Is E-CNY the future in China?
With the rapid development of online technology and the digital economy, there is a growing demand for convenience, security and privacy in retail payments. Cash usage in China has been on a downward trend, and the E-CNY has moved from theory to reality.
What is E-CNY?
With the development of technology and the Internet, more and more digital forms of circulating money have emerged, such as Bitcoin, Ethereum, etc., but these are not influenced and controlled by the government or any central bank. E-CNY, also named DCEP (Digital Currency Electronic Payment), is a legal digital currency that has been approved by the State Council of China for planned issuance, controlled and issued by central bank digital currency (CBDC), encrypted and operated via mobile app, cards and other carriers. It can be understood as cash in digital form, but the two do not have exactly the same characteristics.
Ordinary cash is physical, with different patterns, year of issue, numbering, etc., but E-CNY does not require any of these. The E-CNY is a retail digital currency that is primarily used to meet China’s domestic retail payment needs.
What is the difference between E-CNY and third-party payment wallets?
The use of cash is a rarity in China, and people use their smartphone payments everywhere, which have become an integral part of Chinese people’s lives. The two main payment systems are WeChat Pay (an app that combines chat software) and Alipay (which is owned by Alibaba).
Although WeChat Pay, Alipay and other third-party payment wallets and E-CNY are both developed through the electronic use of big data and both offer high convenience and low-cost advantages, there are fundamental differences between them. WeChat Pay and Alipay are “wallets”, based on account logic; E-CNY is “money” in a “wallet”, based on a token logic.
Chinese consumers rely heavily on both payment apps and it would be impractical and difficult to get them to download a new app for the E-CNY to use.
Data from the research report shows that Alipay and WeChat Pay have taken 54.93% and 38.98% of the payment market share respectively as of the fourth quarter of 2019. The 2020 Mobile Payment User Questionnaire Report showed that the proportion of users using WeChat Pay increased to 92.7% from 87.3% in 2019, and the proportion of Alipay increased to 91% from 90.7% in 2019.
To better promote the E-CNY, starting from 2021, Alipay and WeChat Pay have also started experimenting with E-CNY payments by adding a specific function module in the app.
What are the features of E-CNY?
- E-CNY combines account-based, quasi-account-based and value-based approaches with a variable denomination design and value transfer in the form of cryptocurrency strings.
- No interest is paid.
- Low cost.
- Anonymity.
- Security. The E-CNY uses a combination of digital certificate systems, digital signatures, secure encrypted storage and other technologies.
- Dual offline payment support. Both the recipient and the payer can complete the transaction even when they are not connected to the internet.
Interestingly, starting in 2020, Chinese local governments and the People’s Bank of China began an E-CNY red envelope pilot, giving local residents E-CNY red envelopes to spend.
Until December 2021, the number of E-CNY pilot scenarios has exceeded 8,085,100, covering areas such as daily payment, catering services, transportation, shopping and consumption, and government services. 261 million personal wallets were opened, with a transaction value of approximately RMB 87.5 billion. (about 12.3 billion euros).
On 4 January 2022, the E-CNY app became available on the Apple App Store and various Android app shops for people to download and use.
The 2022 Winter Olympics and the E-CNY
Beijing Winter Olympics have just ended, the E-CNY has reached a mature stage in its pilot construction in Beijing, how does the E-CNY serve people during the Winter Olympics? Do people in other countries be able to use it?
In order to allow consumers in China and other countries to use the E-CNY in China without any problems, there are various non-mobile phone dependent forms of wallets available for consumers to choose from, such as smartwatches, ski gloves, card-based wallets and more. People can open E-CNY wallets at banks, E-CNY change ATMs, hotels, etc. and use E-CNY in all places within the Olympic area.
Of course, outside of the Olympic area, E-CNY can be used for shopping, dining, hotels, transport, travel, healthcare and more.
In addition to facilitating services for the Winter Olympics, the Chinese New Year, which is the peak season for shopping, also saw a huge wave of E-CNY usage. Various shopping apps and offline shops are offering consumers the ability to pay in E-CNY. Consumers who pay with this method will also get a “bonus” subsidy, to promote consumer spending, as well as the promotion and use of E-CNY in China.
Is E-CNY the future in China?
Let’s wait and see.
About this article
This article has been written by a student on the Grenoble Ecole de Management’s Advanced Masters in Digital Strategy Management. As part of a content creation assignment, students are given the task of writing articles based on their digital interests and disseminate the articles online. Articles are marked but we make minimal changes to the content. Thanks for reading! James Barisic, Programme Director, MS DSM.
