Tencent and Ant Group are in a difficult position because of the digital yuan

China has asked Jack Ma’s Ant Group and Tencent Holdings to participate in the development of support for this country’s digital currency, called the digital yuan (or e-CNY).

In recent months, the People’s Bank of China (Central Bank) has accelerated the trial of the e-CNY, putting the operators of the Alipay and WeChat Pay platforms in a difficult position.

Both have little choice but to be forced to join, despite the risk of impacting the huge user base on these two platforms. Most of China’s 1.4 billion people use at least one of these wallets on their phones.

Last week, the Central Bank of China released a white paper stating that the e-CNY is developed purely for domestic payments. China needs secure, convenient, privacy-friendly payment services and a cross-platform connectivity infrastructure.

While it doesn’t mention Alipay and WeChat Pay directly, the white paper says the use of cash is declining and the majority of urban residents pay by mobile apps.

China said the e-CNY will be distributed through commercial banks and non-banking financial companies (Fintech). China has been testing e-CNY with six banks plus the participation of Ant Group and Tencent last. But these two technology companies have not yet been allowed to fully test the features as a commercial bank.

However, Ant Group took many months to participate in the test of the e-CNY wallet with the participation of tens of thousands of employees.

The trial began last year with a handful of senior employees, before expanding in February this year to include all employees of Ant and its affiliate Alibaba Group Holding.

Using Alipay’s built-in wallet, Ant employees will make purchases with e-CNY in special areas in Hangzhou and some other cities like Shenzhen.

In addition, employees can use e-CNY to pay for some online services at Alibaba companies and retailers.

While Alipay and WeChat Pay are rivals, e-CNY is a state-recognized fiat currency and creates a neutral environment for platforms.

Testing shows that e-CNY supports both QR Code payments and near-field connectivity (NFC) technology commonly used for credit cards and public transport. The e-CNY wallet also runs on a standalone app, designed to balance banking and mobile payment platforms.

The e-CNY began to be used in daily trading activities.

Ant spokesman said that together with partner MyBank, will continue to support research, development and testing of e-CNY. The same was mentioned by a Tencent spokesperson.

This is an impossible situation for Ant and Tencent, “it is quite dangerous to encourage the development of e-CNY, but it is more dangerous to stay out,” said Eswar Prasad, former head of the International Monetary Fund. International Monetary Fund (IMF) China region commented.

China has not yet set a date for the nationwide rollout, but the mainland is urgently preparing for use at the 2022 Winter Olympics in Beijing next year.

The trial is taking place in 10 cities along with a few Olympic venues. As of the end of June, about 20.87 million individual e-CNY wallets and 3.51 million institutional e-CNY wallets were opened, performing 70.75 million transactions with a value of more than $5 billion, according to the report. project white paper.