Mobile payments using a QR code generated on a smartphone are one of the most popular technologies among users all over the world. Today, many countries are actively integrating payment systems of foreign companies to increase the flow of tourists. Payment methods that are based on the principles of exclusion of fiat assets, such as the Chinese Alipay and WeChat Pay, spread their influence and introduce a trend for electronic money. Problems arise, however, with the state regulators since the payment technologies use national currencies in their networks. If mobile or NFC payments used cryptocurrencies, many of these issues could be avoided.
The Chinese and Their Mobile Payments in Russia and other Countries
Red Square in Moscow is impossible to imagine without the Chinese with the latest gadgets in their hands, like expensive cameras and modern smartphones. Tourists from China come to Russia not only for the sake of acquaintance with the culture but also for shopping. The Chinese try to make all purchases, regardless of the product category, using mobile payment systems such as Alipay (part of the Alibaba Group and fintech company Ant Financial Services) and WeChat Pay (which is part of the world’s largest investment company Tencent), which are popular in China.
According to the Border Service of the Federal Security Service of the Russian Federation and the Russian Federal State Statistics Service, in the first three quarters of 2018, over a million Chinese entered the country for touristic purposes—that is, 118,000 tourists per month. Also, 281,000 Chinese citizens came to Russia for this period for business purposes. If we take into account visitors with tourist and business reasons for the monthly average figures, more than 66% of them transact with Alipay.
These calculations are based on the fact that Alipay, as a company representative in Russia says, is used by 100,000 people per month. Currently, payments through the largest Chinese system are accepted in 25,000 Russian outlets; acquiring services are provided by VTB, Russian Standard, Promsvyazbank, MOBI.Dengi, and Modbank. On January 22, it was announced that Tinkoff Bank would connect its network of 30,000 retail outlets and thus double the number of places accepting Alipay in Russia.
Another well-known payment system, WeChat Pay, which operates on the popular WeChat messenger in the Asian region (installed by more than 900 million Chinese with a total population of 1.4 billion), entered the Russian market only last June. Therefore, there is no accurate statistics on the use of this system.
To pay using a smartphone, at the checkout, one needs to scan the QR code generated in the application (while the contactless payment technology implies tapping the smartphone against the NFC-enabled payment terminal).
The influx of wealthy clients from China occurs not only in Russia but also in other countries of the world. This encourages local store owners to adapt to customers and expand their ability to receive funds. According to a poll from Nielsen, three quarters of supermarkets and stores in Singapore, Malaysia, and Thailand accept mobile payments via Alipay and WeChat Pay. And about 60% of Chinese respondents said they used mobile payments when they traveled to the United States, Canada, the United Kingdom, France, Germany, and Italy last year.
The State and Regulation of Foreign Payment Systems
It is obvious that non-cash payments, including mobile payments, are economical and better adapted to automate operational procedures than cash payments. This is especially important in the sector of retail operations, where the costs of banks for settlement and cash services to small customers are high.
It is estimated that servicing cash-based payment systems in the E.U. as early as 2012 would have resulted in a loss of 0.4–0.6% of annual GDP, and in developing countries, between 5–7%. Because of this, the scope of using cash is narrowing, although it is still actively used to carry out small daily operations in the retail sector of payment transactions, especially when traveling abroad.
Commenting on the last summer vacation season, executive director of the Association of Tour Operators of Russia (ATOR) Maya Lomidze said that the main problems of travelers last year were related to the exchange rates. Tourists coming to any country would rather use their usual payment systems than exchange cash for the local currency.
The emergence of foreign payment systems in any country encourages local regulators to introduce regulatory practices concerning external electronic services such as Alipay and WeChat Pay. For example, on December 7, 2018, Chairman of the State Duma Committee on the Financial Markets Anatoly Aksakov and First Deputy Chairman of the Council of Federation Committee on Budget and Financial Markets Nikolay Zhuravlev introduced a bill to the State Duma that tightens control over foreign payment systems in Russia, such as MoneyGram, Intel Express, and electronic payment services.
