Six big state banks in Shanghai are quietly promoting digital yuan ahead of a May 5 shopping festival, carrying out a political mandate to provide consumers with a payment alternative to Alipay and WeChat Pay.
They are persuading merchant and retail clients to download digital wallets so transactions during the pilot program can be made directly in digital yuan, bypassing the ubiquitous payment plumbing laid by tech giants Ant Group, an affiliate of Alibaba, and Tencent.
"People will realize that digital yuan payment is so convenient that I don't have to rely on Alipay or WeChat Pay any longer," says a bank official involved in the rollout of e-CNY for the Shanghai trial under the guidance of China's central bank.
China's development of a sovereign digital currency - far ahead of similar initiatives in other major economies - looks increasingly poised to erode the dominance of Ant's Alipay and Tencent's WeChat Pay in online payments.
That turf encroachment coincides with Beijing's expanding effort to clamp down on anti-competitive behavior in the internet sector, part of a wider reining in of the clout of sector heavyweights.
Regulators scuppered Ant's massive IPO in November and this month imposed a sweeping restructuring on the fintech conglomerate controlled by Jack Ma Yun. Ma's Alibaba Group was recently hit with a record US$2.8 billion (HK$21.7 billion) antitrust penalty.
In public, the People's Bank of China says e-CNY won't compete with AliPay or WeChat Pay and serves only as a backup.
But in private, state banks marketing the digital fiat currency for the central bank bluntly describe Beijing's intention to undercut the duo's dominance.
"Big data is wealth," says another banking official tasked with promoting the e-CNY.
So the e-CNY rollout facilitates China's anti-trust campaign and helps Beijing control big data, he adds.
Ant-backed MYbank notes it is "one of the parties participating in the research and development" of the e-CNY and "will steadily advance the trial pursuant to the overall arrangement of the People's Bank of China."
The e-CNY digitalizes a portion of China's physical notes and coins, or currency in circulation, and was launched last year in small pilot schemes in four cities.
Under a two-tier distribution system, the PBoC issues the digital yuan to banks, which pass the money to individuals and firms.
The six banks in the pilot schemes include the biggest lenders such as Industrial and Commercial Bank, Agricultural Bank, Bank of China and Construction Bank.
"The e-CNY's ease of use will likely be comparable to Alipay and WeChat Pay, while its security function will likely be higher and as sophisticated as Bitcoin," HSBC wrote in a recent report, adding it expects the digital currency to "proliferate" within China.
Among a slew of likely motivations cited by HSBC behind the push is the central bank's desire to gain control of payment channels and consumption data from Alipay and WeChat Pay.
Digital wallets, which are still being beta tested, can be bundled with a dozen popular apps, including Meituan, JD.com, Didi and Bilibili, but conspicuously can not be linked to WeChat or Alipay.
That means none of the participating banks can transfer e-CNY between their digital wallets and the two established payment platforms.
"PBoC doesn't want to see the money being routed through third-party payment systems," a banker says, citing a need for "information segregation."
E-CNY will digitize "the last mile" of consumption, enabling banks and merchants to capture data and gain insights into spending patterns, says Wilson Chow, the global TMT leader PwC China.
That data is now dominated by Alipay and WeChat Pay, which control a combined 94 percent of China's online payment market.
Mass adoption of the e-CNY won't happen overnight.
Chow predicts e-CNY will account for roughly 10 percent of China's electronic payments market in a few years, co-existing with Alipay and WeChat Pay.
To entice users, bankers says the PBoC will likely give "red envelopes" of free digital cash or discounts to Shanghai citizens around the upcoming shopping festival - an event aimed at promoting spending to fuel economic recovery from Covid-19.
Central bank deputy governor Li Bo told a forum last week that domestic adoption will precede cross-border payments with e-CNY, which many analysts believe will bolster the yuan's global status as China seeks ultimately to break the dominance of the US dollar settlement system.
"The priority of the yuan's digitalization is currently to promote its domestic use," Li says.
