The People’s Bank of China (PBoC) is planning to use its digital currency electronic system (DCEP) – another name for its central bank’s digital currency – to address the dominance of technology giants such as Alibaba and Tencent in the digital payments sector.
The report comes just days after the Central Bank prompted a major antitrust agency to launch an investigation against Alipay and WeChat Pay for using their dominant position to suppress competition.
According to the Financial Times, even regulators and executives at Ant, Alibaba’s financial group, agreed that the PBoC would focus on controlling the market for Alipay and WeChat Pay.
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Alibaba’s financial subsidiary Alipay and Tencent’s WeChat Pay now control the majority of digital payments throughout China, while banks lag far behind the competition. In the first quarter of 2020, Alipay processed almost 56% of all mobile payments in China.
Central Bank paves the way
According to details received by the Financial Times from several officials familiar with the Central Bank’s strategies, the PBoC will use DCEP to provide banks with equal opportunities in the field of digital payments, as it did previously with the leading technology companies.
Reflecting on the unprecedented opportunities for large technology companies to take advantage of digital payments, the head of Asian economic research at a large international bank said that former PBoC Governor Zhou Xiaochuan had allowed Alipay and WeChat Pay to “become monsters” despite complaints from Chinese banks and the Chinese Banking Regulatory Commission.
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In a separate statement, a senior official of the Hong Kong Monetary Authority who is knowledgeable on the subject said
“They [the PBoC] want a more level playing field for the banks. Retail payments are heavily dominated by Alibaba and Tencent, while banks are less active in electronic payments.
Is China fighting Alipay and WeChat Pay?
At the height of their promotion in March, several reports claimed that Alibaba and Tencent were both active in the “digital yuan” project. However, last month, a report by South China Morning Post suggested that China was launching its digital currency as an alternative payment option to Alipay and WeChat Pay. Cointelegraph also reported that both companies were not on the list of participants in the CBDC project.
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On the contrary, some believe that DCEP will not work against Alipay and WeChat Pay but will integrate them into the system to make digital payments faster and smoother. It should also be noted that Alipay has several patents related to Chinese digital currency, which indicates that the company is not yet completely out of the game.