In 2022, the Digital Currency Electronic Payment (Digital Renminbi) is the hottest topic in the digital economy. From rural revitalization to Digital Winter Olympics, from supermarket retail to tax payment pilots, the application scenarios of Digital Renminbi are constantly being enriched, the resulting innovation needs and industrial iteration opportunities have also become the focus of attention.
According to statistics, there were 18 financing incidents in the digital currency industry from 2021 to 2022, with a financing amount of several billion RMB. Reporter from the Technology and Finance Magazine combed through the announcements of relevant financial technology listed companies and found that many companies have already voiced their insights on the Digital Renminbi businesses on their investment platforms and has participated in the Digital Renminbi Red Envelope Distribution Projects of many banks. Global Infotech announced that the company has Digital Renminbi and innovation-led related technical reserves. The person in charge of Sunline's related business also said in an interview with Technology and Finance Magazine that the company has assisted financial institution to participate in the application and promotion of Digital Renminbi in many instances, and developed Digital Renminbi wallet products for cooperative banks.
Reshaping the payment services landscape
According to the statistics of the Central Bank’s Data Research Institute, as of August 31 2022, the Digital Renminbi pilot has expanded from the original “10+1” pilot area to 23 areas in 15 provinces, exceeding 360 million cumulative number in transactions and reaching RMB 100.04 billion in amount.
Riding on the bandwagon, the stock capital market has also seen growth. In addition to being extremely active in the primary market, Digital Renminbi related concept stocks are also highly sought after, making stock capital a growing secondary market. At the beginning of 2022, related concept stocks have received more than ten consecutive limit increases, and the optimistic expectations of the main funds for the Digital Renminbi was seen.
In the view of Luo Zhuan, Marketing Director of Sunline’s Digital Banking Business Department, most commercial banks and operating institutions are currently only collaborating with the Central Bank to do preliminary pilot tests.
Once the Digital Renminbi is piloted or promoted on a larger scale, there will inevitably be an influx in Digital Payment scenarios, resulting in opportunities for financial technology companies in the industry.
"In the process of Digital Renminbi innovation, users' dependence on channels will continue to decrease, resulting in the reshaping of the payment service landscape." states Luo Zhuan on the reason for the early deployment of capital.
In the past ten years, the rise of e-wallets represented by WeChat Pay and Alipay has broken the model of China's payment industry chain, and gained a huge share of it. However, as a non-cash payment method, Alipay, WeChat Pay, and bank cards need to be unified through a clearing agency to realize the unification of capital flow and cash flow, and the income of these players comes from the handling fees paid by users.
As a legal currency in the form of payment and settlement, the transfer of Digital Renminbi can be completed directly between consumers and merchants without the participation of clearing agencies, which means that the payment chain will be greatly shortened and handling fees will be removed. With the reshaping of the existing payment landscape, the financial technology industry will also undergo major changes.
In this regard, Sunline has a long-term plan and has made relevant technical reserves. Luo Zhuan said that the strength of Sunline is mainly to carry out system construction for banks and build a Digital Renminbi acceptance environment.
Based on the company's 20 years of experience and technical accumulation in the construction of the core banking system and payment system, as well as the company's knowledge in Digital Renminbi technology strategies and application scenarios, Sunlight has partnered with a number of banks to develop Digital Renminbi wallet products through R&D technology integration with our customers, offering an end-to-end Digital Renminbi Wallet Platform with comprehensive solution and implementation capabilities.
From the perspective of scenarios and technologies with enriched application scenarios of Digital Renminbi, the payment transactions must be able to support high frequency and concurrency, which means that the promotion and use of Digital Renminbi requires seamless communications and flow of relevant banking systems.
Luo Zhuan have provided an affirmative answer as to whether Sunline has made long-term preparations for this, stating "Digital Renmimbi is a system with very large business traffic in the future. When Sunline is designing products, we have already considered the need for high-performance and high-concurrency of banks in the next decade or so. With forward-looking considerations, our solutions will be able to undertake the explosive growth brought about by the Digital Renminbi.”
Expanding special application scenarios
As mentioned above, the reason why the cumulative turnover of Digital Renminbi exceeded the 100 billion mark is due to the continuous expansion of Digital Renminbi application scenarios. Up to now, in addition to general scenarios such as daily consumption and closed pilot projects, various special scenarios such as consumption red envelopes, government subsidies, special funds, pre-payments, etc. has been created. The Smart Contract technology supporting these scenarios has also become the key layout of many financial technology companies.
