Mobile payment network news: The digital renminbi is becoming clearer, and new doubts have also emerged.
Recently, the People’s Bank of China released the “White Paper on China’s Digital Renminbi Research and Development Progress” (hereinafter referred to as the “White Paper”), which answered many people’s questions and brought deeper thinking.
However, many people are still puzzled about the difference between digital renminbi, Alipay and WeChat Pay, after all, there is not much difference in front-end experience. But in terms of industry and business logic, we can see the difference.
Officials have repeatedly clarified concerns about whether digital renminbi will replace third-party payments, WeChat Pay and Alipay.
In May 2021, Zhou Xiaochuan, the former governor of the People’s Bank of China and also known as the “father of digital RMB”, stated that the DC/EP and e-CNY promoted by the People’s Bank of China wanted to replace the current role of third-party payment. “It’s a kind of arbitrariness.” He also explained in a popular way that everyone is on the same boat. Of course, people on the same boat sometimes have different opinions, and sometimes there may be disputes on some issues, but after all, they are on the same boat. It’s not that some people say it seems to be a kind of infighting, who will replace whom.
In October 2020, shortly after the Shenzhen pilot of the digital renminbi started, Mu Changchun, director of the Digital Currency Research Institute of the People’s Bank of China, explained that there is no competition between WeChat Pay, Alipay and digital renminbi, and they are not in the same dimension. WeChat Pay and Alipay are financial infrastructures and wallets, while digital renminbi is a payment tool and the contents of the wallet. In the electronic payment scenario, the wallets of WeChat Pay and Alipay contain commercial bank deposit currencies. After the digital renminbi is issued, everyone can still use WeChat Pay and Alipay to pay, but the contents of the wallet add central bank currency. At the same time, Tencent and Ant’s respective commercial banks are also operating institutions, so there is no competition with digital renminbi.
In June 2021, Mu Changchun emphasized again in a meeting that digital renminbi and third-party payment are two dimensions, and they are not a relationship between competition and substitution. The digital renminbi is money and a tool, and the wallet is the carrier and infrastructure. Digital renminbi wallets, like other wallets, are infrastructures and carriers. Third-party payment as a carrier and as an infrastructure function has not changed, and it can still be used as a carrier of digital renminbi.
The definition in the “White Paper” is that the digital renminbi is a digital form of legal tender issued by the People’s Bank of China. It is operated by designated operating institutions. Based on the broad account system, it supports the loose coupling function of bank accounts and is equivalent to physical renminbi. Value characteristics and legal compensation.
WeChat Pay and Alipay are essentially payment institutions. According to the definition of the latest “Regulations on Non-bank Payment Institutions (Draft for Comment)”, payment institutions are defined as payment institutions established in the People’s Republic of China and obtained payment business licenses to store value. A limited liability company or a joint stock limited company for account operations, payment transaction processing, and part or all of the payment business.
The payment account refers to the electronic bookkeeping opened by natural persons (including individual industrial and commercial households) according to their true wishes, and used to initiate payment instructions, record the balance of prepaid transaction funds, and reflect transaction details.
Therefore, digital renminbi is money, and accounts such as WeChat Pay and Alipay are “wallets” that carry money. This is the description of the officials, and at the same time the popular interpretation of their respective definitions.
But this still cannot eliminate people’s doubts about the two, perhaps from the industrial logic, it can be said more clearly.
The origin of third-party payment
The rise of third-party payment in China was relatively early. In 1998, the Beijing Municipal Government and the People’s Bank of China and other ministries initiated the Capital E-Commerce Project, which was identified as a demonstration platform for online transactions and payment intermediaries, Capital Electronic Mall. At that time, China UnionPay had not yet been established. This attempt by the People’s Bank of China solved the payment problem in the e-commerce scenario.
In 2003, Taobao was established, and the development of e-commerce began to enter the fast lane. In order to solve the problem of payment and trust in the e-commerce scene, Alipay appeared.
Alipay has innovated the front-end and back-end of e-commerce payment scenarios. One is the introduction of fast payment, which greatly improves the payment experience; the other is the introduction of guaranteed payment, which solves the trust problem between settled merchants and users. Since then, Alipay has opened up the glory of third-party payment for nearly 20 years.
In September 2020, Alibaba CTO Wang Jian, who has become an academician of the Chinese Academy of Engineering, commented on Alipay’s achievements and said that Alipay’s contribution to China is not how much market share it has, but that it has created an era in China. If there is no Alipay, it may be that era. Will not come.
Of course, Alipay has also brought some financial risks.
In the two major innovations of fast payment and guaranteed payment, guaranteed payment has promoted the establishment of the payment institution’s reserve fund mechanism and clarified the payment industry logic.
