Original Title: Nuggets Digital RMB
Four years ago (2017), Li Ming (pseudonym), who has years of experience in the crypto industry, incubated a team of more than 20 people in the UK and returned to China to specialize in blockchain technology.
On the eve of the Spring Festival of the same year, the legal digital currency of the People’s Bank of China was publicly tested on the digital bill trading platform, and China became the first country in the world to conduct such an experiment.
China’s leading layout in the blockchain and legal digital currency has made technical elites such as Li Ming foresee the future business opportunities of the digital renminbi, and then become one of the bettors.
For four years, Li Ming’s team has been exploring the commercial application of related technologies, hoping to catch the digital renminbi express. China’s digital renminbi has experienced two accelerations in 2017 and 2019, and finally, before and after the National Day in 2020, the first public beta of the retail scene will be carried out in Shenzhen.
On the afternoon of July 16, 2021, the People’s Bank of China released a white paper on the “Research and Development Progress of China’s Digital RMB” (hereinafter referred to as the “White Paper”), which was the first public announcement of the digital RMB operating model. China’s legal digital currency, referred to as digital renminbi, is tentatively designated “e-CNY” in accordance with international practice.
Whether it is a spontaneous bettor or various operating agencies participating in the digital RMB pilot, they are waiting for the moment of full attack while they are ready to go.
Fan Yifei, deputy governor of the People’s Bank of China, disclosed at the white paper press conference that at present, the operating institutions involved in digital RMB research and development mainly include ICBC, Agricultural Bank, Bank of China, China Construction Bank, Bank of Communications, Postal Savings Bank of China, China Mobile and ICBC, China Unicom, Telecom and Bank of China. A joint project team was established to participate in research and development. Two Internet companies, Ant and Tencent, and WeBank also participated in research and development. China Merchants Bank has also been approved to join recently.
At the scene level, as of June 30, 2021, there have been more than 1.32 million digital RMB pilots, covering areas such as life payment, catering services, transportation, shopping and consumption, and government services.
Although Fan Yifei once again emphasized that there is no preset timetable for the launch of the digital renminbi. The institutions involved in the operation of digital renminbi have not yet been able to build a clear business prospect. But people seem to be counting down the birth of the digital renminbi at the same time.
The capital market always has a keen sense of smell. Since the beginning of 2019, the overall Wind digital currency concept sector has risen by nearly 54.96%. Among them, Kelan Software (300663.SZ), Chutianlong (003040.SZ), Digital Certification (300579.SZ), and Hang Seng Electronics (600570.SH) ), Everbright Technology (300348.SZ), Sifang Jingchuang (300468.SZ) and other six listed companies have accumulated more than doubled.
IDC Leadership Grid stated in the report that considering that the leading manufacturers deeply involved in the e-CNY project are expected to share over 100 billion yuan in the transformation market and the subsequent tens of billions of incremental business each year, it is expected that the absolute leader of bank IT will be nurtured here. , The decentralized competitive landscape of the industry may be rewritten.
According to research reports, the market driven by the transformation of the digital RMB system by the central bank, bank and public systems will be close to 200 billion yuan each year.
IT technology service providers and scenario service providers are regarded as the main beneficiaries of the digital renminbi race track and have attracted much attention from investors. In reality, the enthusiasm of commercial banks is even more meaningful.
They have not yet seen a clear business prospect, and are actively expanding their business. In addition to responding to policies, commercial banks see the digital renminbi as a hope for regaining their previous payment advantages.
Payment is the traditional advantage of commercial banks, but in recent years, it has been overtaken by the mobile finance of Internet institutions. In the view of some financial professionals, digital renminbi is a rare opportunity for commercial banks, which is expected to enable commercial banks to regain what they once lost Payment, especially the advantages of retail mobile payment.
The digital renminbi will trigger new changes in the retail payment market. In this process, the relationship between banks, payment institutions, Internet platforms, etc., and customers will be reconstructed. This is the biggest business opportunity expected by the industry.
Therefore, although it is still testing the waters, the battle for the Nuggets of the digital renminbi has already begun. According to a reporter from Caijing, all participating banks have begun to departmentalize or institutionalize their existing teams. Some plan to set up internal departments, while others hope to establish subsidiaries to achieve independent operations.
The digital renminbi is a systematic project that affects the whole body. The operational layout of commercial banks also brings a huge volume of system transformation business. The Huaxi Securities Research Report pointed out that based on the cash substitution logic, it is predictable that e-CNY will create a market increase of 29.6 billion to 152.4 billion yuan per year in the medium and long term.
Although the current digital renminbi does not use blockchain technology in the field of retail multi-frequency payment, which makes bettors like Li Ming a little disappointed, but it is still hopeful that the digital renminbi will connect with the business opportunities of digital transformation of small and medium-sized enterprises. And reserve the next technical port. And this is obviously another round of commercial ripples that the digital renminbi is about to emerge.
Bank competition: hope for subsidiaries
Under the centralized management and two-tier operation model of digital renminbi, the People’s Bank of China is at the center of the digital renminbi operating system, and is responsible for issuing digital renminbi to commercial banks as designated operating institutions and conducting full life cycle management. Designated operating agencies and related commercial institutions are responsible for providing digital RMB exchange and circulation services to the public.
