China has just 530 point-of-sale (POS) terminals and ATMs per million people, far below the 10,000 per million found in the United States. Accordingly, cash is used in 83 percent of all payment transactions in China, compared with just 21 percent in the United States. With most of these terminals and ATMs in China’s cities, practically all rural transactions are cash based.
One way to wean rural consumers off their reliance on cash might be to add more ATMs and POS terminals. But it would cost at least $2 billion and add just 130 terminals and ATMs per million people. Installing equipment and extending the telecommunications network in remote areas would also take a prohibitively long time.
The good news is that mainland China can tackle the problem by using existing technology, without a hefty price tag. McKinsey research shows that the mainland’s existing mobile Short Message Service network could be quickly and cheaply deployed to provide an SMS-based payment system in rural areas.
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