Scanning and Spending: Examining the Impact of Mobile Payment Penetration on the Saving Rate in Contemporary China

May 4, 2020   /  

Student: Yuxuan (Katie) Ke
Majors: Business Economics, East Asian Studies
Advisors: Melanie Long, James Bonk

China’s national saving rate has been among the highest in the world. However, China’s national and household saving rate has been declining from its all-time peak in 2010. My Independent Study project will explore mobile payment, one of the major recent technological developments in China, and its effect on saving rates. This interdisciplinary project first includes a descriptive chapter that analyzes specific functions in the two largest mobile payment apps in China and considers how those functions may induce less savings. Then, after inspecting several theories and empirical articles that support my research question, a regression analysis using the probit model and the 2017 Global Findex Database will be presented. My main hypothesis is that mobile payment has a negative effect on savings of a relatively small magnitude. Although the empirical results do not support the hypothesis, a discussion of the implications of the analysis, how future policies should be made, as well as possible research directions is provided.

Hi visitors, thanks for reading my slide! This document is an abbreviated version of my notes that are the most important to understand my study. I included some extra notes (sources, etc.) in the notes section below the main slides in my PPT document if you are interested.

Slide 4: Historical evidence showed that people’s disposable income is highly subjected to the performance of the economy as well as how the population perceived the importance of saving. In addition, political fluctuation/shocks also might have had indirect impact on saving rate (1962-breakdown of great leap forward & people’s commune, etc.). Accessibility to a variety of technologies and financial services has also impacted consumers to make different saving decisions.

Slide 7: I want to analyze specific functions of the mobile payment apps that could move consumers towards more consumption (less saving). WeChat Pay and Alipay account for over 80% of mobile transactions in the Chinese mobile payment market as of second quarter, 2019. They offer series of functions that incorporate online payment into everyday offline scenarios and make spending more casual and quicker especially through the prevalence interpersonal transactions.

Slide 8: “Nudges” could incentivize consumers to perceive higher marginal utility in immediate consumption over future consumption. Because consumers smooth out their consumption over lifetime with a stable expected amount of aggregate wealth, more spending today means less saving today, or more spending in the future. Examples of nudges in mobile payment include digital red envelopes and QR codes, which consumers can associate them with payments easily.

Slide 10: My main hypothesis means that while I still expect mobile payment will decrease the probability of saving, the effect would be smaller than other control variables as I mentioned that saving is affected by multiple factors. For example, people with stable employment and more income could have more disposable income for savings, regardless of their mobile payment usership.

Slide 13: An ideal dataset for this project would be showcasing the extent of saving behavior (how much had each person saved through mobile payment), instead of asking “have you saved or not?”. More demographic details such as whether a participant resides in rural or urban areas, which could affect permeation of mobile payment and access to financial services, would be ideal. The Global Findex is only published once every three years, and 2017 is the first time the World Bank included mobile-payment-related questions.

Katie will be online to field comments on May 8:
10am-noon EDT (Asia: late evening, PST 6am-8am, Africa/Europe: late afternoon)

60 thoughts on “Scanning and Spending: Examining the Impact of Mobile Payment Penetration on the Saving Rate in Contemporary China”

  1. You mentioned that a bigger dataset with more variables along with looking at the extent of savings (rather than binary categories) would be more suitable to answer your questions – I agree. How do you suggest you get all this data (assuming that the are not all already in the Global Findex database)?

    1. Hi Jillian,

      Thank you for the question. I think the most ideal scenario will be obtaining user-level data directly from WeChat Pay or Alipay that include data points like how many transaction that person has completed during the year and how much money that person has spent through those two apps during the year. I would also need to know how much income people are making so I can calculate the savings by extracting spending from income. That will be a hard task because of user privacy issues and professional database which might contain data I want do not support individual usage and is super expensive.
      Another way is to conduct an indirect experiment/survey, as one of my literature review article did (Agarwal, S., Ghosh, P., Li, J., & Ruan, T. (2019)). Agarwal et al.’s analysis used individual level data from a supermarket chain so it included data including how frequent and how much a consumer has spent at the chain. I found that not the best for my experiment because I found supermarket business pretty fragmented in China and my research would not represent all geography I want, especially in rural areas where no chain is available. It also does not reflect my interest in general savings, as supermarket consumption is only a small portion of spending. A survey/experiment in general also suffers from gender or age bias as my personal network is really limited. But I believe if I were to pursue a master or PhD, elevating my regression analysis in this I.S will be definitely possible.

