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The New Currency: Your Cellphone

Gagan Vaseer

Imagine a world where you never have to carry your wallet or purse around. Your cellphone, a device you always have on hand, allows you to pay for your morning coffee, a ticket to your favorite movie, or even that sweater you’ve been eyeing for a while. Well, what was once considered science fiction, is now more science than fiction, as this has become a reality in China, where the rise of WeChat has revolutionized the mobile payment space. With mobile payments now surpassing $9 trillion a year, eight times greater than the US, the Chinese market has come to embrace their new cashless society.

Aside from the ease this cashless society has made on transactions, there has also been massive increase in short-term consumer credit, as smartphones have proliferated the number of pitches consumers see about loans and investments. As borrowing and transferring money becomes simpler via mobile payments, the use of paper currency has declined dramatically, falling over 10 percent in two years. Even traditional Chinese practices, such as the ubiquitous act of giving red envelopes of cash for the New Year, have gone mobile, as digital red packets, courtesy of WeChat, has become commonplace in the market.

Yet, as consumers have welcomed this new form of payments, banks have struggled to benefit from this trend. In 2015, Chinese state-owned banks lost nearly $23 billion in possible card fees, an amount expected to triple by 2020. Moreover, since mobile payments, at least untilthe summer of 2018, did not go through the central bank’s clearing system, the concern of money laundering has risen. However, the biggest concern of this new system of e-payments has been the issue of privacy, as companies like Alibaba and Tencent are able to collect nuanced information about their customers, from which hotels they prefer to which restaurants they patron. This concern came into full-force when Alibaba-affiliate Ant Financial automatically enrolled users into a social credit program, called Sesame Credit, and began tracking behavior patterns and personal relationships in order to make lending decisions. Despite China’s historical disregard for personal privacy, the tides have been shifting as consumers have become warier of having their personal data, such as chat history and buying habits, shared or sold. Although tangible policy changes are unlikely, as a majority of Chinese citizens are not critical of the government’s social tracking method, the conversation about the perils of data-collection is now at the forefront.

Nonetheless, some countries have recognized this new era of payments, and have been preparing. Nordic and Dutch banks have halved their number of bank branches, while Sweden, in the late 1980s, did away with checks all together. It’s now just a matter of time until the US market embraces this new trend, as avenues like PayPal and Apple Pay become more commonplace.

Ultimately, the financial inclusion sector is not immune to the benefits and perils of this burgeoning mobile payments economy. While this new world can bring about more efficacy in financial transfers and loan distributions, it also increases the risk of data breaches and the abuse of personal data. Technological innovations will thus drive the next wave of financial inclusion practices, but we must proceed with both optimism and caution.

About the Author: Gagan Vaseer is a Master in Public Policy candidate at the Harvard Kennedy School, where his studies focus on political and economic development. Passionate about women’s empowerment, he works to promote socioeconomic equity through financial inclusion and microfinance. Prior to Harvard, Gagan supported strategy and effectiveness at Google, and promoted education and social access at Teach For China and UNICEF.

Gagan holds a B.A. in International Comparative Studies and Political Science from Duke University.