The document says that foreign payment service providers who do not have a credit organization on the territory of the Russian Federation and have not received a license from the Central Bank will be prohibited to provide money transfer services to Russians, and Russian banks to execute such transfers. Such wallets, according to the bill, will be able to work within the state only with their non-resident clients. The organizations that provide payment functions will receive a new definition of “foreign payment service providers.” These companies will work on the basis of legislation at the place of registration and only with their compatriots. That is, Russian citizens cannot use Chinese Alipay or WeChat Pay.
So far, this draft law on the ban on the provision of services for Russian citizens without a license from the Central Bank and a credit organization concerns only residents of Russia. And tourists will be able to use only those payment systems that operate in their country. This factor inhibits the development and use of the system by all interested users who would like to pay for purchases with specific services.
Crypto Payments Instead of All Currency Systems
The introduction of cryptocurrencies will not only increase the efficiency of the payment systems but also expand the possibilities of paying for services around the world. Used in a “right and smart” way, digital assets can completely change the methods of personal finance management in developed and developing countries. Tourists and locals will be able to use only cryptocurrency payments instead of many existing payment systems that depend on the bank and the state. This is what the CoinBundle project team wrote on its blog on Medium.
“Adopting cryptocurrencies plays a critical role in being able to provide banking services to those who would typically do not have the needed resources. Rapid inflation coupled with high unemployment rates have riddled developing countries with large populations of impoverished citizens who cannot afford to even save money. As such, these nations lack a balanced system of financial inclusion which prevents their citizens from ever making any progress towards economic liberation. In fact, there are still over two billion people worldwide who lack access to a banking service or financial institution. Cryptocurrency can change everything for the unbanked,” as stated in the article.
The blockchain technology, according to the authors, contributes to financial inclusion by giving those who are seeking economic freedom the ability to pay for services worldwide and not to depend on payment systems such as Alipay or WeChat Pay, which are not supported in many countries. Thanks to digital assets, people will get the tools to escape the economic situation that limits their social mobility.
In addition, countries that are members of specific economic and political associations promote the use of the currency that is favorable to them and the method of payment that is beneficial to state authorities. The blockchain technology introduces many innovations and gives the freedom in making financial, even retail, transactions. For example, each E.U. member-state is sovereign, but the European Union is responsible for maintaining economic stability in the region, which largely depends on the value and appreciation of the euro. This is stated on the blog of the Katalyse.io project.
With frequent travels abroad, people can reduce the number of problems associated with converting money and obtaining local currency. Moreover, when using cryptocurrency, there is no need to ascertain the efficiency of a particular method of payment using a card or smartphone. Thus, cryptocurrency can be an excellent alternative to traditional mediums of exchange. The global nature of the digital system has many advantages over conventional financial infrastructure. Indeed, in the case of using cryptocurrencies, tourists do not need to look for an exchange service as it is enough to have a stable Internet connection to be part of an open payment network based on the blockchain. So say the Theycoin DAO platform’s authors.
“But if you a normal traveler comfortable with cryptocurrencies, you may be inspired by the example of Felix Weis, a software developer who traveled the world for 1,5 years using only Bitcoin. He started his trip in 2015 and visited 27 countries, including those lacking high-speed Internet, like Cuba. This daring adventure made Felix famous in the Bitcoin community, and many crypto enthusiasts wanted to do the same thing,” as stated by the authors of the article, who give examples of how to travel around the world and pay for services using cryptocurrencies.
As a result, the use of digital assets can replace absolutely all fiat currencies and bring the world economy to a new level of development. Payment systems that are currently subordinate to the state will be able to extend their influence to users with the integration of cryptocurrencies. The Chinese tourists mentioned above, with their active position on the use of cryptocurrencies, could use digital money when traveling. Due to the vast possibilities of payment through new technologies with the help of crypto coins, cash is likely to disappear, as it has a lot of flaws and no longer meets the criteria of the modern, ever-changing world.