Delighted to contribute this article to the South China Morning Post.
- China’s digital payment market is big enough for the e-CNY, Alipay and WeChat Pay to survive and thrive alongside one another
- The digital currency will benefit from more visibility while payment platforms will benefit from the additional payment flows generated
Rather than being the killer so many predict, China’s new central bank digital currency will have a symbiotic relationship with payment platforms Alipay and WeChat Pay. This might surprise those who have read that the payment platforms face certain death at the hands of the digital yuan.
Much attention is focused on the digital yuan given its coming-out party at the Beijing Winter Olympics and recent launch of its chart-topping app. It’s easy to see why Alipay’s and WeChat Pay’s future seems dim.
The reality is quite different. All of these payment options will play off each other’s respective strengths, to mutual advantage. To see how, let’s address some common misconceptions about the digital yuan, or e-CNY.
Both payment platforms are rolling out e-CNY as a payment option, and neither is excluded from using the digital yuan. My Alipay app already sports a prominent red e-CNY symbol and has a wallet available to accept and spend the currency.
The payment platforms will benefit from the additional digital payment flows generated by the e-CNY.
While integration on Alipay and WeChat is far from complete, it is clear the People’s Bank of China has always intended coexistence. In December 2020, senior officials said “WeChat and Alipay are wallets, while the digital yuan is the money in the wallet.”
Some point to a perceived asymmetry of benefit with the e-CNY’s presence on the payment platforms with their vast user base. The e-CNY gains from visibility, but what’s in it for the platforms in lending visibility?
The other side of the symbiotic relationship is that the payment platforms will also benefit from the additional digital payment flows generated by the e-CNY. China’s mobile payment market is massive.
It was valued at 432 trillion yuan (US$68 trillion) in 2020, almost five times China’s GDP. Some observers see this as a static number or a single pie from which e-CNY will take a slice, but this zero-sum perspective ignores the e-CNY’s potential for expanding the mobile payment market.
More digital money will flow through China than ever before, and platforms will be the primary beneficiaries. The digital yuan is designed to go places and be used in ways that Alipay and WeChat Pay never could. Examples include JD.com, which paid employees’ salaries in e-CNY during trials, and banks conducting trials on high-value personal payments beyond the limits of Alipay or WeChat Pay.
No one will spend hours on the e-CNY wallet app as they do on WeChat or Alipay.
These use cases greatly increase the amount of digital money in circulation, putting more in the hands of users and increasing the overall volume of the digital payment market. The payment platforms will have more access to digital money than ever before.
Another misconception is the e-CNY app is a rival to the payment platforms’ own apps. Payment platforms are designed to be 360-degree lifestyle platforms that satisfy needs for payment as well as consumption.
The e-CNY app is a design marvel, but its job is to simply bring digital yuan payment to other apps on your phone. No one will spend hours on the e-CNY wallet app as they do on WeChat or Alipay.
The e-CNY app will allow direct payment to individuals and businesses without the payment platforms. Even so, it is unlikely to replace WeChat in its convenience for socialising payments or Alipay’s vast network of connected businesses. For example, my new e-CNY wallet can connect to my electric company to pay bills, but why would I bother switching when I already pay them on Alipay, which is e-CNY ready?
Some merchants may offer a discount for using the e-CNY to incentivise use and save on fees.
Some believe merchants will flee to the e-CNY to save fees on payments made on the payment platforms. A few merchants certainly will. Those most likely to leave traffic in infrequent, high-value sales where the fees are significant, or come from the small group of merchants whose sales are not dependent on e-commerce.
These groups might even offer a discount for using the e-CNY to incentivise use and save on fees. Clearly, there is no arguing the digital yuan will lure a portion of constituents away from the platforms. Most Chinese businesses, however, are heavily dependent on e-commerce, and you can expect them to stick with the payment platforms they know.
E-commerce operators rely on the platform’s buyer analytics to sell their products. No one can beat the payment platforms’ sophisticated marketing tools for getting product in front of shoppers. Giving up on these services would be to their detriment.
Rather than see the e-CNY and payment platforms as being locked in a life-or-death struggle where only one will survive, it is essential to understand that the market for digital payment in China is massive and will only expand with the introduction of the e-CNY.
A good comparison can be made with credit cards in the West,
An e-CNY digital wallet on a mobile phone. China has launched a smartphone app for making payments and transfers on an e-CNY app that became available on January 4. Photo: EPA-EFE
How Chinese consumers ultimately decide to make their mobile payments will depend on perceived benefits. Some will choose to pay with e-CNY for its low cost and its highly touted advantages in privacy. Others will continue to use the Alipay and WeChat Pay networks because of the services and convenience they provide.
A good comparison can be made with credit cards in the West, where one’s choice of which card to use depends on its perceived advantages with mileage points, cash back or other features. The West’s experience with credit cards also teaches us that one card isn’t going to eliminate the others.
The market is big enough for all to coexist harmoniously. Likewise, the digital yuan, Alipay and WeChat will live in symbiosis on the phones of China’s consumers. China’s digital payment market is big enough to support them all and growing even bigger.
Richard Turrin is the author of “Cashless: China’s Digital Currency Revolution”