Alipay and WeChat Pay are currently the two mainstream digital payment systems in China. Used via mobile phones, they have become so ubiquitous it is estimated that two trillion yuan in payments will be made via the two systems in 2020, as going out without a wallet is now common practice in the country.
Now the Chinese government has decided to take a slice of the action with the launch of the digital yuan, which uses blockchain technology.
The digital yuan is a legal digital currency that has been issued by the People’s Bank of China in pilot schemes across the country. It is the digital equivalent of current banknotes and coins, and a controllable anonymous payment tool, according to Eastmoney.com.
The concept of the digital yuan has been proposed for a long time. However, many factors need to be considered in actual implementation, which has delayed a full-scale roll-out.
This led to the digital yuan entering the testing phase on August 14 and saw the Ministry of Commerce issue a notice to say that first-time pilot tests will be conducted in Beijing-Tianjin Wing, the Yangtze River Delta region, Guangdong, Hong Kong and Macao.
This follows recent trials by financial institutions in Shenzhen and Suzhou. Stocks marked with “blockchain” and “digital currency” have become popular across the board.
But an editorial by qq.com has forecast – and warned – that after full implementation of the digital yuan, Alipay and WeChat payment services may no longer be needed.
The digital renminbi is a currency issued by the central bank. Alipay and WeChat are only payment channels.
Two of the major benefits of the digital yuan are the likelihood that it will prevent the generation of counterfeit currency and reduce the cost of coinage.
In addition, the digital yuan could greatly shorten the time for currency issuance. Through networks or terminals, digital yuan can be issued extremely quickly.
Given that the world’s central banks have no experience with digital currencies, this issuance mechanism in China can be described as “unprecedented,” according to QQ.com.
So, the pilot test of the digital yuan has been very cautious, following international practice by conducting stress testing within a controllable range. Now the roll-out is spreading the central bank is confident the system is secure, robust and offers a convenient technical solution.
Digital RMB has landed
In other words, the digital RMB has officially landed! If there is no problem with the pilot programme, it will be gradually expanded to the rest of the country.
So now the government is allowing citizens to carry digital cash, what happens to Alipay and WeChat Pay, used by most of the Chinese population?
Once fully rolled out, the digital yuan will have the same value as banknotes and coins, and is the country’s legal tender. There is national credit endorsement and “legal compensation.” This is not something a business or an individual can refuse to use, according to Eastmoney.
In terms of function the advantage of the digital yuan is that when your mobile phone has no internet, digital renminbi can still pay for things. This is currently a function that WeChat and Alipay have not got.
It does appear the digital yuan will have a big advantage over WeChat and Alipay. For example, elderly people who don’t know how to access the Internet can make payments via mobile phones – and the elderly have been the biggest hold-outs in China’s digital cash revolution.
The payment method is also very simple. As long as both devices are equipped with the digital yuan app’, a transaction can be completed.
WeChat Pay and Alipay are already considering cutting staff, as it is likely their hundreds of millions of users will migrate to the state app.
Others who may be looking for new work are China’s bank guards and money transfer security staff. As the 100 yuan is the largest note, large transactions involve carrying large bundles or “bricks” of money, for major payments.
To meet the challenge, the two companies have introduced payment systems based on facial recognition systems, but this concept has not really caught on.
Also, WeChat Pay no longer offers free withdrawals which has caused some grumbling among its user base. Nevertheless, people have had to use it because there was no third-party payment method – until now.
The digitalisation of the service industry was the focus of China’s development plan in 2019 and the service industry accounted for 53.9% of GDP, so Eastmoney has said digitalisation will provide huge business opportunities.
For instance, in the media industry for specialised stories, users pay to read via micro transactions, rather than taking on a complicated subscription service.
This report appeared first on Asia Times Financial.