At present, the operating institutions participating in the digital renminbi pilot program mainly include six commercial banks including Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, and Postal Savings Bank of China.
The digital renminbi competition of commercial banks originated at the end of 2019. At that time, in order to effectively promote the pilot work, the central bank launched a horse racing model, that is, on a voluntary basis, the four major banks (industry, agriculture, China, and construction) choose scenes in Shenzhen. Try first, and which bank will try it well in the future does not rule out adopting this model directly.
A large bank digital renminbi pilot promoter told the Caijing reporter that at present, the four major banks do not have much difference in promotion. Driven internally, although each bank has a different project name, there is a main department as the project lead department, and other departments provide cooperation.
According to the reporter of Caijing, at present, various operating organizations mainly adopt flexible teams, some are planning to establish internal organizations; some have established special working groups with the intention of establishing subsidiaries.
Regarding whether the operating organization will set up a subsidiary separately, a senior researcher in the industry told the Caijing reporter that this needs to be further clarified by supervision and does not rule out that all operating organizations will adopt a unified model in the future. However, the regulatory direction has not been clarified quickly, which stems from two points: one is that the revision of the People’s Bank of China and other laws has not been completed, and the other is that the issuance of relevant business management measures will take time.
On October 23, 2020, the People’s Bank of China issued the “People’s Bank of China Law of the People’s Republic of China (Revised Draft for Solicitation of Comments)”, which stipulates that the renminbi includes physical and digital forms. Industry insiders pointed out that this not only provides a legal basis for the issuance of digital renminbi, but also forms certain legal constraints in some aspects.
In fact, the idea of establishing a separate subsidiary for a digital renminbi operating agency has been around for a long time. A deputy general manager of a major department confirmed to a reporter from Caijing that this idea was put forward at the beginning (at the end of 2019).
An operating agency person told the Caijing reporter that he personally believes that operating agencies can be divided into broad and narrow senses. The broad sense refers to the entire commercial bank designated by the People’s Bank of China, and the narrow sense refers to the digital renminbi franchise established within the commercial bank. Currently, there are banks. What is being prepared is a franchise organization. As for whether it is an internal department or a corporatized market entity, further evaluation and demonstration are needed.
From a business perspective, what is the necessity for operating organizations to be independent subsidiaries? A digital renminbi research and development participant told a reporter from Caijing that, as a commercial bank, operating institutions need to integrate digital renminbi functions in channels, products and services, but for operating institutions, the digital renminbi operating system needs to be newly developed .
Currently, the digital renminbi operating system of a number of operating institutions is under new development. “Because this business has little to do with the traditional business of commercial banks.” The above-mentioned person added, it can be said that it has nothing to do with it.
However, many commercial bankers believe that the difficulty of operating institutions to establish independent subsidiaries is no less than the establishment of ordinary independent departments and subsidiaries of banks. In addition, they also need to face problems such as business development prospects and unclear profit models. .
Liu Xiaochun, former president of Zheshang Bank and deputy dean of the China Institute of Finance of Shanghai Jiaotong University, told Caijing reporter that the issuance of legal tender has no profit model for commercial banks. It is the bank’s responsibility to serve the issuance and circulation of currency. Obligation is also the foundation of all bank business, and the same is true for digital renminbi. Therefore, from the perspective of their own business development, commercial banks must make all preparations that are conducive to the issuance and circulation of digital renminbi.
Commercial banks are eagerly looking forward to joining the digital renminbi pilot. According to Fan Yifei at the aforementioned press conference, China Merchants Bank has also been approved to join recently. Industry insiders believe that the possibility of China Merchants Bank joining as an operating institution is extremely high, “because China Merchants Bank has been striving for it.”
However, in the actual operation process, there are many slots for commercial banks to operate digital renminbi pilots. A grassroots staff member of a commercial bank told the Caijing reporter that in the digital RMB pilot promotion work, he was responsible for the expansion of private and public customers, and Chengri was thinking about how to complete the indicators. “In contrast, it’s easier to promote a financial department, because retail customers get red envelopes, phone bills or other benefits when they open an account.”
In terms of business expansion, the above-mentioned staff confessed that it is not difficult for existing customers, while the increase is more cumbersome for public accounts, which reduces the enthusiasm of customers. “In addition, in the case that business handling fees are affected, there is also a low degree of cooperation from other business departments in the industry.”
Nevertheless, more commercial bankers believe that it may be too late to see the profit model. “Just like Alipay and WeChat, everyone didn’t see the profit model at the time. Later, it turned out that their layout was correct.”
Che Ning, deputy secretary-general of the Beijing Internet Law Research Association, told the Caijing reporter that in the absence of clear business prospects, commercial banks’ active expansion of business reflects a hope of regaining their previous advantages. Payment was originally a traditional advantage or traditional ability of commercial banks, but it was overtaken by the mobile financial curve of Internet institutions. Then, the digital renminbi is a rare opportunity for commercial banks, which is expected to enable commercial banks to regain their lost payments, especially It is the advantage of retail mobile payment.
Scenario Occupation: Strongly against benchmarking banks
Since the first public beta of retail scenes in Shenzhen in 2020, digital renminbi has rapidly flowed into every scene of people’s lives.
