S&P: Chinese digital yuan will compete with payment services

The Chinese digital yuan might lower transaction costs and lead to customer churn and decrease of income of payment service providers, analysts at the S&P rating agency believe.

The new report by the international rating agency S&P says that the national digital currency in China can compete with other payment services due to its low transaction costs. The competition will lead to a churn of users from payment services and a decrease in their income from commissions.

Although the trial of China’s CBDC starts in a small scale, it will have a significant impact on the future of banking industry. If this trial is extended, we expect that the digital yuan will become a payment tool rather than a wealth storage tool.”

According to Hu Minrui, global credit analyst at S&P, the digital yuan is unlikely to replace the savings function of bank deposits as it does not provide for interest payments. However, the digital yuan could provide a cheaper and more convenient way to pay for goods at retail points of sale and compete with payment companies and commercial banks operating in this area. Among the companies that may face a decline in commission income, S&P mentions Alipay and WeChat which are the main players in retail e-payments in China.

Both the sender and the recipient of the digital yuan use the data link through the central bank of China (People’s Bank of China). Therefore, the settlement and clearing process is more efficient and does not require the involvement of other intermediaries. Thus, transaction costs could be reduced.

At the same time, S&P expects payment companies to maintain their dominance in the market by their close relationship with e-commerce platforms and social networks, which helps to increase user loyalty.

In October, China completed a pilot test of the digital yuan in Shenzhen.

Via: 2Coinfox.info

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