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<\/p>\nIn China\u2019s commercial hub Shanghai, six big state banks are quietly promoting digital yuan ahead of a May 5 shopping festival, carrying out a political mandate to provide consumers with a payment alternative to Alipay and WeChat Pay.<\/p>\n
The banks are persuading merchant and retail clients to download digital wallets so that transactions during the pilot programme can be made directly in digital yuan, bypassing the ubiquitous payment plumbing laid by tech giants Ant Group, an affiliate of Alibaba, and Tencent.<\/p>\n
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\u201cPeople will realise that digital yuan payment is so convenient that I don\u2019t have to rely on Alipay or WeChat Pay anymore,\u201d said a bank official involved in the rollout of e-CNY for the Shanghai trial, under the guidance of China\u2019s central bank. The official is not authorised to speak with media and declined to be identified.<\/p>\n
China\u2019s development of a sovereign digital currency, which is far ahead of similar initiatives in other major economies, looks increasingly poised to erode the dominance of Ant Group\u2019s Alipay and Tencent\u2019s WeChat Pay in online payments.<\/p>\n
That turf encroachment coincides with Beijing\u2019s expanding effort to clamp down on anticompetitive behaviour in the internet sector, part of a wider reining in of the clout of sector heavyweights.<\/p>\n
Regulators scuppered Ant\u2019s record $37 billion IPO in November and earlier this month imposed a sweeping restructuring on the fintech conglomerate controlled by Jack Ma. Ma\u2019s Alibaba Group Holdings was recently hit with a record $2.8 billion antitrust penalty.<\/p>\n
In public, the People\u2019s Bank of China (PBOC) says e-CNY won\u2019t compete with AliPay or WeChat Pay, and serves only as a \u201cbackup\u201d or \u201credundancy\u201d.<\/p>\n
But in private, state banks marketing the digital fiat currency for the central bank bluntly describe Beijing\u2019s intention to undercut the duo\u2019s dominance.<\/p>\n
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\u201cWeChat Pay and Alipay own an ocean of data,\u201d so the e-CNY rollout facilitates China\u2019s anti-trust campaign and helps the government control big data, he added.<\/p>\n
The PBOC and Tencent declined to respond to requests for comment.<\/p>\n
Ant declined to comment on the relationship between Alipay and e-CNY. Ant-backed MYbank said it is \u201cone of the parties participating in the research and development\u201d of the e-CNY, and \u201cwill steadily advance the trial pursuant to the overall arrangement of the People\u2019s Bank of China.\u201d<\/p>\n
DIGITAL CASH<\/strong><\/p>\n The e-CNY digitalises a portion of China\u2019s physical notes and coins, or currency in circulation (M0), and was launched last year in small pilot schemes in four cities.<\/p>\n Under a two-tier distribution system, the PBOC issues the digital currency to banks, which pass the money to individuals and companies.<\/p>\n The six banks in the e-CNY pilot schemes include China\u2019s biggest lenders such Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and China Construction Bank.<\/p>\n \u201cThe e-CNY\u2019s ease of use will likely be comparable to Alipay and WeChat Pay, while its security function will likely be higher, and as sophisticated as Bitcoin,\u201d HSBC wrote in a recent report, adding that it expects the digital currency to \u201cproliferate\u201d within China.<\/p>\n Among a slew of likely motivations cited by HSBC behind the push is the central bank\u2019s desire to gain control of payment channels and consumption data from Alipay and WeChat Pay.<\/p>\n CONSPICUOUSLY ABSENT<\/strong><\/p>\n Digital wallets, which are still being beta tested, can be bundled with a dozen popular apps including Meituan, JD.com, Didi and Bilibili, but conspicuously can not be linked to WeChat or Alipay. That means none of the participating banks can transfer e-CNY between their digital wallets and the two established payment platforms.<\/p>\n \u201cPBOC doesn\u2019t want to see the money being routed through third-party payment systems,\u201d a banker said, citing the need for \u201cinformation segregation\u201d.<\/p>\n The e-CNY will digitize \u201cthe last mile\u201d of consumption, enabling banks and merchants to capture data and gain insights into spending patterns, said Wilson Chow, Global TMT Leader, PwC China.<\/p>\n That data is now dominated by Alipay and WeChat Pay, which control a combined 94% of China\u2019s online payment market.<\/p>\n Mass adoption of the e-CNY won\u2019t happen overnight.<\/p>\n Chow predicts that e-CNY will account for roughly 10% of China\u2019s electronic payments market in a few years, co-existing with Alipay and WeChat Pay.<\/p>\n To entice users, bankers said the PBOC will likely give \u201cred envelopes\u201d of free digital cash or discounts to Shanghai citizens around the upcoming shopping festival, an event aimed at promoting spending to fuel economic recovery from COVID-19.<\/p>\n PBOC deputy governor Li Bo told a forum last week that domestic adoption will precede cross-border payments with e-CNY, which many analysts believe will bolster the yuan\u2019s global status as China seeks ultimately to break the dominance of the dollar settlement system.<\/p>\n \u201cThe priority of the yuan\u2019s digitalization is currently to promote its domestic use,\u201d Li said.<\/p>\n","protected":false},"excerpt":{"rendered":" In China\u2019s commercial hub Shanghai, six big state banks are quietly promoting digital yuan ahead<\/p>\n","protected":false},"author":1,"featured_media":9634,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"spay_email":"","footnotes":""},"categories":[2],"tags":[],"class_list":["post-9632","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"yoast_head":"\n