The white paper shows that as of June 30, 2021, there have been more than 1.32 million digital RMB pilot scenarios, covering areas such as life payment, catering services, transportation, shopping and consumption, and government services. More than 20.87 million personal wallets and 3.51 million public wallets were opened, and the total number of transactions was 70.75 million with an amount of approximately 34.5 billion yuan.
The scene giants quickly occupy the market with a positive attitude. Internet giants such as JD.com, Meituan, Didi Chuxing, and Huawei, as well as terminal manufacturers, are among the first to join the digital renminbi pilot.
Alipay, which occupies half of the third-party payment market, also joined the digital renminbi sector test not long ago. According to data, Alipay has more than 1 billion annual active users, so it is called the largest internal test scenario for digital RMB.
In the eyes of market participants, JD has been more successful in deploying digital renminbi in large-scale scenarios. Before the digital renminbi retail public beta, the Digital Currency Research Institute of the People’s Bank of China and JD Digital (now integrated as JD Technology) formally reached a strategic cooperation, and the two sides cooperated in technology research and development and scenario implementation.
At the scene level, the number of JD active purchase users has exceeded 440 million. In order to reduce user costs, JD.com helps merchants upgrade and upgrade cash register devices to provide a digital renminbi payment experience consistent with existing payment methods.
The terminal manufacturer Huawei’s strength lies in the digital renminbi hardware wallet and digital renminbi terminal. It is understood that starting from 2019, Huawei has already started the compilation and development of technical specifications related to the digital RMB. In October 2020, the HUAWEI Mate 40 series mobile phones became the first smart phones to support digital renminbi hardware wallets. The breakthrough lies in the research and development of digital renminbi technology solutions and scene innovations in various fields such as life payment, transportation, shopping and consumption, and government services.
In addition, Didi Chuxing deployed digital renminbi payment for online ride-hailing/bicycle scenarios; SF Express deployed digital renminbi payment for express freight; Ctrip deployed digital renminbi payment for scheduled transportation, hotel and tourism products; Bilibili deployed digital renminbi recharge in stations…
According to a reporter from Caijing, there are more than 30 digital renminbi wallets in which the six major commercial banks are connected to merchants. Except for individual scenarios, most of the scenarios are also connected to the six major digital renminbi wallets.
A scenario project participant told a reporter from Caijing that the scenario platform’s participation in the digital renminbi pilot does not only focus on the digital renminbi itself, but has the following business logic: First, it is through pilot activities to open up offline scenarios, such as large-scale supermarkets, cultural and sports Consumer sites and other merchants who wanted to expand before can also establish close cooperation with financial institutions and the government. The second is to use digital RMB hotspots to promote their own marketing activities.
Liu Xiaochun believes that for various scenarios or giants, the smoother currency payment and settlement, the smoother their business development. Therefore, as long as it is the customer’s preferred payment method, it must create conditions and provide all conveniences to accept it. Since the business of various scenes or giants is digital, they naturally hope that there will be more convenient digital payment and settlement methods.
It is worth noting that in the past business operations, the relationship between financial institutions and scene platforms is reflected in the following: finance drives scenes and scenes help finance. However, in the pilot promotion of digital RMB, the reciprocal relationship between the two has occurred. A subtle change.
According to the reporter of Caijing, some scene agencies have become stronger in the process of cooperating with commercial banks, and some even negotiated with commercial banks separately, hoping to obtain more and more innovations on the basis of digital RMB pilot cooperation. For low-cost financial services.
“Except for the People’s Bank of China, in the process of cooperating with the scene, the operating agency’s identity should have belonged to Party A, but in order to complete the task, the commercial bank became Party B unknowingly. To a certain extent, it brought a relatively large amount to the scene organization. Bargaining space.” A person involved in the digital renminbi pilot told the Caijing reporter.
A grassroots promoter of digital renminbi at a commercial bank also complained to a reporter from Caijing that as an operating agency, commercial banks need to upgrade or completely replace their original POS machines, and the commercial banks are solely responsible for the costs. In addition, in order to be able to seize market share, both retail customers and corporate customers, commercial banks need to make a certain amount of investment. “Spending money to buy merchants does exist.”
“Why do you want to make money at a loss?” Faced with questions from customers, the staff member can only comfort himself: it is very interesting to do things that others have not done.
So, what is the reason for the reversal of the status of the scene agency? A big banker confessed to a reporter from Caijing that commercial banks must use scenarios to promote digital renminbi. The digital renminbi provides banks, local governments and many other partners for the giant scene. However, compared with commercial banks as digital renminbi operating institutions, banks are more urgent to promote digital renminbi, which is an important reason for the strong scene to a certain extent.
Li Lihui, the leader of the Blockchain Research Group of the China Internet Finance Association and the former President of the Bank of China, analyzed that in the current digital RMB promotion process, the influencing factor besides policy factors is competition, and the influence of competition factors is even greater than policy factors. This is because the digital renminbi has the advantages of administrative authority and the technical advantages of offline transactions. It will become the most important and fastest-growing payment tool in the retail market. Commercial banks can only increase investment and actively create and expand digital renminbi application scenarios. Reach more customers.
