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China updates digital yuan app with new features for foreigners

Several new features aimed to enhance the experience of foreigners using the digital yuan (e-CNY) have been added to the application. The latest update, launched last September, offers a series of improvements, allowing foreigners in China to top up their digital yuan wallet (e-CNY wallet) before doing transactions.


New features on the e-CNY app


The e-CNY app, which is still in its pilot stages, is offering new significant features that improve the user’s experience for both locals and foreigners. The upgrades seek to make the app more accessible and convenient.


The e-CNY app is available for IOS users through the Apple store and Android users via the China-based Google Play-like app store. This enables a broad spectrum of smartphone users to tap into the potential of the e-CNY.


One of the most significant updates to the app caters specifically to IOS users, allowing them to top up their e-CNY wallets using international cards, including Visa and Mastercard.


Additionally, foreign visitors can now easily register on the e-CNY app using their foreign phone numbers, simplifying the process of accessing and utilizing the e-CNY.


The digital wallet in the e-CNY app


The digital wallet serves as an online repository for managing and storing e-CNY. Accessible through the e-CNY app, this wallet is the primary tool for users to engage with e-CNY.


Within the app, users have the flexibility to establish multiple digital wallets and configure various parameters, including daily spending limits and the eligible apps and services that can be funded using the wallet. Users can link different bank cards for added convenience.


Chinese identity cards are necessary to access additional “higher-level” wallet options within the e-CNY app.


Last year, the Chinese government increased its efforts to establish a strong digital currency, by launching an application. Big e-commerce players, such as Tencent and Alibaba, immediately adopted the digital yuan (e-CNY) in their payment options.


People living in the pilot areas can freely download the app and use it as an alternative payment method. Among the cities included in the program are Beijing, Shanghai, Shenzhen, Guangzhou, Chengdu, and Suzhou.


The digital yuan is a digital currency issued by China’s central bank, the People’s Bank of China (PBOC), that includes the digitization of bank notes and coins currently in circulation. It is otherwise known as the Digital Currency Electronic Payment (DCEP), the digital RMB, or the e-CNY. It is meant to be used for high-frequency small-scale retail transactions. This is not a cryptocurrency (which is banned in China).


The central bank digital currency (CBDC) or digital yuan, offers faster, more cost-effective, and theoretically more secure transactions compared to conventional methods like e-payments or e-banking.

The mechanism behind CBDCs operates akin to withdrawing cash from an ATM, enabling instantaneous and lower-cost transactions since there are no intermediaries, such as banks.

Enhanced security measures, including a digital certificate system, digital signatures, and encrypted storage, ensure that issues like double-spending, counterfeiting, transaction falsification, and repudiation are virtually impossible, according to the PBOC.


China banned cryptocurrency exchange operations in 2017 and transactions in 2021 due to their difficulty in regulating. Unlike cryptocurrencies that operate on decentralized blockchain technology, CBDCs are fiat currencies subject to government control and are more predictable in value due to their pegging to existing currencies.


The digital yuan prioritizes security and traceability. It offers anonymity for small transactions but retains legal traceability for larger ones. The e-CNY uses a series of technologies, including digital certificate system, digital signature, and encrypted storage to make double-spending, illegal duplication and counterfeit, transaction falsification, and repudiation unfeasible.


China was among the first major economies to test a CBDC, starting pilot programs in April 2020. Initially rolled out in just four cities, the e-CNY trial program has since expanded to encompass fifteen provinces and 23 cities.


The e-CNY beyond China


Foreign athletes and tourists had access to the e-CNY during the Beijing Winter Olympics in 2022, and it will be tested again during the 2023 Asian Games.


In Hong Kong, an e-CNY pilot explores cross-border payments, potentially strengthening the renminbi’s global role. Furthermore, internationalizing the e-CNY through the Belt and Road Initiative (BRI) and the Digital Silk Road presents opportunities to decrease reliance on the U.S. dollar in trade and financial infrastructure.


More accessibility for foreigners in China


Chinese residents quickly adopted and adapted to mobile payment forms, changing the way they consume products and services.


Foreign visitors to China, on the other hand, had difficulties and limitations with the digital transaction landscape, especially utilizing e-CNY in their digital wallets.


Recently, China has addressed these issues, understanding the importance of foreign tourism and international business interactions. The objective represents a strategic effort to create favorable impressions with the international community and promote ongoing economic engagement with the country.


By streamlining the payment process and making it more accessible to foreigners, China not only encourages tourism but also facilitates trade and business collaborations, consolidating its position as a global economic powerhouse.