  2. Katie, I agree there are many factors that would affect the declining savings rate, but I also have found from anecdotal experience that I buy things a lot more easily with mobile payments, especially Wechat because it is so easy. Thanks for the presentation, it’s really interesting!

    1. Hi Reon,

      Thanks for your comment! Yes, the easiness of spending through mobile payment apps was a personal experience for me and a lot of my friends, so I took that as my initial motivation for this study. As I progressed with my study, I realized that there are many other factors that could affect saving behavior. But I still think mobile payment plays a role in savings, and it could go either way depending on region, gender, age, income, etc. I think I will get different answers if I’m able to conduct my economic analysis with a more comprehensive dataset!

  3. Hi Katie,
    Very interesting topic, which certainly could translate not just to savings rate in China, but universally. Well done, well thought out.
    Talk to me more about the savings variable: The question from the Findex was a yes, I saved or no, I did not? Is that correct? I think you intimated it on your explanation on slide 13 explanation; more in depth look at level of savings, such as a percentage of total income, et al.

    Great topic, which certainly points to the possibility of more study, which I imagine might be of great interest to marketing types, right?

    1. Hi Mark,
      Thanks for your questions! Yes, the saving variable is a “yes or no” variable indicating if an individual has saved or not. In my full paper, there are three saving variables that I used: “Saved”-saved in general; “Saved_Formal”-saved through formal financial institution (commercial banks, etc.)(strongest specification); “Saved_Informal”-saved through informal channels (mobile apps, personal piggy banks, etc., which I didn’t find more specification on this). All of these three variables I found not conclusive of what I want to explore as they don’t tell the extent of savings, especially because different people might have different understanding of savings (for example, does $1 count or does $100 count?).
      In terms of next step, I think the topic of mobile payment is really flexible and has a tons of possibility. For example, as you suggested, a marketing topic could be simply analyzing marketing strategies of mobile payments in China. If I have better dataset, I could also be looking at topics like financial inclusion of mobile payment in rural areas, how different age groups are affected by mobile payments and what culture values do that indicate, etc.

  4. What is the scale of your plot on slide 6? Is that percentage of income?

    1. Hi Frank,

      Thank you for the question! Yes, the plot scale is percentage of income.

  5. Hi Katie,

    It would be interesting to compare and contrast how the availability of mobile payments have affected other countries as well. Africa’s usage of M-Pesa comes to mind.

    Great job!

    1. Hi Roger,
      Thanks for your suggestion! M-Pesa was something I looked at when I started my study. I found M-Pesa more resemblant of a mobile banking solution as the app primarily centers around payment, whereas WeChat Pay and Alipay are more like a living ecosystem that includes not only payment but also other informations. A next step for this research would be comparing mobile payment systems with those of other countries, and M-Pesa is definitely one interesting case to look at.

  6. Great job on your presentation! The professional staff in Ed Tech is very proud of you.

    1. Hi Megan, thank you and the Ed Tech team so much for your support:) I’m glad you enjoyed the presentation!

  7. Katie: This is very interesting work. The World Bank data sets evolve over time, and expansion of survey questions are periodically considered by the Bank. You might send you analysis to the Research Group there and note your findings and value of altering the questions or adding new ones in the next update of the data set.

    Also, did you look at similar research outside of China, for example Africa? The Bank and other development institutions have gathered data on mobile payments, etc. relevant to your research.

    1. Hi John,
      Thank you for your suggestions! I did look at some researches in Africa but it’s something I could explore more if I have the chance to continue this study. I found mobile payment providers in Africa including M-Pesa, Equitel, and Airtel are powered by telecommunication services (a lot of services require SIM cards) and are agent-based for users to open accounts. Mobile payment providers in China are mostly third-party apps that requires different process but completely online activation process. I think those differences, as well as how different systems offer different kinds of services and target to different users, could be interesting points to look at in future research.

