Six major state banks in Shanghai are secretly promoting digital yuan ahead of a May 5 shopping festival, fulfilling a political mandate to offer customers a payment option, other than Alipay and WeChat Pay. The banks are persuading merchant and retail clients to download digital wallets so that transactions can be made directly in digital yuan during the pilot programme, bypassing the ubiquitous payment plumbing laid down by tech giants Ant Group, an affiliate of Alibaba, and Tencent. “People will realise that digital yuan payment is so easy that I won’t have to rely on Alipay or WeChat Pay anymore,” said a bank official involved in the Shanghai trial’s rollout of e-CNY, which was overseen by China’s central bank. The official refused to be identified because he or she was not authorised to talk to the media.
China’s establishment of a sovereign digital currency, which is well ahead of similar efforts in other major economies, appears to be eroding Ant Group’s Alipay and Tencent’s WeChat Pay’s online payment supremacy. This encroachment coincides with Beijing’s growing effort to crack down on anticompetitive behaviour in the internet sector, as part of a broader effort to limit the power of industry behemoths. Ant’s $37 billion IPO was halted by regulators in November, and the fintech conglomerate owned by Jack Ma was forced to undergo a massive restructuring earlier this month.
Alibaba Group Holdings, Ma’s company, was recently hit with a record antitrust fine of $2.8 billion. In public, the People’s Bank of China (PBOC) claims that e-CNY is merely a “backup” or “redundancy” to AliPay and WeChat Pay. However, state banks selling the central bank’s digital fiat currency openly explain Beijing’s plan to challenge the duo’s supremacy in private. “The value of big data is enormous. Those who monitor data prosper”. Another bank official in charge of promoting the e-CNY agreed. “WeChat Pay and Alipay own an ocean of data,” he said, adding that the e-CNY rollout aids China’s anti-trust drive and allows the government to better monitor big data. Requests for comment from the PBOC and Tencent were both ignored.
Ant remained tight-lipped about Alipay and e-partnership. CNY’s MYbank, which is sponsored by Ant, said it is “one of the parties involved in the research and growth” of the e-CNY and that it “will gradually advance the trial in accordance with the overall arrangement of the People’s Bank of China.”
E-money
The e-CNY, which digitalizes a portion of China’s physical notes and coins, or currency in circulation (M0), was first introduced last year in four cities as a small pilot programme. The PBOC issues digital currency to banks, who then distributes it to individuals and businesses through a two-tier distribution structure. China’s largest banks, including Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and China Construction Bank, are among the six banks participating in the e-CNY pilot schemes. “The e-ease CNYs of use will likely be comparable to Alipay and WeChat Pay, while its security feature will likely be higher, and as sophisticated as Bitcoin,” HSBC predicted in a recent article, adding that the digital currency will “proliferate” in China.
The central bank’s intention to gain control of payment networks and consumption data from Alipay and WeChat Pay is one of many possible motivations cited by HSBC as fuelling the drive.
Gaining Insights Digital wallets can be bundled with a dozen common apps, including Meituan, JD.com, Didi, and Bilibili, but not with WeChat or Alipay, which is still in beta testing. That means no e-CNY can be transferred between participating banks’ digital wallets and the two existing payment platforms. “The PBOC does not want money to be routed into third-party payment systems,” a banker explained, citing the need for “information segregation.” According to Wilson Chow, Global TMT Chief, PwC China, the e-CNY will digitise “the last mile” of consumption, allowing banks and merchants to collect data and gain insights into buying habits.
Alipay and WeChat Pay, which together control 94 percent of China’s online payment market, have taken control of this data. The e-widespread CNY’s adoption will take some time. In a few years, Chow estimates that, e-CNY will account for around 10% of China’s electronic payments industry, alongside Alipay and WeChat Pay. To entice consumers, bankers predict that the PBOC will distribute “red envelopes” containing free digital cash or discounts to Shanghai residents during the upcoming shopping festival, an event aimed at encouraging investment to help the city recover from Covid-19.
Domestic adoption will come before cross-border payments with e-CNY, according to PBOC deputy governor Li Bo, who spoke at a forum last week. Many analysts believe this will boost the yuan’s global standing, as China attempts to crack the dollar settlement system’s supremacy. “At the moment, the aim of the yuan’s digitalization is to encourage its domestic use,” Li said.