Public information shows that the so-called third-party payment guarantee means that the buyer pays the purchase price to a third party other than the buyer and seller. After receiving the payment, the third party notifies the buyer that the purchase price has been received, and at the same time notifies the seller to ship the goods, and the seller can ship the goods to The buyer, the buyer informs the third party of receipt of the goods from the seller, and the third party pays the seller the payment for the goods.
To put it bluntly, guaranteed payment solves the problem of mistrust in transactions such as non-delivery, quality problems, and running away with money after the buyer is afraid of paying the seller.
Guaranteed payment is behind the three-stream coordination of capital flow, information flow, and logistics. Different time points and different operations make payment and settlement out of sync. An e-commerce transaction starts with the user’s payment and finally the settlement of funds is completed. Participants include buyers and sellers, e-commerce platforms (information flow), third-party payment platforms (funds flow), and logistics companies (logistics).
Guaranteed payment brings a reserve fund mechanism. When the Payment Order No. 2 (“Non-financial Institution Payment Service Management Measures”) was issued, it was clarified that the reserve fund does not belong to the payment institution, but belongs to the user. In actual operation, the payment institution is able to obtain interest on the reserve fund. The “T+1” and “T+N” settings in the receipt, the wallet business of the payment account, can absorb the reserve fund. This is the result of non-real-time payment settlement.
The “payment is settlement” attribute of digital renminbi may not fit into the e-commerce payment scenario, or subvert the third-party payment reserve mechanism. In the article “The Impact of Digital RMB “Payment Is Settlement””, the author analyzes the impact of digital RMB on third-party payments from the perspective of the concept of settlement and the nature of the creditor’s rights.
From the perspective of the existence of guaranteed payment and reserve funds, the nature of digital renminbi will subvert the existence of third-party payments. But from a market perspective, digital renminbi can simply solve the payment problem, but the core problem solved by third-party payment is actually more of a trust problem, a coordination problem involving multiple parties in a transaction.
From this perspective, the essence of transactions is trust. Third-party payment has the core ability to solve the trust problem. The market needs third-party payment, which is difficult to replace with digital RMB.
Irreplaceable and new era
So does the digital renminbi solve the e-commerce payment problem?
Solved, but not completely resolved.
In December 2020, Suzhou launched a digital renminbi pilot, among which JD.com provided an e-commerce scene for it. However, the author found that what JD.com provides is not an e-commerce in the traditional sense, but only supports digital RMB red envelopes for users to purchase in directly-operated stores. In other words, this is a two-party transaction. Jingdong is the seller and the user is the buyer. It is doubtful whether there is a guarantee.
In the “top” list of digital RMB scenarios previously counted by the mobile payment network, most of them are two-party transactions and do not involve the settlement logic behind each industry, which perfectly reflects the “payment is settlement” attribute.
So will the digital renminbi be suitable for merchants entering the e-commerce platform? Under the tripartite relationship of buyers, sellers, and e-commerce platforms, payment is required to be guaranteed.
If there is no guarantee for payment, the buyer’s digital RMB is directly paid to the seller, the funds are settled instantly, and the legal and rights and responsibilities are also changed, which may cause the seller to run away with the money and fail to redeem the service or product.
Even if the digital renminbi can support guaranteed payment, what is the nature of the digital renminbi as a reserve fund? Since it is settled immediately, does the money belong to the user or the guarantee platform? The digital renminbi has no interest. How can the guarantee platform make profits? Will the original e-commerce payment system be destroyed under the “zero rate” nature of the digital renminbi? This is worth pondering.
The “E-commerce Law” clearly states that the state encourages e-commerce platform operators to establish a product and service quality guarantee mechanism that is conducive to the development of e-commerce and the protection of consumer rights and interests.
The reserve fund mechanism established through third-party payment is a capital guarantee, the most direct guarantee mechanism, and it is also a guarantee mechanism generally applicable in the e-commerce industry. So will the digital renminbi give birth to a new guarantee mechanism?
This is the question that enterprises in all walks of life need to think about, including third-party payment. Digital renminbi can solve the payment problem, but represented by the e-commerce scenario and guaranteed payment, it cannot solve the industrial logic problems of various industries alone.
It is worth mentioning that the digital renminbi is programmable, that is, using smart contracts to restrict the scope of a transaction. From this perspective, if both parties to the transaction reach an agreement to stipulate the conditions for the transaction through smart contracts, a new guarantee mechanism may be created. This is the direction that representative companies from all walks of life can expand and develop.
In response to the official explanation of the digital renminbi, this is money, but how to use this money and how to customize it still requires a third party. The role is irreplaceable, but the service method may change. Perhaps in the future, third-party payment will not be developed around a reserve payment mechanism, but a service provider and plan customizer of digital RMB smart contracts. The role is irreplaceable, and the service content is quietly changing.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/why-digital-renminbi-cannot-replace-third-party-payment/
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.