  8. Hey Katie! Great job on your presentation. I have one question: do you see these forms of mobile payment becoming popular in America in the near future? I know that we currently have services like ApplePay, which may be in greater use now because of its “touchless” system. What do you think?

    1. Hi Sydney,
      Thanks for your question! I can’t tell exactly how mobile payment will develop in the U.S but it’s interesting to see during my four years how Venmo has become a popular thing. I would say a major concern could be data security as adopting a payment ecosystem as WeChat Pay and Alipay does expose risks of personal information leaks. In addition, people’s willingness to adopt new technology is also important, especially for elder generation who are already so used to paying with card and cash. But I think service like Apple Pay which focuses on payment with pretty reliable security measures have more markets in the future, especially under this global pandemic where no-touch and online shopping is highly encouraged.

  9. Thank you, Katie, for sharing your insightful research! I enjoyed your presentation.

  10. Thank you for sharing your research on such a fascinating and relevant topic! This will definitely make me more reflective when using ApplePay. Will you continue your work or research in business/finance after Wooster?

    1. Hi Lynette,
      Thanks for your comment:)! Yes, I will be interning as a research analyst in a venture capital firm in China and I plan to pursue my master in finance after 2-3 years of work.

    1. Hi Maira, thank you so much and the Ed Tech team for your support!:)

  11. Hey Katie – Really enjoyed looking through your presentation and great work! Some very fascinating ideas you bring into play here. Great work!!

    1. Hi Jonathan, I’m glad you enjoyed my project! Thank you for your comment.

  12. Great work Katie! I have three questions:

    (1) You show a decline in gross savings in the chart on page 6. Is there a difference between gross savings and the personal savings decisions of individuals?
    (2) In your literature review, did you explore the different types of savings? For example, I imagine China requires a mandatory contribution to a state-run pension plan. Is this a type of savings? Is that different from the savings you were interested in? Where do pension plans savings show up in an individual persons calculus of saving?
    (3) I was wondering in your regression results, which independent variables had the largest marginal effects?

    1. Prof. Moledina,
      Thank you for your questions!
      (1) Yes, I did realize that gross national saving rate is different from personal saving rate. In my paper, I cited data from OECD that suggested household saving rate. It overall showed a similar trend as what I have in slide 6 that saving rate peaked in 2010 (38.8%) and has been going down since then.
      (2) I didn’t explore different kind of savings as I couldn’t find a lot of resources that talks about mobile payment’s relationship to savings. 2 out of 3 articles I looked at were exploring leisure spending. Types of savings could have been something I should look at more. I’m interested in is more about non-mandatory savings. State-required pension plans could constitute a big portion of savings if a person is participating as a citizen. But most state pension plans are mandatory through jobs, which means that money is automatically deducted by the company and turned into personal pension account. I don’t see these as a the savings I’m interested in since they are pre-planned and do not goes directly to people’s hand for them to allocate.
      (3) The strongest independent variable was “savings via formal financial institutions.” This was in accordance with my expectation as compared to general and informal saving behaviors, it specifies more on the channels one would consider their monetary activities as savings.

  13. Great project Katie! I knew that when credit and debit cards became popular, there were discussions about saving money using cash vs cards and now we have mobile pay! It is interesting to see what happens as the world evolves!

    1. Thanks Emily! It’s intriguing to see how technology changes our lives day by day. My topic came to me as a culture shock when I went back to China for summer breaks. Every time I go back it’s something new!

  14. Very interesting study. Thanks for sharing and congratulations on the hard work you put into completing your IS!

    1. Mr. Bowers,
      Thank you for reading my study! I’m glad you enjoyed it.

  15. Hello Katie !
    I loved your IS topic – it was very interesting ! I plan on majoring in Economics as well. I am a part of the Wooster Class of 2024. Wanted to ask you a few things on email perhaps, if you’re up for it ?

