- Alipay and WeChat Pay, China’s digital equivalent of Visa and Master Card. 82% of all payments in China are made from a mobile phone and 90% of these are processed through Alipay and WeChat Pay.
- Right now, Alipay is still the most popular online payment system in China. Like WeChat Pay, Alipay only charges for withdrawals, though, with Alipay, the amount allowed without a fee is much higher — RMBY 20,000, or approximately $2,900. The fee for merchants is similar to that of WeChat Pay at 0.55%.
In China's commercial hub Shanghai, 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 persuading merchant and retail clients to download digital wallets so that transactions during the pilot program can be made directly in digital yuan, bypassing the ubiquitous payment plumbing laid by tech giants Ant Group, an affiliate of Alibaba, and Tencent.
“Because of WeChat’s traffic and social advantage, in these past two years, WeChat Pay has become Alipay’s biggest competitor,” Wang Pengbo, finance analyst at research firm Analysys, tells Tech in. (ATF) 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 by via the two systems in 2020, as going out without a wallet is now common practice in the country.
Alipay And Wechat Pay Users
'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. The official is not authorised to speak with media and declined to be identified.
Tencent developed WeChat Pay as a director competitor to Alibaba’s Alipay, and to further integrate users into its social media platform, WeChat. As of Q3 2018, WeChat Pay took 84.3% of the market shares in the third-party mobile payments sector in China, maintaining its spot at number one in the market.
China's development of a sovereign digital currency, which is far ahead of similar initiatives in other major economies, looks increasingly poised to erode the dominance of Ant Group's Alipay and Tencent's WeChat Pay in online payments.
That turf encroachment coincides with Beijing's expanding effort to clamp down on anticompetitive behavior in the internet sector, part of a wider reining in of the clout of sector heavyweights.
Regulators scuppered Ant's record $37 billion IPO in November and earlier this month imposed a sweeping restructuring on the fintech conglomerate controlled by Jack Ma. 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 Beijing'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 PBOC and Tencent declined to respond to requests for comment.
Ant declined to comment on the relationship between Alipay and e-CNY. Ant-backed MYbank said it is 'one of the parties participating in the research and development' of the e-CNY, and 'will steadily advance the trial pursuant to the overall arrangement of the People's Bank of China.'
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 six banks in the e-CNY pilot schemes include China's biggest lenders such Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and China Construction Bank.
Alipay And Wechat Pay Difference
'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 wrote in a recent report, adding that it expects the digital currency to 'proliferate' within China.
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.
Taobao 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 conspicuously can not 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.
'PBOC doesn't want to see the money being routed through third-party payment systems,' a banker said, citing the need for 'information segregation'.
The e-CNY will digitize 'the last mile' of consumption, enabling banks and merchants to capture data and gain insights into spending patterns, said Wilson Chow, Global TMT Leader, PwC China.
That data is now dominated by Alipay and WeChat Pay, which control a combined 94% of China's online payment market.
Mass adoption of the e-CNY won't happen overnight.
Chow predicts that e-CNY will account for roughly 10% 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.
PBOC deputy governor Li Bo told a forum last week that domestic adoption will precede cross-border payments with e-CNY, which many analysts believe will bolster the yuan's global status as China seeks ultimately to break the dominance of the dollar settlement system.
'The priority of the yuan's digitalization is currently to promote its domestic use,' Li said.© Thomson Reuters 2021.