In China’s Shanghai Mall, six major state-owned banks are quietly promoting the digital yuan ahead of a shopping festival on May 5, fulfilling a political mandate to provide consumers with a payment alternative to Alipay and WeChat Pay.
Banks are persuading merchants and retail customers to upload digital wallets so that transactions during the pilot can be done directly in digital yuan, bypassing the ubiquitous payment plumbing posed by tech giants Ant Group, a subsidiary from Alibaba, and Tencent.
“People will find that digital yuan payment is so convenient that I no longer need to rely on Alipay or WeChat Pay,” said a bank official involved in the deployment of e-CNY for the Shanghai test, under the direction of the Chinese power plant. Bank. The official is not authorized to speak to the media and has refused to be identified.
China’s development of a sovereign digital currency, which is well ahead of similar initiatives in other major economies, appears increasingly poised to erode the dominance of Ant Group Alipay and WeChat Pay from Tencent in online payments.
This encroachment on the territory coincides with Beijing’s growing effort to crack down on anti-competitive behavior in the internet sector, as part of a broader control of the weight of heavyweights in the sector.
Regulators scuttled Ant’s record $ 37 billion IPO in November, and earlier this month forced a sweeping restructuring of the fintech conglomerate controlled by Jack Ma. Ma’s Alibaba Group Holdings was recently hit with downfall. a record antitrust sanction of $ 2.8 billion.
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In public, the People’s Bank of China (PBOC) asserts that e-CNY will not compete with AliPay or WeChat Pay, and only serves as a “backup” or “redundancy”.
But in the private sector, state banks marketing digital fiat currency for the central bank are bluntly describing Beijing’s intention to undermine the duo’s dominance.
“Big data is wealth. Whoever owns data prospers,” said another bank official responsible for promoting e-CNY.
“WeChat Pay and Alipay have an ocean of data,” so the deployment of e-CNY aids China’s antitrust campaign and helps the government control big data, he added.
The PBOC and Tencent declined to respond to requests for comment.
Ant declined to comment on Alipay’s relationship with e-CNY. MYbank, backed by Ant, said it was “one of the parties involved in the research and development” of e-CNY, and “will steadily advance the lawsuit in accordance with the general arrangement of the People’s Bank. of China “.
The e-CNY digitizes part of China’s physical banknotes and coins, or circulating currency (M0), and was launched last year as part of small pilot projects in four cities.
As part of a two-tiered distribution system, the PBOC issues the digital currency to banks, which transfer the money to individuals and businesses.
The six banks in the e-CNY pilot projects include the largest Chinese lenders such as the Industrial and Commercial Bank of China, the Agricultural Bank of China, the Bank of China and the China Construction Bank.
“The ease of use of e-CNY will likely be comparable to Alipay and WeChat Pay, while its security feature will likely be higher and as sophisticated as Bitcoin,” HSBC wrote in a recent report, adding that it expects the digital currency to “proliferate” in China.
Among a series of likely motivations HSBC cited behind this push is the central bank’s desire to take control of payment channels and consumption data from Alipay and WeChat Pay.
Digital wallets, which are still in beta testing, can be paired with a dozen popular apps, including Meituan, JD.com, Didi, and Bilibili, but obviously cannot be linked to WeChat or Alipay. This means that none of the participating banks can transfer e-CNYs between their digital wallets and the two established payment platforms.
“The PBOC does not want money to flow through third party payment systems,” said one banker, citing the need for “segregation of information.”
The e-CNY will digitize the “last mile” of consumption, enabling banks and merchants to capture data and better understand spending patterns, said Wilson Chow, Global TMT Leader, PwC China.
This data is now dominated by Alipay and WeChat Pay, which together control 94% of the Chinese online payments market.
Mass adoption of e-CNY will not happen overnight.
Chow predicts that e-CNY will account for around 10% of the Chinese electronic payments market in a few years, coexisting with Alipay and WeChat Pay.
To attract users, bankers said the PBOC would likely give “red envelopes” of free digital money or discounts to citizens of Shanghai around the upcoming shopping festival, an event to promote spending to fuel economic recovery. of COVID-19.
PBOC Vice Governor Li Bo last week told a forum that domestic adoption will precede cross-border payments with e-CNY, which many analysts say will strengthen the yuan’s global status. as China seeks to break the dominance of the dollar settlement system.
“The priority of digitizing the yuan right now is to promote its domestic use,” Li said.