In addition, account technologies such as WeChat Pay and Alipay must rely on bank accounts to perform value transfer. Digital renminbi can be separated from bank accounts and the network for value transfer. Scenario giants’ access to digital renminbi can expand their business scope. The price is that its own scene will also be “shared.”
At present, the application scenarios of the digital renminbi in the testing stage are mainly concentrated in salary payment, red envelope payment, consumption in specific scenarios, etc. The relevant arrangements are led by the government, and the scenarios still need to be further opened.
Shengang Securities believes that with the maturity of technology and the launch of pilot projects, the digital RMB consumption scene is expected to be further expanded to a wider range of life and business scenes such as government payment, corporate trade, and cross-border payment, and will gradually expand to commerce, transportation and logistics. And other industries penetrate. At the same time, the acceleration of the pilot program will drive the transformation of related industries and scenarios, and promote the upgrade process of the overall financial IT system from point to point.
A few days ago, the central bank also disclosed to the public that it is studying the cross-border use of digital renminbi.
Early adopters of capital: the market moves after the wind
In 2019, the central bank announced that it will accelerate the development and pilot projects of digital renminbi, and digital currency has become one of the popular concepts in the A-share market. On the investor interaction platforms of the Shenzhen Stock Exchange and the Shanghai Stock Exchange, investors asked more than 1,000 questions about digital renminbi. The companies questioned were mainly banks and various related service providers.
The computer team of West China Securities believes that the digital renminbi is the “new infrastructure” of the central bank. In the short term, the digital RMB pilot program will bring new growth to the bank’s IT market; in the long term, the digital currency involves the upgrading and transformation of various banks’ systems, as well as commercial promotion and scenario applications, which will stimulate the long-term demand for financial technology and generate new growth. Business model.
The team further proposed three main lines of investment, namely, a series of encryption, authentication, and module construction requirements for the central bank system; bank-side IT system transformation requirements; public-side ATM machines, POS machines, AFC (automatic fare collection system), and hardware Digital wallet needs, etc.
Soochow Securities also believes that the current digital currency investment opportunities are mainly concentrated in the transformation of the banking system, downstream financial equipment upgrades and digital currency encryption. However, the team bluntly stated that since the digital currency circulation process currently does not charge fees and is directly managed by the central bank, the specific profit model of commercial institutions based on the digital currency itself is not yet clear.
Wind data shows that in addition to banks, there are a total of 28 listed companies related to the concept of A-share digital currency, involving software services, information technology services, electronic equipment and other industries, including bank IT service providers such as Gao Weida (300456.SZ) and Everbright Technology. Digital certification, Geer Software (603232.SH) and other digital certification service providers, Hengbao Stock (002104.SZ), Chutianlong and other security chip and hardware wallet service providers.
According to the reporter of Caijing, the upstream and downstream manufacturers of the digital industry chain have already taken action. Among them, Yuxin Technology (300674.SZ) stated that it has cooperated with two major state-owned banks to participate in the development and construction of digital renminbi wallets; Changliang Technology stated that it has two years of systematic construction service-related technical reserves, waiting Follow up with the official promotion of the digital renminbi. In addition, other manufacturers have also expressed that they are following up the development of related technologies. It is worth noting that the current digital renminbi is still in the testing stage, and the related concept sector companies have only a small amount of related businesses or are only in the technical reserve stage, which has little impact on the company’s performance.
But the market is already moving. Since the beginning of 2019, the Wind digital currency concept sector has risen by nearly 54.96% as a whole. Among them, six listed companies including Kelan Software, Chutianlong, Digital Certification, Hang Seng Electronics, Everbright Technology, and Sifang Jingchuang have increased more than doubled. In this regard, many relevant people told the Caijing reporter that the promotion of digital currency is a long-term process, and the current secondary market stock price changes are mostly news stimuli.
The sentiment in the secondary market is high, and the primary market is not far from letting go. A person from the strategic investment department of an Internet giant told Caijing reporter that his team has been paying attention to digital RMB-related track investment opportunities recently, and the main directions include underlying technology service providers and scene service providers.
The person further stated that their investment logic is mainly cutting-edge layout and ecological supplement, and financial returns have not been the focus of attention. “From the perspective of the technological maturity curve, digital renminbi-related technologies have not yet reached the stage of widespread application.” Not only that, from the perspective of the entire industry, the current digital renminbi-related industry chain investment cases are still very few. “Except for a few cases, it is now It has not yet become a direction for everyone to vote as a track.”
Many investors in the primary market expressed the same view to the reporter of Caijing. At present, there are many investors who pay attention to the digital renminbi-related track, but there are not many investment cases. On the one hand, they are worried that the digital renminbi is being piloted and the application scenarios are still unclear; on the other hand, it is also related to the unclear related policies. The aforementioned investors said frankly that digital currency may involve some more sensitive areas such as currency stability and national security. At present, the policy boundary is not clear, and most of them are focused on attention and have not really shot.
In this regard, Liu Yang, director of the China Institute of Blockchain and Industrial Finance, told Caijing reporter that the technology development and scenario creation around the digital RMB in the pilot phase must be based on compliance. At the same time, the digital RMB is essentially a financial technology. In the exploration of legal currency, it is recommended to adopt inclusive and prudent innovation rules. Explore new inclusive supervision and start-up business incubation and cultivation methods such as regulatory sandboxes, industrial sandboxes, and innovation accelerators.
