A strategic decision several decades ago paved the way for China’s leadership in digital payments today

In China, over 80% of urban consumers now use mobile payments for everyday transactions, from buying groceries to splitting restaurant bills. This widespread adoption has earned mobile payments a place among the "four great new inventions of China," alongside high-speed rail, e-commerce, and bike-sharing—a testament to the country’s rapid technological evolution.  

This remarkable achievement can be traced back to a strategic decision made in the late 1980s: to bypass personal cheques and leap directly into electronic payment systems. In my book, “Asia’s Financial Industry 1986–2016”, I describe my personal involvement in this pivotal decision. As part of the First National Bank of Chicago consulting team commissioned by the People’s Bank of China (PBOC), we identified significant inefficiencies in the cheque system prevalent in the Anglo-Saxon world at that time. We recommended that China adopt electronic payment systems instead, akin to the Giro system in continental Europe for B2B transactions, and invest in ATMs to improve cash liquidity in retail banking.  

The PBOC played a pivotal role in this transformation. By prioritizing electronic systems over traditional payment methods, it laid the groundwork for a financial ecosystem that could seamlessly integrate emerging technologies. At the time, we did not anticipate that this shift would pave the way for China’s transformation into a digital, cashless society. Our study likely reinforced the PBOC’s existing vision, allowing China to remain a cash-based economy throughout the 1980s and 1990s. Credit cards were only introduced in the early 2000s, primarily for corporate use rather than individual consumers.  

The absence of a dominant legacy payment system created a unique opportunity for mobile payments to flourish. Once smartphones and internet access became widespread, mobile payment platforms rapidly gained market share. Without the burden of entrenched paper- or card-based systems, China was able to leapfrog traditional payment methods and embrace cutting-edge technologies like digital wallets and QR codes. The robust electronic interbank clearing infrastructure, developed since the early 1990s, further facilitated the seamless implementation of mobile payment systems, enabling them to handle high volumes of small transactions with ease.  

China’s success in mobile payments has not only revolutionized its own economy but also set a benchmark for other nations. Countries around the world are now looking to China’s model as they navigate their own transitions to cashless societies.

As China continues to innovate in fintech, its journey from a cash-based society to a global leader in mobile payments serves as a powerful reminder of the transformative potential of strategic foresight. The decisions made decades ago have not only reshaped China’s financial landscape but also set the stage for the next wave of digital innovation worldwide.  

*This article is revised from the original version published in Medium on December 10, 2017, titled “China’s late-comer advantage in digital payments”.