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- Design features make e-CNY app a chart-topper
- Digital yuan to reach the unbanked
- China provides a CBDC roadmap to the West
Various features in the e-CNY app, the Chinese digital wallet used to promote the pilot version of the country’s central bank digital currency (CBDC), are designed to go into places where existing Chinese payments giants struggle, experts say.
Through a four-tier system, the e-CNY app gives its users either full anonymity to send money up to RMB2,000 (£240) or move an unlimited amount of money after completing full know your customer (KYC) checks.
It also addresses key challenges faced by the elderly and those living in rural areas, increasing financial inclusion in the country.
Chinese users in 12 cities, including Shanghai, Beijing and Shenzhen, have been able to download the e-CNY app in IOS and Android app stores since January 4.
Despite the fact that the app is geo-locked, it already has 261m unique users who gave the app a top rating of 4.4 stars out of 5, according to the IOS store.
In a recent conference on digital currencies in Asia, Richard Turrin, fintech influencer and author of "Cashless: China’s Digital Currency Revolution", called the e-CNY app a “chart-topper”, stressing that this is due to a number of design elements that make it stand out.
What makes e-CNY great?
Like many digital wallets around the world, the e-CNY enables users to link multiple bank accounts. And similar to Alipay and WeChat Pay, it provides the possibility to pay with QR codes.
But unlike these private versions, e-CNY introduces a new feature called tap-to-pay, which enables users to touch phones to one another to make and receive payments without a phone signal.
Users can also connect their e-CNY wallet with their existing mobile apps, making it easier for them to transfer data from their bank account to the digital yuan wallet.
One of the more intriguing features is, however, the introduction of a four-tier system that caps spending limits depending on the level of data connected to the wallet.
This enables users either to send a small amount of payment with total anonymity or to move an unlimited amount of money after completing a full KYC verification.
The lowest level, which requires linking only a phone number, allows users to send money up to RMB2,000 (£240) per transaction. Users in this category can store a maximum of RMB10,000 (£1,190) on their wallet, with their annual spending capped at RMB50,000 (£5,950).
At the next level, users can send RMB5,000 (£595) per transaction provided they share a valid ID in addition to their phone number. At tier three, this includes a transfer cap of RMB50,000 (£5,950). However, if users also connect their bank account they can move up to the highest category allowing unlimited balance and transfers. This tier also requires users to visit a bank branch and get full KYC clearance beforehand.
“This is really quite remarkable and a big surprise … . We can actually move an unlimited amount of money on our e-CNY app,” Turrin stressed.
Banking the unbanked
The features that allow unlimited spending, selectable limits and anonymity are the “big differentiators compared to WeChat and Alipay which will make the digital yuan have a unique market unto itself”, according to the fintech expert.
“The digital yuan is designed to go into places where Alipay and WeChat Pay cannot” and have unique users that the private payments giants cannot reach, Turrin said.
Another significant feature is the LCD card which displays the actual balance on the card and allows the processing of offline transactions. It is capable of reading and producing QR codes and making payments without a smartphone, therefore enabling the poor, the elderly and those living in rural areas to use the wallet.
These features could be absolutely critical to improving financial inclusion, particularly in rural villages, Turrin emphasised.
Despite making significant progress to improve financial inclusion over the last decade, it is estimated that about 287m adults, or 20 percent of the Chinese population, were unbanked in early 2021. Addressing this issue further is a key use case for the app.
What are the lessons learned for Europe?
China has been working on the development of a digital fiat since 2014 and is almost a decade ahead of some leading economies.
“China’s digital yuan is like a roadmap for the West,” Turrin said.
As the second-largest economy in the world, China had to go through a number of questions on the way. These questions are not unique and Europe will have to deal with the same questions when it considers the design of the digital euro.
“The West can learn a lot from China and the design decisions they made. There will also be design decisions that they don’t like and don’t want to use. It will go both ways,” he added.
There are nonetheless big differences between Europe and China, Hiromi Yamaoka, a former Bank of Japan official, noted.
China has several bigtechs providing payments services and the promotion of the use of yuan is a key goal of the country. Meanwhile, Europe has no such bigtech companies and the euro is already a key currency in the world.
It might, however, be interesting to see how other Asian countries approach the question of bigtechs and what different solutions they find to promote their solution, Yamaoka said.
Meanwhile, privacy is also a key policy question in Europe’s exploration of the digital currency.
While Europe has a high standard for the protection of data privacy, some worry that the Chinese government could exploit the digital yuan for financial data surveillance.
In China, the government owns both the system that processes the payment and the system that holds the identifying information. This means the government holds the names and the processing power. Although these systems are separate and the government must obtain a court order to match the information in the two systems, it is still the government that controls both, Turrin explained.
“This is an excellent design for financial inclusion, but the EU and the US are going to have to change it.”
“What we need to do is play the ‘who holds the name’ game,” he stressed, adding that it will have to be banks or other third-party organisations who own the database of the identity information.
The EU announced the launch of the investigation phase of the digital euro project last July. The investigation phase is scheduled to run for two years during which time a group of experts will address key issues regarding the design and distribution of a digital euro.