Although most of the prudent primary market investors are still on the sidelines, there is no lack of bold expectations about the impact of the digital renminbi on the banking IT industry.
There is currently no accurate prediction of the market size related to the digital RMB industry chain. However, changes in the related IT industry have already occurred. The team of computer industry analysts at a brokerage firm estimated that the first to benefit from the transformation of bank IT systems and the upgrade of financial equipment such as POS machines will have a market scale of tens of billions.
An article by New Era Securities pointed out that the introduction of digital renminbi will bring new business increments to the banking IT industry. From 2012 to 2019, bank IT investment has grown steadily. In 2019, the size of the banking IT market reached 132.72 billion yuan, with a growth rate of 18.8 %, the growth rate has accelerated significantly.
IDC Leadership Grid statistics show that the first echelon of bank IT is Pactera Technology (4.9%), Yuxin Technology (4.8%), China Information (3.2%) and Everbright Technology (2.5%). In addition, Gaoweida , Hang Seng Electronics, etc. are also catching up quickly. The current intensified industry competition has led to a diversified market share. CR5 (the top five companies in market share) has a share of less than 20%, and the share of a single company is less than 5%.
According to the analysis of the institution, considering that the leading manufacturers deeply involved in the e-CNY project are expected to share over 100 billion yuan in the transformation market and the subsequent tens of billions of incremental business each year, it is expected that the absolute leader of bank IT will be bred here and dispersed. The competitive landscape may be rewritten.
Liu Yang also told the Caijing reporter that in the future, digital RMB will form two major investment opportunities and technology development routes based on App-based soft wallets and digital RMB hard wallets. The promotion and application of hard wallets means that the whole-age population will be included in the digital RMB system. In the future, all online and offline electronic payments for consumption, social insurance, medical insurance, etc. can be opened up. “This is also a huge ecosystem and blowout market.”
Technology first: the new focus of IT competition
Capital’s sense of smell is true.
Commercial banks and scenario agencies have not yet clearly seen the profit model of digital renminbi, but IT service providers driven by technology have already clearly captured business opportunities and business drivers.
At the end of 2019, the digital renminbi pilot program quietly accelerated in Shenzhen and other places, and IT service providers followed suit.
A business person working for an IT service provider recalled that as early as the beginning of 2020, the digital renminbi was first established as a pilot in Shenzhen, and the company where it worked has already begun to try to cooperate with some properties in Shenzhen to upgrade the digital renminbi payment system. The reason why I entered this business at that time was driven by customer demand on the one hand, and on the other hand, the team was very optimistic about the related business driven by the digital renminbi in the future.
During the National Day in 2020, the digital renminbi will be tested in Shenzhen for the first time, and the number of pilot cities will increase. “More and more customers come to communicate with us, and it is obvious that the pace of customers based on digital renminbi is accelerating.” The above-mentioned business person said.
Given that the large banks’ digital renminbi systems are mainly developed by themselves, the bank customers contacted by IT service providers are mainly composed of joint-stock banks, city commercial banks, and non-bank financial institutions.
At the end of 2020, the company began to participate in the construction of the digital renminbi system of commercial banks. In terms of business model, it mainly helped customers build two systems, one is the docking of the digital renminbi payment system, and the other is the construction of related systems for product applications. “In the future, more applications will be built based on digital RMB products.”
Although the business income is only the income created by the system transformation, the team of the business person believes that the digital renminbi system access is only the initial stage, and there will be a very large market in the next five years. “Because as a legal digital currency system, commercial banks It’s all going to be connected.”
Benchmarking the entire industry, IT suppliers are looking forward to the emerging field of digital RMB. The market competition is extremely fierce, but there are only three or four vendors doing well in the market. The business person mentioned above frankly said that the business has extremely high requirements for suppliers: because this system is led by the People’s Bank of China, it has very strict requirements on the stability and reliability of the institutional system, and customers need some strong IT suppliers to come. Do.
Banks looking for IT service providers will also consider whether they are experienced in the payment field, because the digital renminbi payment system is similar to Alipay’s small high-frequency transactions; in addition, they will also consider whether they are familiar with scene finance.
In reality, a number of bank IT service providers have frequently spoken out to express their technological advantages over the digital renminbi.
In September 2020, the bank’s IT solution leader Everbright Technology established a project team to conduct research on digital currency related technologies and solutions; China Information also delivered information on the investor interactive platform, saying that the company is actively participating in a commercial bank’s e-CNY testing and related promotion work, and the development of the digital wallet system has been completed.
In the same month, Kelan Software stated in answering questions to investors that it is the “distribution side” in the central bank’s digital currency industry chain, providing banks with a full range of Internet financial products; on the “user side” it has a “wallet” that supports digital currency. The rich cases of its application scenarios; On the “server” based on digital authentication, Kelan Software holds a license through its holding subsidiary, Continental Cloud Shield, and provides mobile digital authentication services.
