What is the impact of the digital renminbi’s “payment as settlement” on the payment industry?

News from the mobile payment network: Payment means settlement, which may be the most important attribute of the digital renminbi, and it is also the aspect that has the greatest impact on the payment industry.

Recently, the People’s Bank of China released the “White Paper on China’s Digital RMB R&D Progress” (hereinafter referred to as the “White Paper”). future plan.

The payment industry is most concerned about and discussing, I am afraid that payment is settlement. Since the history of mankind, payment has accompanied each other. In the era of electronic payment, the importance of settlement has been greatly highlighted. Under the three-party and four-party model, settlement exists because of settlement. It can be said that if there is no concept of settlement, there will be no payment now.

So how does the payment and settlement of digital renminbi have a profound impact on the payment industry? Let’s explore it.

What is settlement?

Before discussing payment or settlement, one should understand what settlement is.

From the many explanations of “settlement”, the author has chosen a relatively acceptable statement: settlement is the process of completing the final transfer of claims, including collecting the claims to be settled and conducting integrity checks, ensuring the availability of settlement funds, and clearing financial Bond debts between institutions and record and notify parties.

In simple terms, settlement is the process of transfer of claims, who owes you money, how much money is given, the intermediate legal relationship and the complete transfer confirmation of legitimacy.

Judging from the history of currency development, past transactions are indeed payment and settlement. From the transaction of objects in ancient times to the current cash transaction, the settlement is completed after the transfer of funds. 

In the era of electronic payment, payments cannot be settled immediately. Between users and merchants, there are also roles such as card issuers, acquirers, and clearing institutions.

What is the impact of the digital renminbi's "payment as settlement" on the payment industry?

Schematic diagram of the four-party model of traditional bank cards (pictured from the network)

Payment does not mean immediate settlement. There are common settlement methods such as “T+1”, “T+2”, “D+1”, and “D+2”, even if it is T+0, the so-called Real-time settlement is not a payment-as-settlement. There is an institutional advance payment process behind it.

“T+1” is a common settlement method in the current acquirer. It is not difficult to complete by technology or model, but T+0 is very risky. There are greater risks in terms of refusal to pay, anti-money laundering, and settlement errors. There are also more requirements for T+0 settlement.

For example, the People’s Bank of China issued in 2016 the “Notice of the People’s Bank of China on Strengthening the Management of Payment and Settlement to Prevent New Types of Illegal Crimes in Telecommunications Networks” (Circular 261 for short), which requires banks and payment institutions to provide T+0 fund settlements for special merchants. For services, special merchants should strengthen transaction monitoring and risk management, and must not provide T+0 fund settlement services for special merchants who have been online for less than 90 days or have continued normal transactions for less than 30 days after accessing the network.

The creditor’s rights behind the settlement

From the perspective of the specific service content, from the consumer to the merchant, the creditor’s rights are a complicated process of circulation, and there is also a process of clarifying the legal relationship with a lot of controversy.

The relationship between the cardholder and the issuing bank. In bank card transactions, the cardholder deposits funds in the bank, and the deposit in the bank’s balance sheet is listed as a liability. Generally speaking, from the perspective of liabilities, the bank owes the cardholder money. When there is a deposit balance in the cardholder’s account, the cardholder is the creditor and the issuing bank is the debtor.

In the case of transfer settlement, the cardholder and the card issuing bank are in an entrusted relationship, that is, the cardholder does not handle settlement matters with the relevant special merchants, but entrusts the settlement matters to the card issuing bank.

The relationship between the merchant and the acquirer. The legal relationship between merchants and acquirers is quite controversial. The book “Civil Law Analysis of Credit Card Transactions” written by Hou Chunlei shows that the more recognized view in my country is that because the acquirer is the agent of the issuing bank, therefore, The legal relationship between the acquirer and the special merchant is actually the legal relationship between the issuing bank and the special merchant.

There is a certain degree of entrusted relationship between the acquiring institution and the issuing bank. The acquiring institution is the agent of the issuing institution in a sense, which is why all payment institutions can be regarded as the bank’s “acquiring outsourcing” institution s reason. However, in actual market operations, merchants have to sign the “Acceptance of Bank Card Agreement” with the acquirer, which actually establishes a legal relationship.

Among them, “debt trading theory” means that when merchants collect payments from consumers, the merchant entrusts the creditor’s rights to the acquirer. Through the acquirer, through the role of the clearing agency, the issuing bank, etc., the consumer’s funds are finally transferred to At the merchant, the transfer of creditor’s rights is finally completed.

