unique case, but the country provides many lessons worth sharing. At a micro-level, even small scale digital payment services have a tremendous impact in expanding opportunities available to people, especially those with low-incomes seeking to improve their livelihoods. Consider, a city such as Chongqing which embraced digital finance as a means of growth and is partnering with Alibaba and Ant Financial to create the Chongqing Alibaba Micro Loan company and has supported local business by channeling US$116 billion to small enterprise and micro-entrepreneurs.
Looking ahead, it is encouraging to see how digital finance platforms are spurring e-commerce by increasing access to capital for entrepreneurs, small merchants. The report – while focused on China –demonstrates opportunities which we believe can help other countries and businesses to ultimately include more people in the economy and foster a transition from cash to digital.