In urban China, hardly anyone uses cash anymore

A customer scans a QR code to pay for breakfast in Shanghai, July 12, 2017.
A customer scans a QR code to pay for breakfast in Shanghai, July 12, 2017. PHOTO: NYTIMES

SHANGHAI (NYTIMES) - There is an audacious economic experiment happening in China.

It has to do with cash - specifically, how China is systematically and rapidly doing away with paper money and coins.

Almost everyone in major Chinese cities is using a smartphone to pay for just about everything. At restaurants, a waiter will ask if you want to use WeChat or Alipay - the two smartphone payment options - before bringing up cash as a third, remote possibility.

Just as startling is how quickly the transition has happened. Only three years ago there would be no question at all, because everyone was still using cash.

"From a tech standpoint, this is probably one of the single most important innovations that has happened first in China, and at the moment it's only in China," said Richard Lim, managing director of the venture capital firm GSR Ventures.

Two Chinese companies - Tencent, which runs WeChat, and Alibaba, whose financial affiliate, Ant Financial, runs Alipay - are sitting atop a gold mine. Both companies can make money off the transactions, charge other companies to use their payment platforms and all the while collect the payments data to be used in everything from new credit systems to advertising.

There are some potential future problems with China's sweeping embrace of online payments. As the country builds its entire consumer economy around two private smartphone payment platforms, it is slowly locking out people unable to get onto those networks, and locking itself into those companies.

At the simplest level, that makes life difficult for tourists and business travelers who are unlikely to open a bank account in China and so will find it hard to turn their phones into wallets.

More broadly, it means things could get harder for foreign and local businesses alike. Foreign companies hoping to sell to Chinese consumers now must deal with Alibaba and Tencent or risk being unable to take payments.

Likewise, Chinese companies reliant on Alibaba and Tencent have to build out separate structures to deal with the world of Facebook, Google and credit cards that still dominate elsewhere.