Kelan Software further pointed out that the central bank’s digital currency industry chain can be divided into a line of “issuance end-distribution end-user end” and a “service end” that runs through this line. The issuance side is dominated by the central bank, while the distribution side, user side, and service side need bank IT suppliers to provide technical solutions.
According to the reporter of Caijing, for IT service providers, the digital renminbi is the general trend from the policy level. Therefore, IT service providers have made technical reserves in the early stage so that they can keep up with the policy release as soon as the policy is implemented.
In terms of actual business operations, a commercial bank’s technologist told the Caijing reporter that large commercial banks with relatively strong technological capabilities generally use the power of technology in the industry, while small and medium-sized banks have a stronger demand for IT services. The current market IT service providers serve mainly small and medium-sized banks.
Chen Jianxin, deputy director of the People’s Bank of China’s Currency and Finance Bureau, said at the aforementioned press conference that in order to ensure that the digital renminbi is widely available, it is necessary to give full play to the active role of other commercial banks and non-bank payment institutions. On the basis of clarifying the relationship between responsibilities and rights, Cooperate with designated operating agencies to provide digital renminbi circulation services, including payment product design innovation, system development, scenario expansion, market promotion, business processing, operation and maintenance and other services to realize the safe and efficient operation of the digital renminbi system.
The above-mentioned digital renminbi pilot told the reporter of Caijing that this is 2.5 layers derived from the two-tier operation model, and the main body is composed of small and medium banks and non-bank payment institutions.
The Huaxi Securities Research Report detailed the docking and replacement of various IT solutions under the e-CNY model.
Among them, the replacement value of the central bank-side system is as high as 116.2 billion yuan per year, but it is expected to be led by the central bank and the four major banks and other multi-agent collaborative research and development. The participation of social enterprises is limited (at least not to touch the core algorithm and corresponding modules), and it is open The market size of the company will be the smallest of the three links; it is judged that the field of authentication system will be an open subject, and leading encryption companies will benefit from this. For this reason, it is estimated that the opening rate of the central bank side system for social enterprises is 30%, which corresponds to a market space of 34.9 billion yuan per year.
The replacement value of the bank-side system is as high as 122.3 billion yuan/year; it is expected that banks other than the four major banks will open bidding. For qualified bank IT service providers and technology providers, the open market is very large, which is part of the three links. For the largest incremental market, it is estimated that the bank-side system has an open rate of 90% for social enterprises, and the corresponding market space is 110.1 billion yuan per year.
The replacement value of the public-side system is 38.2 billion yuan/year, the overall space is slightly smaller, but the scale of opening is expected to be considerable; the marketization of payment software and hardware is relatively high; the storage technology of digital wallets has been relatively mature, and the innovation of application models will become the focus. The open rate of the public-side system for social enterprises is 90%, and the corresponding market space is 34.4 billion yuan per year.
A big bank’s digital renminbi pilot promoter confirmed to a reporter from Caijing that it was mainly due to the large-scale transformation of the bank. In his view, the difference in the promotion of digital renminbi among the four major banks mainly comes from the difference in IT construction. The core element of the implementation of the digital renminbi pilot program is whether IT technology can keep up.
According to the above research report, the central bank, bank and public systems will drive nearly 200 billion yuan in market space each year due to system transformation.
What is the concept of 200 billion yuan? Zhiyan Consulting Group’s “2019-2025 China Banking IT System Industry Market Potential Status and Investment Strategy Research Report” pointed out that the scale of IT spending in China’s banking industry continues to rise and will only exceed 150 billion yuan by 2022.
In addition, the Huaxi Securities Research Report pointed out that the e-CNY market space calculation based on the assumption of the replacement ratio of cash (M0). On optimistic assumptions, the replacement ratio of the central bank’s digital currency to M0 is 85%, and the open market space (per year) of the corresponding IT system business of the central bank/bank/public under the current M0 level is 29.6 billion/93.6 billion/292. 100 million yuan, totaling 152.4 billion yuan. The research report believes that the IT market brought by e-CNY will continue to be released in the medium and long term, and there is room for overweight. It is expected that the average annual increase of e-CNY in the long-term period may far exceed 150 billion yuan.
In addition, there are huge maintenance costs for the bank. Tjeerd Edelman, vice president of IT investment optimization company Net, once bluntly stated that 80% of the world’s bank IT budget is used to maintain legacy systems, or just to run banks.
Market participants pointed out that judging e-CNY-related IT systems is no exception. Continuous investment has a huge demand for innovation. As an important breakthrough in digital banking, e-CNY will most likely become the focus of IT competitiveness.
In addition to the technology system, the bank’s digital renminbi marketing activities also bring certain market opportunities. For example, Bank of China Zhangjiakou Branch issued the “Announcement on Competitive Negotiations for Digital RMB Personal Wallet Marketing Promotion Projects”, and plans to carry out marketing campaigns such as “Digital RMB Payment Full Reduction” for individual customers to expand the opening and use of digital RMB personal wallets for individual customers. The Sanya branch of Postal Savings Bank of China also issued an announcement on the competitive negotiation of digital RMB marketing activities.
Retail payment: the biggest business opportunity to be opened
The white paper emphasizes that the digital renminbi is a retail central bank digital currency, mainly used to meet domestic retail payment needs. It is also clear that the digital renminbi is mainly positioned as a cash (M0) payment voucher and will coexist with the physical renminbi for a long time.
