Alipay and WeChat Pay take another hit on the digital yuan

The news: Chinese Mobile Wallet Titans Alipay and Pay WeChat are testing credit card cash advances, according to China Daily. In partnership with banks whose Bank of Ningbo, Everbright Bank of Chinaand Ping An Bankusers will be able to withdraw funds from their credit cards and transfer them to debit cards linked to digital wallets.

Alipay and WeChat Pay will offer the service for free, and banks will determine withdrawal limits and interest rates. Users will not be able to use cash advances to make debt repayments or investments.

What this means: At first glance, this decision is designed to improve the use of credit cards in the market after the entry into force of new regulations.

  • Chinese credit cards per capita hover around 0.53—lower than other developed markets, by Huaon. And usage has stagnated at around 40%, by Daxue Consulting.
  • New regulations from the China Banking and Insurance Regulatory Commission (CBIRC) aim to change that: if more than 20% of a bank’s cards have no transactions or overdrafts for 18 months, they will have to suspend payment. ’emission.

Credit card withdrawals could be a boon for banks, which find themselves disintermediated through digital wallets—and Union Paywhich holds a virtual monopoly in the Chinese card market, increasing the use of cards.

The bigger picture: The pressure on major mobile wallets is increasing.

The Chinese mobile payment market is very mature: Nearly 8 in 10 mobile phone users do both proximity and peer-to-peer (P2P) mobile payments, most through Alipay and WeChat Pay. But Beijing has been cracking on Big Tech, which could make the apps harder to use and less appealing to customers.

  • This could attract customers to digital yuan (e-CNY): The government reported 261 million subscribersand 1 in 5 adults in China have downloaded the official e-CNY appper morning consultation.
  • But interest is lukewarm: Alipay and WeChat Pay both have higher preference ratings, and many users see no need to switch.
  • New use cases and incentives could change this – for example, 10 cities now accept e-CNY for the metro. Ningbo recently added an incentive for one-cent fares, and Guangzhou just added support for buses, according to Coingeek.

Although e-CNY has partnerships with Alipay and WeChat Pay, it is an alternative (and for merchants, cheaper) mobile payment option that could threaten the titans’ market dominance. Titans can take advantage of e-CNY’s low interest by adding use cases such as wallet-based credit card cash advances to maintain or grow their user bases instead of losing ground.

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