In fact, Smart Contracts did not immediately become the focus in the initial stage of Digital Renminbi development. In this regard, Liu Mingjing, Technical Director of Sunline’s AI Technology Development Department, explained that the Digital Renminbi has only done basic scenarios before the pilot, but its development on the B side is not enough to rely solely on traditional payment scenarios. When entering the innovation scenario, it largely needs to rely on Smart Contract technology to complete.
The application of Digital Renminbi Smart Contract Technology is to use technical means to prevent the possibility of prepaid card funds being misappropriated by setting payment restrictions on specific Digital Renminbi, such as specific scenarios, payment conditions, and payment amounts.
Specifically, in the field of prepaid fund management, Smart Contracts can effectively prevent fund misappropriation and achieve transparent management, by taking into account existing business models. In the field of targeted payment such as financial subsidies and scientific research funds, Smart Contracts can monitor payment purposes and improve the efficiency of government fund use. In the field of fund settlement like fund collection and intelligent account splitting, Smart Contracts can solve the compliance issues of payment transaction processing, improve the accuracy and automation level of fund processing, as well as reduce manual processing errors and risks.
"At present, the application of Smart Contracts is still in early stages of exploration. The Central Bank has not opened the interface of Smart Contracts. Most enterprises are also in a ‘wait-and-see’ state. The overall technology has yet to reach a large-scale operation." Liu Mingjing also shared that the advancement of Smart Contracts depends on the Central Bank Data Research Institute to provide platforms and development interfaces, formulate basic rules, and powerful institutions to develop various types of Smart Contract access, and whether it can be widely applied depends more on whether a credible and open ecosystem can be established.
"The application of Digital Renminbi Smart Contract Technology is worth exploring and promoting. Sunline has carried out a framework for more than a year, and has applied for several related patents. The AI Department has also independently developed a Smart Contract Generation System, which can be used by banks to provide customers with a digital twin robot to carry out digital analysis, evaluation and negotiation of the entire loan process." Liu Mingjing added, saying that Sunline plans to use Smart Contract Technology to improve the process of smart account sharing, so that the ownership of consumer funds is clearer and guaranteed. The scenario of timely and automatic transfer of funds relies on credible information to realize the implementation of scenarios such as digital operations as well as digital marketing of merchants and banks.
Responsibilities of all parties are still unclear
As a participant and observer of financial technology for many years, Yang Xiaoqiang, Deputy President of Sunline’s Digital Banking Business Headquarters, is also very optimistic about the prospects of the Digital Renminbi, but he also voiced some doubts about the development of the industry – What is the role of operating institutions in the development of the Digital Renminbi?
"In the past few years, we have found some issues while partnering with customers in Digital Renminbi projects, with the biggest being imperfect laws and regulations. The relationship between the rights, responsibilities and interests of all parties are not clear, slowing the motivation of the commercial banks in promoting Digital Renminbi. "
Yang Xiaoqiang also added that The People's Bank of China has identified 10 designated operating institutions, including the six major state-owned banks (ICBC, Agricultural Bank of China, Bank of China, China Construction Bank, Bank of Communications, Postal Savings Bank), MYbank, WeBank, China Merchants Bank and Industrial Bank and the different arrangements of relationship between the Central Bank, operating institutions and commercial banks may have different effects and have an impact on the development of Digital Renminbi.
He explained that under the current model, if a commercial bank that is not a designated operating institution wants to develop its Digital Renminbi business, the bank needs to connect to the port of the designated operating institution. Firstly, the interface is limited, and commercial banks may not be able to satisfy customers in the short term. Secondly, commercial banks have to provide their customer identity and business data to operating institutions, which may discourage the enthusiasm of non-operating institutions to work with Digital Renminbi, putting a roadblock to the development and circulation of Digital Renminbi.
With the further development of Digital Renminbi, how operating institutions balances its relationship with other commercial banks in the process of performing its duties, how a certain amount of income to ensure smooth operation is obtained, and what restrictions and regulations should be in place have become issues worth exploring.
"The rules have been set, everyone's doubts have been dispelled, and various innovations would soon be expected,” said Yang Xiaoqiang.
Since the COVID-19 pandemic, the global digital transformation and digital currency research and development have both pressed the fast-forward button, adding "wings" to the development of financial technology companies. In order to seize the opportunity, Sunline has established a subsidiary in Changsha that serves Digital Renminbi related application scenarios to provide banks with Digital Renminbi Scenario acceptance construction and development services.
While expanding its territory to other countries through "Belt and Road", China has recently received an invitation from Thailand's Financial Services Authority to advise the country on their digital currency business operation models and other aspects. The journey of overseas venture for Chinese Fintechs is accelerating.