Though the e-CNY is a direct competitor of its own payment system, Alipay, the e-commerce giant Alibaba adopted the digital yuan. Users of Alibaba’s food delivery app ele.me, grocery delivery app Hema Fresh, and e-commerce platforms Taobao and Tmall are able to pay for orders using the e-CNY.


The Tencent-owned messaging app and payment platform WeChat also allows users to select e-CNY as a payment option. With over 1.2 billion users, of which around 750 million are active daily, this development gives a significant push to the e-CNY.

However, when it comes to online payment methods, the e-CNY faces tough competition, especially against the two digital banking systems WeBank (WeChat Pay) and MyBank (AliPay). Users can download the standalone e-CNY app or use the Alipay and WeChatPay apps to manage their e-CNY transactions.


The digital yuan is distributed via a two-tier system. The PBOC transfers e-CNY to a list of approved commercial banks, including the Agricultural Bank of China; Bank of China; China Construction Bank; and Bank of Communications; among others.


Users can choose between individual digital wallets and corporate ones, where they can link different bank cards. These wallets may be software-based (through the use of apps) or hardware-based, in which case an electronic card is issued for touch-based transactions.


The digital wallet, called shuzi qianbao in Chinese, is an online system through which the user can track and store e-CNY. It can only be accessed through the digital yuan app.


Users can set up multiple digital wallets on the app and set parameters, such as daily spend limits and the apps and services that can be paid for with the wallet, and link different bank cards.


As of October 2021, 123 million individual digital wallets and 9.2 million corporate ones have been issued, doubling in January 2022, probably due to the coverage of the e-CNY during the Beijing Winter Olympics.


The main goal of the digital yuan is to provide financial and legal benefits as well as optimize monetary transactions. It aims to reduce the production and storage of cash and coins not only to lower the costs, but also to accelerate the transition towards digital currencies and stimulate competition among the online payment market players.


Having a third payment system would offer an alternative in case the other payment options are shut down due to cyberattacks or any other issue, preventing the disruption of the domestic market.


In addition, the existence of the digital yuan would also provide legal benefits, such as the tracking and prevention of illegal practices (for example money laundering or terrorist financing). Unlike cash, it is difficult to counterfeit digital currencies.


More than 260 million people downloaded the e-CNY app after it was launched, making it one of the most downloaded applications in China.


However, critics argue that there is no real incentive to switch to the digital yuan when other forms of digital payment (Alibaba and Tencent) are already available. For users to make payments with Alipay or WeChat, for example, all they must do is link their bank account to the app.


The digital yuan, however, requires users to use the digital yuan app or to sign up for a separate app and link it to their Alipay or WeChat. These last two systems offer fundamental advantages and a comprehensive set of services and functions that are extremely popular with users.

On the other hand, the e-CNY app offers enhanced privacy and security thanks to a series of technologies, such as digital certificates and digital signature, that will make illegal duplication, counterfeit, and transaction falsification virtually impossible.


Chinese consumers are increasingly more concern about their privacy and how big tech giants protect their data and personal information. It may be possible in the future that consumers feel more comfortable trusting the central bank rather than a tech company.


Through the e-CNY app, users will be able to transfer small sums of money to peers, such as repaying a friend for a meal or transferring money to a street vendor. Users will also be able to do this simply by touching their phones together, as the app is enabled by NFC technology.


Using the e-CNY will be similar to other online payment platforms. In its current design form, the digital yuan app lets users transfer money from their bank account to top up a digital wallet and choose which apps they would like to use the e-CNY for. Alipay and WeChat Pay also have digital wallets and enable online payments of third-party services through their apps.


The e-CNY is essentially a digital banknote and makes up a portion of the country’s overall cash supply. This means spending the e-CNY is unlike using a bank card or a digital payment platform (tied to a bank account), as the money from these sources comes directly from a savings or checking account.


In addition, as the e-CNY is technically China’s legal tender, it is illegal for any merchant to refuse this as a payment option. Merchants can, however, choose to refuse other payment options, such as WeChat Pay or Alipay.


Users can also spend the cash in their digital wallets even when not connected to the internet as the app uses NFC technology.

 

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DISCLAIMER: All information in this article is verified to the best of our ability and is assumed to be correct at time of release; however, Woodburn Accountants & Advisors does not accept responsibility for any losses arising from reliance on the information provided within. The information provided is for general guidance and does not replace specialized advice.

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