Home Merchant cash advance Analysis: China digital currency trials show threat to Alipay, WeChat duopoly

Analysis: China digital currency trials show threat to Alipay, WeChat duopoly


2021-04-26 01:32:51 GMT + 00: 00 – Shanghai – In China’s Shanghai Mall, six major state-owned banks are quietly promoting the digital yuan ahead of the May 5 shopping festival, filling a policy 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 program can be done directly in digital yuan, thereby bypassing the ubiquitous payment plumbing put in place by tech giants Ant Group , a subsidiary of Alibaba 9988.HK, and Tencent 0700 .HK.

“People will find that digital yuan payment is so convenient that I no longer have to rely on Alipay or WeChat Pay,” said a bank official involved in the e-CNY rollout for the Shanghai test, under the direction of the Chinese power plant. Bank. The official is not authorized to speak with the media and has refused to be identified.

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China’s development of a sovereign digital currency, which is well ahead of similar initiatives in other major economies, seems increasingly poised to erode the dominance of Ant Group’s Alipay and Tencent’s WeChat Pay in online payments.

This encroachment on the territory coincides with Beijing’s growing efforts to crack down on anti-competitive behavior in the Internet industry, as part of a broader control of the influence of the industry’s heavyweights.

Regulators thwarted Ant’s record $ 37 billion IPO in November and earlier this month forced a sweeping restructuring on the fintech conglomerate controlled by Jack Ma. Ma’s Alibaba Group Holdings was recently hit with a record antitrust penalty of $ 2.8 billion.

In public, the People’s Bank of China (PBOC) said that e-CNY will not compete with AliPay or WeChat Pay and will only serve as a “backup” or “redundancy”. (Whole story)

But privately, state-owned 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. Anyone who has data thrives,” 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 People’s Bank’s Comprehensive Arrangement 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 digital currency to banks, which pass the money to individuals and businesses.

The six banks in the e-CNY pilot programs include China’s largest lenders, such as the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and Construction Bank of China.

“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 the many likely motivations HSBC cites behind this surge 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 bundled with a dozen popular apps, including Meituan, JD.com, Didi, and Bilibili, but clearly 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 “information segregation.”

The e-CNY will digitize the “last mile” of consumption, allowing banks and merchants to capture data and gain insight into 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 offer “red envelopes” of free digital money or discounts to Shanghai citizens around the upcoming shopping festival, an event to promote spending to fuel economic recovery. after COVID-19.

PBOC Vice Governor Li Bo told a forum last week that domestic adoption would precede cross-border payments with the e-CNY, which many analysts say will strengthen the global status of the yuan as China ultimately 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.

(Reporting by the Shanghai Newsroom; Editing by Tony Munroe and Susan Fenton)

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