The first record of paper banknotes was developed in 7th century China to avoid the need of carrying heavy, precious metal standard coins and currencies. Fast forwarding to the present day, China is paving the way to rid the world of paper currency and is pushing everyday commerce into cashless transactions. By 2017, more than three-quarters of the Chinese population was using digital payments in preference to cash and, along with Sweden, it aims to go completely cashless as early as 2023.
The country’s digital payment system was introduced back in 2014 by Alibaba’s Alipay and Tencent’s WeChat Pay. These two technology giants pioneered the digital wallet by first introducing transaction features on their social media platforms by allowing users to transfer funds via text message. Its convenience and the Chinese tradition of gifting money in the form of “red envelopes” quickly encouraged the majority of China’s inhabitants to adopt these new payment platforms by creating digital wallets. Meanwhile, QR code-backed payments were introduced and integrated into the daily habits of consumers. This leap into mobile payments was also catalyzed by China’s lack of credit and debit cards, an advancement that revolutionized other advanced countries in the last century. From renting vehicles to paying street vendors, China’s 17 trillion dollar mobile payments market suggests that there is truly nothing you can’t purchase within the country by scanning a QR code.
With more people shopping online and stores encouraging the use of cash alternatives to avoid the virus spreading via banknotes, the recent COVID-19 pandemic has acted as a catalytic event favouring cashless societies. For instance, in the United Arab Emirates, the Central Bank has encouraged the use of online and digital services to protect its residents' health and safety, increasing the maximum payment limit for contactless bank cards.
In addition to hygiene and convenience, there are other issues with banknotes that digital wallets address. Digital currencies don’t decay or have life spans, eliminating the costly task of printing currency. For reference, the US Federal Reserve reports that printing a 1-dollar bill costs 5.5 cents while minting coins are even costlier with the US quarter costing 10 cents. Meanwhile, the penny and nickel cost more money than their intrinsic value. It is estimated that the global cost of printing paper currency was 35.3 billion US dollars in 2018, a figure that does not include the cost of distributing, collecting and destroying the paper currency.
Although the cashless revolution seems inevitable, there has been criticism towards shifting to an entirely cashless society. A recurring concern of a digital-only society is its ability to marginalize older citizens who are less tech-savvy or those in less developed, rural areas. In 2017, 76.9 percent of China as a whole was using a digital payment system compared to 66.5 percent of people in China’s rural areas. Another primary concern is the increased surveillance and decreased privacy associated with digital transactions. China has long been criticized for its use of facial recognition technology and mass surveillance of digital platforms, and now a society with digital wallets could further increase China’s reach into its citizens' privacy and personal lives.
China’s central bank has also announced its plans to release the digital Yuan, a digital currency backed by the People’s Bank of China, and has begun conducting internal tests of its digital currency in four of its largest cities- Shenzhen, Suzhou, Chengdu and Xiong’an. While 20 other countries have officially announced their efforts in creating a central bank-backed digital currency commonly known as CBDC, China is undoubtedly ahead of the pack.
Regardless of your stance on digital payments, there is no denying that digital wallets and cashless transactions represent the future of commerce. Not only have digital wallets disrupted consumer behaviour by influencing our traditional view on banking, but they have also influenced major technology companies encouraging them to follow in the footsteps of Alibaba and Tencent. While challenges and concerns still exist, it is clear that digital wallets are here to stay, and it is only a matter of time before digital payments become the status quo for all monetary transactions.