  16. Congratulations, Katie! Such an interesting study and it leads to so many other ideas and variables to pursue. Best wishes on your new job!

  17. Dear Yuxuan, excellent work. I have a question about the different users of Alipay and WeChat pay. Are there certain demographic groups (youths between 15-20 yrs, young adults 21-35 yrs) who are more likely to use such types of payment apps? Also would a study of the different types of purchases made by different demographic groups, and the amount of each purchase (with some form of limit) be useful in thinking about how saving practices could change with these mobile payment apps?
    Congrats on completing an interesting and insightful piece of work.

    1. Dear Prof. Ng,
      Thanks for your questions! I would say almost everyone I know, including my parent’s generation and my peers, are all using mobile payment apps. I think there might be age limits for only people older than 18 could use the payment functions. Elder generation could have a hard time adopt to the technology but since there’s barely anywhere that recommend cash usage, I imagine the use of mobile payment is very prevalent.
      And to your second question, yes, I think having a more comprehensive dataset will really help and reinforce my thoughts. I grew up in a city where technology is common and fast, but the situation could be different in rural areas, where people could use mobile payment for different purposes. The dataset I used was the best I could access but it didn’t tell too much information like the extent of savings, the regions participants are staying in, and specific types of savings they are planning to use the money for. I think those factors will be really useful to understand the topic.
      Thank you and Prof. Bonk for the amazing four year at Wooster!

  18. Hi Katie! This is very interesting. I never really thought about how mobile payment could influence saving. Congratulations on your IS!

    1. Hi Reeb! Thanks for your comment and congratulations to your accomplishment too☺️❤️

  19. Katie,
    This is a very interesting topic, and so timely. I noted that you became interested in this topic due to your own anecdotal habits. I think many “digital natives” would have the same hunch you had. I’m wondering if this led you to think about whether you create a motivated savings app to compliment the easy spending apps. In other words, have you given any thought to the kinds of variables that might motivate people to save?

    1. Dean Griffin,
      Thanks for your suggestion! There is actually built-in program in Alipay to let users to transfer money into their digital “piggy bank” account, and there are a lot of money tracking apps on the market that I’ve personally tried to use. So this could have been something I look into more in terms of how financial planning methods affect savings. But as other demographic variables missing in my study, I think having a user-level data will be helpful. Under a state campaign of spending, I think the savings part of the mobile payment apps are not put forward for users to recognize, and the use of other savings app is pretty fragmented will no apps having leading position like WeChat Pay and Alipay. But it would be very interesting to look at this!

  20. Hi Katie,
    Congratulations on this excellent work! And thank you for contributing it in the Symposium here. It’s great to learn more about what you have been working on this year.

    1. Hi Prof. Graham,
      Thank you for your comment to my presentation and support through my years at Wooster:)

  21. Hi Katie,

    Your research sounds very very interesting. It is similar to what economic sociologist may be interested.
    It will be my reading list over summer.

    1. Hi Prof. Matsuzawa,
      I’m glad you enjoyed it! Thank you for your warm support and I’m really glad to have you as my advisor!

  22. Congratulations, Katie!

    This is really interesting work, and your hypothesis about mobile payment was compelling — I was sure it would be borne out by the data! Interesting to see that (at least for this study) the correlations didn’t support it. I am sure that there will be a great deal of work on issues of this kind in the future, and that your ideas and work will continue to be important. It has been great having the chance to get to know you, and I wish you all the very best for the future.

    Pres. Bolton

    1. President Bolton,

      Thank you for your comment! Yes, this is an intriguing and versatile topic for future research. It has been a pleasure to have met you since first day of ARCH5 and have the chance to know you more through different campus events. Thank you for the amazing four years!

      Yuxuan (Katie) Ke

  23. Great job with the presentation Katie! I can’t wait to see where you go with this research.

  24. Yes, Katie! Amazing work. I am so happy I can call you my friend :). I wish you the best and Congratulations!

    1. Heyyyyy Maresa!!! Thank you so much:) I’m glad to have you through my college and good luck with everything you do too!

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