China’s USD 25 trillion in mobile payments transform nation’s services

Alibaba and Tencent reshape how people access health care, lending and more.

Photo by Clay Banks on Unsplash

In Hangzhou, home to Chinese e-commerce leader Alibaba Group Holding, something has happened at the First People’s Hospital of Yuhang.

Gone are the long lines of waiting patients that have been a symbol of public health care in Chinese cities. Even the payment counter has only a few people awaiting their turn.

The hospital treated the problem by adopting facial recognition for everything from booking doctor appointments to paying for care.

The change shows how mobile payments continue to evolve in China as annual transactions reach RMB 178 trillion yuan (USD 25.1 trillion), a private sector study found, expanding from meals at food stalls to car purchases and medical services.

Alibaba and rival Tencent Holdings each boast about 1 billion users of their payment platforms, which account for 90% of total mobile transactions. They have spurred a shift away from cash and spawned countless businesses that rely on this new financial infrastructure.

The hospital’s facial recognition system is an offshoot of Alipay, the online payment platform of Alibaba.

Combining insurance cards, smartphone payments, and facial data let patients make appointments in 30 seconds via phone. The service has installed a camera for facial authentication in each examination room and almost automatically stores diagnostic results and processes payments through Alipay. Patients can leave the hospital after receiving medicines at its pharmacy.

The service involves no remarkably advanced technologies, but rather uses a facial authentication system to identify each patient and connects the hospital with Alipay to engage in financial transactions with banks.

But Alibaba has transformed a common scene at Chinese hospitals in which receiving treatment is difficult as patients need to wait too long. Gathering medical data, the company also eyes a new business of automated diagnoses using artificial intelligence.

Credit card payments worldwide totaled just over USD 25 trillion in 2017, British research firm RBR said. Payments via smartphone in China are analogous with that sum, though a simple comparison between them is impossible.

Kang Xiaohui, a 28-year-old driver in Shanghai for Ele.me, Alibaba’s online food delivery platform, earns 6,000 yuan to 7,000 yuan monthly after a year on the job.

“There are no lucrative jobs like this in my hometown in Anhui Province,” he said.

Kang delivers food to 30 destinations daily across business districts in the city. Between delivery stops he belts down noodles or rice in broth, each costing about RMB 15 yuan. While living in a partitioned section of a small, inexpensive apartment, he earns more cash income than before.

Alibaba boasts that it has created over 30 million jobs including those in related sectors. Founder Jack Ma Yun, who stepped down as chairman on Tuesday, said the technology giant seeks to become the fifth-largest “economy” in the world — treating its economic group as gross domestic product — by offering jobs to 100 million people.

Ma’s vision is no pipe dream. A recent Nikkei survey of more than 50 people in places such as Shanghai and the provinces of Jiangsu and Zhejiang found that 40% of them had used no cash during the month.

China’s urban dwellers rarely use cash for payments.

Hu Mingqiang, 28, a software engineer in the Jiangsu Province city of Nanjing, bought a Volkswagen Lavida compact sedan in July, making a down payment of 60,000 yuan through Alipay. During the past month, he paid cash only for a 5 yuan beverage and a 20 yuan parking fee.

The enormous amount of data creates new businesses. Tapping Alipay’s app a number of times leads to a site called Huabei, which shows information such as 80,000 yuan as the upper limit for lending and a daily interest rate set at 0.05% of outstanding balances.

Huabei is a small-lot loan service operated by a financial company belonging to Alibaba.

The service uses AI to calculate loan limits and interest rates, checking all kinds of information about applicants such as whether they evaded payments for purchases on online shopping mall Taobao or have fallen behind on utility bills.

As in the case of credit cards, Huabei sets credit lines for users and lets them pay after spending.

Alipay bundles small-lot loans into tranches each valued at 2 billion yuan to 3 billion yuan and sells them to investors to recover funds.

According to Alipay data, nonperforming loans accounted for only 0.47% of total AI-based loans outstanding as of June 2017, much lower than the average rate of 1.8% among commercial banks in China.

But an expansion of the smartphone-based economic zone reveals risks related to the management of information.

While market leaders Alibaba and Tencent keep tabs on personal information in detail, China last year required all smartphone payments to go through a system affiliated with the People’s Bank of China, the country’s central bank. Alibaba and Tencent have invested in the system to cooperate with it in terms of human resources and other operations.

The Chinese public generally tolerates the new rule if it offers sufficient user-friendliness and economic benefits. In the Nikkei survey, adherence to cash payments was mentioned only by one person. But this trend among Chinese consumers contributes to the country’s surveillance society.

This article first appeared on Nikkei Asian Review. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei. 36Kr is KrASIA’s parent company.