In Shanghai, the commercial hub of China, 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.
The banks are convincing merchant and retail clients to download digital wallets so that transactions during the pilot program can be made directly in digital yuan and bypass the payment system laid out by tech giants Ant Group, an affiliate of Alibaba, and Tencent.
“People will realize that digital yuan payment is so convenient that I don’t have to rely on Alipay or WeChat Pay anymore,” said a bank official involved in the rollout of e-CNY for the Shanghai trial, under the guidance of China’s central bank.
China’s development of a sovereign digital currency, which is far ahead of similar initiatives in other major economies, looks like it is designed to shake the dominance of Ant Group’s Alipay and Tencent’s WeChat Pay in online payments.
Regulators halted Ant’s record $37 billion initial public offering (IPO) in November and recently imposed a sweeping restructuring on the fintech conglomerate controlled by Jack Ma. Mr. Ma’s Alibaba Group Holdings was recently hit with a record $2.8 billion antitrust penalty.
In public, the People’s Bank of China (PBOC) says e-CNY won’t compete with AliPay or WeChat Pay, and serves only as a “backup” or “redundancy”. But in private, state banks marketing the digital fiat currency for the central bank bluntly describe China’s intention to undercut the duo’s dominance.
“Big data is wealth. Whoever owns data thrives,” said another banking official tasked with promoting the e-CNY. “WeChat Pay and Alipay own an ocean of data,” so the e-CNY rollout facilitates China’s anti-trust campaign and helps the government control big data, he added.
The e-CNY digitalizes a portion of China’s physical notes and coins, or currency in circulation (M0), and was launched last year in small pilot schemes in four cities. Under a two-tier distribution system, the PBOC issues the digital currency to banks, which pass the money to individuals and companies.
“The e-CNY’s 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,” HSBC, the British bank wrote in a recent report. Among a slew of likely motivations cited by HSBC behind the push is the central bank’s desire to gain control of payment channels and consumption data from Alipay and WeChat Pay.
Digital wallets, which are still being beta tested, can be bundled with a dozen popular apps including Meituan, JD.com, Didi and Bilibili, but suspiciously cannot 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.
Mass adoption of the e-CNY not likely overnight
Experts predict that e-CNY will account for roughly 10 percent of China’s electronic payments market in a few years, co-existing with Alipay and WeChat Pay.
To entice users, bankers said the PBOC will likely give “red envelopes” 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.