For this reason, more people in the industry believe that the biggest business opportunity of digital RMB lies in the retail payment market compared to the already emerging IT service business opportunities.
Financial data released by the People’s Bank of China in the first half of this year showed that as of the end of June, the balance of currency in circulation (M0) was 8.43 trillion yuan, a year-on-year increase of 6.2%. According to statistics from the end of 2016 to the end of 2020, the balance of cash in circulation (M0) in China was 6.83 trillion yuan, 7.06 trillion yuan, 7.32 trillion yuan, 7.72 trillion yuan, and 8.43 trillion yuan, respectively, still maintaining a certain growth.
Especially in places where financial services are under-covered, the public’s reliance on cash is still high. However, the cost of cash management is relatively high, and its design, printing, dispatch, deposit and withdrawal, identification, sorting, return, destruction, and anti-counterfeiting and anti-counterfeiting and other links consume a lot of manpower, material resources, and financial resources.
The first business opportunity for digital renminbi to drive retail payments comes from the substitution of physical renminbi. According to market estimates, according to the current cash flow rate, the total transaction volume of 8 trillion yuan is 30 trillion to 40 trillion yuan. In addition, the ratio of digital renminbi to cash will also determine the scale of digital renminbi transactions. If the replacement rate is 30%, the annual transaction volume is 10 trillion yuan, if the replacement rate is half, the transaction volume is 20 trillion yuan, and the scale of full replacement is 30 trillion yuan.
Zou Chuanwei, chief economist of Wanxiang Blockchain, told the reporter of Caijing that the digital renminbi can be regarded as a new infrastructure construction in the financial sector. The digital renminbi will have a very large impact on the retail payment market. “The biggest business opportunity lies in the retail payment market. At present, giants have a relatively large share in this market, and in the future, digital renminbi will certainly occupy a certain share.”
CICC believes that e-CNY is positioned as an alternative to M0 and cash micropayments. In order to prevent financial disintermediation and other risks, the regulatory authorities may restrict e-CNY deposits and withdrawals/transactions. It is expected that the initial issuance scale of e-CNY may only Trillions of yuan, the transaction volume in the overall C2B/C2C retail payment is expected to be limited.
According to the iResearch Consulting Report, in the first quarter of 2020, the scale of third-party mobile payment transactions has increased to 74 trillion yuan. A number of previous data indicate that Alipay and WeChat payment have a market share of 90% in the third-party mobile payment transaction volume. %above.
The second business opportunity for digital renminbi to drive retail payments is the restructuring of the original payment market. For ordinary people at the retail end, in the future when they make payments for purchases, they are likely to be asked: Alipay, WeChat, or digital renminbi?
Economic research expert Zhou Xibing believes that in the short term, digital renminbi cannot impact third-party payment methods such as WeChat and Alipay, but in the long run, the impact is disruptive. When the digital currency breaks through the critical point, the digital currency starts to rush and seize the space of the old third-party payment. The first is the improvement and popularization of blockchain and other technologies. The second is a breakthrough in quantum communication technology, especially quantum cryptography that solves related security issues, which will accelerate the promotion and application of digital currencies in the market.
Zou Chuanwei believes that with the promulgation of regulations on non-bank payment institutions and the country’s strengthening of anti-monopoly on the platform economy, there will be a restructuring process in the retail payment market, and the digital renminbi will also play an important role in the restructuring. “In the process of market restructuring, some institutions will benefit, improve their relationship with customers, and acquire some new users.”
At the 13th Lujiazui Forum on June 11, 2021, Mu Changchun, director of the Digital Currency Research Institute of the People’s Bank of China, emphasized that digital renminbi and third-party payment are two dimensions. The digital renminbi is money and a tool; the digital renminbi wallet is the carrier and the infrastructure, and the two will not be in a relationship of competition and substitution.
Simply looking at channels and APPs, Che Ning believes that in the future there may be a three-legged situation (Alipay, WeChat Pay, and digital renminbi), but it is not necessarily evenly divided. It does not rule out the situation that you have me in you and you in me. However, from the perspective of customer retention, Alipay and WeChat have more advantages, especially since they embed many financial and non-financial scenarios, as well as some features that young people like to see, so the two are not in the same dimension as the digital renminbi, so in the short term Look, the situation in the market is not too different from what it is now.
Zou Chuanwei believes that the digital renminbi wallet is not a wallet in the country. The six designated operating institutions are all providing their own digital wallets with a wide range of products. In the future, in addition to Alipay and WeChat, the front-end apps of China’s retail payment, digital RMB wallets will also have a larger market share, and consumers will have more choices.
Obviously, in the foreseeable future, digital renminbi will coexist with emerging electronic payment tools such as WeChat and Alipay. The extent to which the digital renminbi can replace them depends on the choice of the market. Li Lihui believes that the main factors that affect market choices are competitiveness, which is composed of cost, convenience, and reliability, and competitiveness creates scale.
