Digital Payment in China


If you think digital payment systems are big here in the states, well, its got nothing on China. Companies like Ali Baba and others are creating interesting internet banking systems that both provide an integrated way to pay for items via your smart phone, and have a private banking solution for young people in search of yield on their savings. You see, China has no equivalent to the $250,000 deposit that the US FDIC insures for our citizens, therefore people can’t really evaluate if its safer to save your money in the bank or with an online digital payment solution company like Ali Baba and Ali Pay. I have been treated to eat by individuals in China on several occasions and have now seen how this payment solution works.

First you open an Ali Pay related app and find nearby restaurants that you would like to eat at and most of the apps even allow you to make a reservation. Many restaurants now often integrate a QR code application upon arrival that will let you order food digitally with your phone off the menu as well. After you finish up your meal, you just go to check out on your phone and pay with your Ali Baba related bank account. Very little waiter/ waitress interaction and a ton of convenience.

Now for the yield part. In order to attract new young depositors, Ali Baba and companies like them have provided 6-7% yields on their deposits for banking with them versus traditional banks. That’s better than most long term CDs you’ll find in the US and that money becomes illiquid after purchase. As far as my knowledge, Ali Pay does not have any length of deposit stipulations that would disallow you from wiring the balance of your funds out of the account into a different account. This is an interesting business model that Apple or others might want to take notice of, creating a banking division on the phone with less than half that yield would make a lot of sense for companies that integrate a lot of digital payment products into their product offerings. For instance, Apple could give just a 2% yield and most likely attract a slew of users (especially with the ridiculously low return on deposits that banks offer right now).

This is just another cutting edge example about how a socialist country is beating us at capitalism. Young people could use a wider variety of banking as many in society right now are under banked and find it difficult to start a habit of saving. If you make it easy enough for people to find and utilize, the process will be painless. Everyone has a phone, finding more and more valuable ways to use it as a medium to improve society can only be beneficial in the long run.

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