China’s central bank may be planning to use its digital currency to curb the dominance of Alibaba and Tencent in the digital payments sector.
The People’s Bank of China is purportedly planning to use its digital currency electronic system (DCEP) — another moniker for its central bank digital currency — to target the dominance of technology giants like Alibaba and Tencent in the digital payments sector.
According to the Financial Times, even regulators and executives of Alibaba’s financial group Ant agreed that PBoC will target the market dominance of Alipay and WeChat pay.
As of now, Alibaba’s financial subsidiary Alipay and Tencent’s WeChat Pay control a majority of the digital payments across China while banks are left far behind in the competition. In the first quarter of 2020, Alipay processed almost 56% of all mobile payments in China.
The central bank is levelling the playing field
According to the details received by Financial Times from several officials familiar with the central bank’s strategies, PBoC will use the DCEP to provide banks equal opportunities in the field of digital payments as it earlier did to technology giants.
Reflecting on the unprecedented opportunities given to technology giants to leverage digital payments, the head of Asian economic research at a large international bank said that the former PBoC governor Zhou Xiaochuan had allowed Alipay and WeChat Pay “to grow into monsters” despite complaints from Chinese banks and the China Banking Regulatory Commission.
In a separate statement, a senior official of the Hong Kong Monetary Authority familiar with the matter said:
“They [PBoC] want a more level playing field for the banks. Retail payments are so dominated by Alibaba and Tencent while banks are less active in electronic payments.”
Is China battling against Alipay and WeChat Pay?
At the peak of its hype in March, several reports stated that Alibaba and Tencent were both an active part of the “digital yuan” project. However, last month, a report from South China Morning Post suggested that China was launching its digital currency as an alternative payment option for Alipay and WeChat Pay. Cointelegraph also reported that both these companies were not on the list of participants of China’s digital currency project.
Conversely, some believe that the DCEP will not work against Alipay and WeChat Pay but rather integrate them into the system for faster and smoother digital payments. It must also be noted that Alipay has several patents related to China’s digital currency, which is indicative of the fact that the company is still not completely out of the game.