Behind the Nuggets: Betting and Risk
The white paper shows that the digital RMB adopts a centralized management and two-tier operation structure. The right to issue digital renminbi belongs to the country. The People’s Bank of China is at the center of the digital renminbi operating system. It is responsible for issuing digital renminbi to commercial banks as designated operating institutions and conducting full life cycle management. Designated operating institutions and related commercial institutions are responsible for the public Provide digital RMB exchange and circulation services.
Under the above-mentioned operating agencies, Li Ming and others mentioned at the beginning firmly believe in the future prospects of digital RMB. “In our SME digital project, the payment link can be connected to WeChat and Alipay. In addition, an interface for connecting the central bank’s digital renminbi is reserved.” Li Ming said that digital renminbi will form a more efficient ecosystem.
In the opinion of a senior observer in the industry, the market pays attention to the value of digital renminbi nuggets, and there is also a betting component to some extent. When the market is still not clear, this bet is more embodied as a kind of technology. Belief and expectation.
The belief is not without risk. For some people in the market who are heavily betting on digital renminbi and adopting blockchain technology, disappointment has already appeared.
Mu Changchun said that blockchain has the advantages of non-tampering and traceability of data, but it has shortcomings in performance and scalability. It is more suitable for scenarios such as low concurrency and low sensitivity for asset confirmation, transaction transfer, and ledger verification. Industry insiders pointed out that the meaning is that the digital renminbi does not use blockchain technology in the retail multi-frequency field.
However, based on the technical characteristics and scope of application of the blockchain, the People’s Bank of China has explored innovative applications of the blockchain in the fields of trade finance, confirmation transactions, and transaction reconciliation, such as the trade finance blockchain platform and the digital bill trading platform. .
The current technology choice path of the digital renminbi obviously makes the people who over-betting on blockchain technology feel the rugged road to the Nuggets.
Mu Changchun further pointed out that in the digital renminbi technology selection path, according to the top-level design requirements of the digital renminbi, it is necessary to design the technical route in accordance with the principles of long-term technological evolution, practicality and efficiency. The first is to meet the requirements of high retail concurrency and centralized management by the central bank, and a centralized processing method should be adopted at the transaction level; the second is to promote fair competition and improve the efficiency of supervision; Settlement” and efficient error handling; the fourth is to meet the anti-money laundering requirements while protecting privacy.
Therefore, in the transaction layer of the digital renminbi payment system, in order to support high concurrency and low latency, and to realize the direct holding of central bank claims by the public, a centralized structure is adopted. All inter-institutional transactions are transferred through the central bank. The digital renminbi expression of the encrypted string retains the characteristics of security, anti-double-spending, and unforgeability. It can also load smart contracts related to currency functions to promote business model innovation.
At the issuance level of the digital renminbi payment system, a unified distributed ledger is constructed based on alliance chain technology. The central bank, as a trusted institution, uploads transaction data to the chain through application programming interfaces to ensure that the data is true and accurate. Operating institutions can conduct cross-institutional reconciliation, Collective maintenance of ledger and multiple backups.
In order to fully embody the advantages of digital renminbi “payment as settlement”, the digital renminbi system combines the blockchain consensus mechanism and programmable smart contract features to realize automatic reconciliation and automatic error handling. At the same time, data isolation between different operating organizations can be achieved, which not only protects the security of personal data privacy, but also avoids financial data security risks caused by distributed ledgers.
In spite of the meticulous use of technology, CICC’s article still pointed out that digital renminbi, like paper banknotes, face the problems of anti-counterfeiting and anti-counterfeiting. According to Mu Changchun, counterfeit digital renminbi wallets have appeared on the market. At the same time, Wang Yongli, former vice president of the Bank of China, wrote an article that digital RMB App downloads and interfaces must be free, and the system must be open source, which brings a certain degree of challenge to the anti-counterfeiting of digital RMB App entrances.
“In order to realize the large-scale promotion of digital RMB, the central bank, designated operating agencies and related commercial institutions still need to strengthen public education and improve the anti-counterfeiting and anti-counterfeiting measures of digital RMB apps.” CICC wrote.
Liu Yang bluntly told reporters from Caijing that the challenge of digital RMB application lies in the ecosystem built by “payment and settlement +”, which involves data security, network security, and technical risks. “The current series of risks that appear on the Internet platform may all appear in the digital renminbi application scenario.” He further said that due to the “many entrances” in the test environment, various official, rumored and even counterfeit apps may also confuse the audience.
Therefore, the technological development and scenario creation surrounding the digital RMB in the pilot phase must be based on compliance, and false propaganda, technical arbitrage, and financial fraud using digital RMB as a gimmick are all areas of strict control.
Li Lihui suggested perfecting the underlying technical architecture of the RMB, perfecting the design of application scenarios, and perfecting the central bank’s digital currency operation and management system. The goal is to ensure the large-scale application of digital RMB in the high-concurrency market.
“The digital renminbi R&D pilot has made positive progress, and it is also facing some pressures and challenges.” Fan Yifei pointed out at the above-mentioned press conference that the digital renminbi R&D pilot will continue to be steadily promoted, and the launch timetable will not be preset. The focus will be on the following areas: First, timely Appropriately expand the scope of the pilot program. The second is to study and improve relevant systems. The third is to strengthen research on major issues.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/get-on-the-digital-renminbi-express-nuggets-digital-renminbi/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.