Chinese platform WeChat has announced the inclusion of the digital yuan on its payment platform.
The integration of the central bank digital currency (CBDC) on WeChat Pay comes on the heels of a similar move by its competitor Alipay back in 2022. Industry stakeholders said the digital yuan’s integration could see an increase in the adoption of the CBDC ahead of a full-scale launch.
The feature will allow WeChat users to use the digital yuan to pay for WeChat mini-programs after synchronizing their digital wallet with their WeChat-bound mobile number. Users can then make payments with merchants that support the digital yuan via WeChat.
“Accessing digital renminbi through WeChat payment will improve efficiency and cost for small program merchants with an order of magnitude of millions,” said an official from the People’s Bank of China (PBoC).
The PBoC has faced numerous hurdles with launching the digital yuan, with the most evident being getting more people to use it. Alipay and WeChat Pay have seized a large chunk of the market share, making it hard for the PBoC to break through.
“Chinese consumers are so locked in WeChat Pay and Alipay, it’s not realistic to convince them to switch to a new mobile payment app,” said Linghao Bao, a research analyst at Trivium China. “So it makes sense for the central bank to team up with WeChat Pay and Alipay as opposed to doing it on its own.”
The PBoC attempted to drive adoption by adding the “red packet” functionality to the digital yuan wallet, a feature that has been a mainstay on both WeChat Pay and Alipay. The functionality draws inspiration from the Chinese New Year tradition of sending red envelopes filled with money to loved ones, with the central bank achieving modest success with the feature.
Cracking the enigma code of adoption
PBoC officials want to drive the adoption metrics for the digital yuan in 2023 following the plateau of transaction volumes and wallet downloads. Several municipal governments gave out over $20 million in digital yuans to incentivize citizens to use the CBDC during the 2023 Lunar New Year shopping window.
Members of the Chinese Communist Party (CCP) in Soochow have issued a directive aimed at increasing the region’s digital yuan transaction volumes and adoption rates. With plans to extend the digital yuan to new cities and include offline payment functionality, the PBoC remains confident that its CBDC would compete favorably with other payment platforms in the country.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
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