Over the period of research we have undertaken into the Digital Yuan, the scale of preparation we have seen within China for this innovation has been breath-taking. Now some dimensions of this preparation are coming into public knowledge, one of the most unique amongst them being the adoption strategy.
Recent statements by the Deputy Governor of the People’s Bank of China (PBOC), Fan Yi Fei, brought to light some experiments successfully concluded:
RMB 1.1 billion ($160 million) processed till date in DC/EP
113,300 personal digital wallets created
9,000 corporate wallets created
6,700 use cases trialed
Multiple use cases in the B2B space have been brought to light in different fora but what is interesting is the retail or B2C adoption push. Here , an incredible experiment involving the amalgamation of culture, young consumers and technology is underway in China and this time it is the government taking cue from what was done by private companies Alipay and WeChat to promote digital payments.
Those familiar with the incredible growth story of fintech in China, are aware of the role played by digital “Red Packets” in the Chinese New Year holiday. Adopting any new technology by combining it with tradition is not only effective but it also helps easing a new concept in a society as big as China.
“Gong Xi Fa Cai, Hong Bao Na Lai!” is commonly heard during Chinese New Year, translating directly to “Happy New Year! Give me a red envelope!” The “Hong Bao” or red packet, are a popular gift envelope of money people give to young adults and children during Chinese New Year.
Back in the year 2015, online payment platform Alipay and WeChat, China’s alternative to Whatsapp, launched their famous Red Packet campaigns to promote digital payments during the peak of the Chinese festive season (close to New Year). As expected, the Chinese penchant for tradition and festivities kicked in and consequently, the entire nation saw a market changing gears from cash to digital payments.
To give you an insight into how things changed in China post the ‘red packet’ move by WeChat, here is what Sean Duffy, CEO of Duffy Agency, wrote about his experience in Beijing at the advent of the launch of WeChat Pay:
“I experienced the launch in China during the 2015 Chinese New Year celebration. I had never made a mobile payment. Then a few days before the holiday, I received several WeChat messages that said: “Your friend just sent you a Red Packet! Open it now.” Of course, I clicked. Then WeChat told me that money from my Red Packet had been added to my WeChat wallet. I could use the money to send my own Red Packets or convert it to cash by connecting my WeChat wallet to my bank account.”
He then described how a gamification strategy was used to quickly multiply the sharing of the packets and boost adoption.
“WeChat also offered a game called “Catching Red Packets Competition” running in WeChat groups. In this game, anyone in the group can issue a Big Red Packet with a certain amount of money. The amount in the Big Red Packet will be randomly divided into a number of Small Red Packets for everyone in the group. Once the Big Red Packet is sent out, group members can click it to get their small Red Packet. The money is split between the small Red Packets randomly, so no one knows how much they will get until they click. I became addicted to this game immediately. And then I began to send out Red Packets to my friends and groups as well, which meant I also got more Red Packets in return.”
In a similar move in 2020, the administration in the Luohu city of Shenzhen province will be effectively ‘giving away’ 10 million yuan (approximately US $1.47 million) in a lottery in a new experiment to promote and test the new currency. The Shenzhen administration will choose lucky citizens from those who register for the lottery and the winners are set to get a traditional ‘red packet,’ which will contain 200 yuan. A total of 50,000 digital ‘red packets’ will be distributed through the Digital Renminbi App and anyone from Shenzhen can register for the lottery through the blockchain based application called iShenzhen.
The other dimension of the 2015 strategy was enabling an offline arm to payments. QR codes are now ubiquitous in the Chinese payments landscape but they were a new feature introduced in 2015, as described in this excerpt from Sean Duffy.
‘After the holidays I was in a local convenience store. When I was about to check out, the cashier pointed to a small but very obvious WeChat sticker over the counter. She said, “We accept payments by WeChat, well, they actually call it WeChat Pay, do you want to give it a try?” I asked her if it was complicated. She shook her head and pointed to a QR code on the counter. The code is unique for each store that accepts WeChat Pay. All I had to do was open my WeChat app and scan that QR code. The invoice showed up on my screen. I just needed to click “Pay”. The entire process took 10 seconds! I was hooked.’
Leveraging the widespread adoption of QR codes, one of the recently disclosed retail trials of the DC/EP was for QR-code enabled payments in vending machines. Here, in another nod to popular culture in the country, the central bank has linked digital yuan payments to Gashapon vending machines that dispense capsules with toys based on popular anime series like One Piece and Detective Conan. Similar to the “red envelopes” these are small payments in the range of 10 and 50 yuan (US$1.50 and US$7.40), that keep young consumers returning to try their luck in collecting the toys they want.
These machines have specifically been upgraded to accept NFC technology. As we will be discussing in our analysis of the Digital Yuan architecture, a part of our detailed Report Series on the Digital Yuan, NFC technology has been leveraged for specific functional flows in the digital currency system.
Almost half a decade after the 2015 fintech boom, the Chinese government is leveraging a similar playbook to facilitate adoption of what could be the biggest financial and economic change the world will see in 2020. The experiment that has started in Shenzhen could well be replicated in other parts of the country as China plans to elevate its digital currency strategy to a national scale. With the Chinese New Year just four months away, we could see yet another ‘Red Packet Revolution’ in China, perhaps its most advanced and ambitious yet.