As for the intermediate clearing agency, the theory is to assume the role of unified information transmission, clear legal relationships between agencies, and arbitration of business conflicts, without direct contact with funds. 

Therefore, the author believes that normal settlement, even if the merchant appoints the acquirer after obtaining the creditor’s rights to the consumer, it will transfer the creditor’s rights to the issuing bank through the mechanism of the clearing institution.

However, the “payment is settlement” attribute of digital renminbi may omit this process, and the transfer of creditor’s rights is completed directly between the merchant and the consumer. 

In this way, the issuer and acquirer naturally have no creditor’s rights relationship with consumers and merchants, and it seems that they have lost their original industrial logic, and there is no three-party or four-party model.

From this perspective, the impact of the digital renminbi’s “payment as settlement” on the payment industry seems to correspond to a sentence in the “Three Body”: “It has nothing to do with you to eliminate you.”

New responsibilities in the payment industry

Going back to the content of the “White Paper”, there are no detailed regulations on the nature of the digital RMB account. It only states that it is “based on the broad account system” and “loosely coupled with bank accounts” in many places. In addition, for the digital renminbi itself, it is clear that “digital renminbi is a liability of the central bank to the public, supported by national credit, and has a legal indemnity.”

Therefore, the nature of digital renminbi accounts and the legal relationship between the banks that provide digital renminbi accounts and consumers need to be clarified.

From the current definition of financial-related accounts, a personal bank account refers to a bank settlement account that can be opened for investment, consumption, settlement, etc. by a natural person with an ID card or corresponding certificate. The bank account is the most direct carrier of clarification of powers and responsibilities, and can be directly used for payment and settlement.

The payment account is just an electronic bookkeeping.

The “Non-bank Payment Institutions (Draft for Comment)” stipulates that payment accounts are those opened for natural persons (including individual industrial and commercial households) according to their true wishes, and are used to initiate payment instructions, record the balance of prepaid transaction funds, and reflect transactions. Detailed electronic bookkeeping.

In Western countries, bookkeeping in English means keeping records in a book, that is, keeping accounts.

A digital RMB account will not be an electronic bookkeeping, because it is “loosely coupled” and it is not a bank settlement account. What would it be?

In addition, the “White Paper” also clarified that the digital renminbi issuance and circulation management mechanism is consistent with the physical renminbi, but the value transfer is realized in digital form.

Therefore, the issuance and acquisition of digital renminbi may only be played by the account party as a “wallet” while the acquirer is playing the role of a “money locker”.

When the wallet is sold, it is not responsible for the loss of money, and the money cabinet will not be held responsible for the merchant being robbed. 

Payment is settlement, which has brought about a great increase in transaction speed, but at the same time the responsibilities have become cleaner. The so-called card issuance and receipt in the four-party model no longer bear the original responsibilities.

But there may also be new responsibilities. In layman’s terms, if the quality of the wallet is not good, consumers can sue the merchant for selling fake goods, and if the money locker cannot be opened, the merchant can sue the manufacturer. 

Whether it is issuing cards or acquiring orders, the M0 of digital renminbi is equivalent to cash attributes, which greatly reduces the financial responsibilities of participating institutions, and at the same time bears lower risks. Therefore, it is understandable that the future rate of digital renminbi will be lower. And some responsibilities are unshirkable.

Anti-money laundering responsibility. The “White Paper” states that the design of the digital renminbi system strictly complies with renminbi management, anti-money laundering and anti-terrorist financing, foreign exchange management, data and privacy protection and other related requirements, and digital renminbi operations must be included in the regulatory framework. 

Data security responsibility. The “White Paper” requires that the digital RMB follow the principle of “anonymity of small amounts and traceability of large amounts according to law”, attaches great importance to personal information and privacy protection, and fully considers the business risk characteristics and information processing logic under the existing electronic payment system to satisfy the public’s response to small amounts. Demand for anonymous payment services. 

Behind the “payment as settlement” attribute of digital renminbi, there will be a tedious process of legal formulation, conceptual definition, division of powers and responsibilities, and clear relationships. Many digital renminbi pilot projects will also focus on these contents at a deep level. In practice, when theories are explored, and then theories are used to consolidate the content of practice and reach a level that can be replicated nationwide or even globally, it is the time when the digital renminbi becomes a big success.


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