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China Expands Trials of Digital Electronic Wallets

China’s monetary authorities will designate more payment service institutions to develop digital RMB electronic wallets with complicated functions to satisfy various types of payment needs. The digital RMB e-wallet with smart contracts has a new feature that allows users to implement payment autonomously under certain conditions and rules. This system can prevent the illegal withdrawal of funds deposited in prepaid accounts. The digital RMB is expected to be one of the world’s first major sovereign digital currencies, and the central bank is gradually expanding its trials.

The digital RMB e-wallet is managed under a centralised system led by the central bank, which can verify the currency’s authenticity. It is designed with multilevel permissions for transferring funds. At the lowest level, users can deposit as much as 10,000 yuan ($1,562) of digital RMB in the wallet, and the maximum aggregate daily payment is 5,000 yuan, with a limit of 2,000 yuan for each transaction. For a higher level e-wallet, the maximum deposit will increase to 500,000 yuan, with limits of 50,000 yuan for each payment and 100,000 yuan for the daily aggregate payment.

On the same day, 350,000 residents of Shanghai each received a lucky draw bonus of 200 yuan in digital RMB, which was sent by designated commercial banks and payment service providers through various electronic wallet apps on smartphones. About 2 million users had applied for the bonus in Shanghai’s trial. Some experts predicted that the digital RMB could become the first central bank digital currency in circulation as early as 2022, ahead of other major economies, and cross-border usage may continue to grow.

Other experts predicted the digital RMB’s envisaged applications will be in tourism, payments, clearing and even central-bank swap lines. Chinese financial regulators see the digital RMB as one way to fend off potential threats from privately designed virtual currencies. Two online private commercial banks have been identified by the central bank as operational institutions of the digital RMB, providing currency exchange and circulation services.

The two dominant electronic payment platforms in China also offer the functions of an e-wallet. China’s six largest State-owned commercial banks have all opened digital wallets, which have also added applications to pay digital RMB to e-commerce platforms such as food delivery service.

The expansion of the digital RMB’s payment system will help connect different internet platforms. The digital RMB will coexist with other online payment platforms. The e-wallets are designed to satisfy different demands. Individuals and companies will be able to open customised e-wallets.

There will be many formats for e-wallets such as wearable devices and internet of things devices. The central bank has launched a hard wallet product loaded with a health code function for elderly people. This product not only provides convenient payment functions but also facilitates their safe travel while the pandemic continues.

As reported by OpenGov Asia, China has urged a digital transformation in the financial industry in response to the increasing uncertainty from the COVID-19 pandemic. The volatility has also created unprecedented opportunities for digitalisation across the world, and the financial industry continues to explore openings to embrace technology and uncover new areas of growth.

Chinese fintech strategies combined with current digital transformation trends will likely produce the following footprints:

  • Fintech industries will be more online, open, and intelligent: Industries will convert more traditional services from offline to online and build an omnichannel strategy by tapping into emerging channels. They will apply artificial intelligence (AI) applications to online business with matching needs from both retail and corporate customers. They will create more data streams and use cases to strengthen client relations.
  • New technologies and applications will be introduced to improve operational efficiency with emphasis on data factor: Industries will focus on the introduction of smart operations, smart risk management, and smart customer relationship management (CRM) with the integration of low-code SaaS applications. They deploy blockchain applications to build and expand a trusted financial service environment, piloting applications such as traceability, authentic right, trusted execution environment, and multi-stakeholder transactions.
  • Integration of the industrial internet: China will focus on several core industries, deep dive into specific business scenarios, and connect financial services to the chain of transaction-account-data. China will help traditional industry clients with digital transformation to generate new service opportunities because Chinese banks normally have better technological capabilities than traditional clients.
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