Concerns of Point-of-Sale Manufacturers Over China’s Digital Yuan Rollout

As China prepares for a widespread launch of its central bank digital currency (CBDC), concerns have been raised by point of sale (POS) manufacturers over potential declines in their earnings due to the widespread adoption of the digital yuan.

The People’s Bank of China’s (PBoC) decision to eliminate merchant fees on digital yuan transactions has led to discontent among POS manufacturers, according to reports. While the PBoC aims to encourage acceptance of the CBDC by vendors, there is a consensus that POS equipment manufacturers will suffer financial losses.

Analysis suggests that manufacturers may be reluctant to adapt existing POS equipment to be compatible with the digital yuan. This “boycott” could lead to a shortage of POS equipment compatible with the digital yuan, which would hinder the PBoC’s efforts to increase adoption.

At present, the Chinese central bank faces challenges in competing against existing payment alternatives such as Alipay and Tencent with its digital yuan payment system. A lack of POS support for the digital yuan could lead to lower usage compared to other popular payment services in China.

Incentives for POS Manufacturers

In response to the potential challenges, the PBoC has mentioned plans to offer incentives to POS manufacturers to create devices with CBDC compatibility before a full-scale launch. This may include free POS upgrades or issuing free devices with CBDC compatibility to merchants. However, the logistics and costs associated with these incentives may present challenges.

Currently, the digital yuan’s competitors charge merchants up to 0.6% per mobile transaction, and there is a belief that the PBoC can turn the POS situation into a major adoption win if it strategizes effectively.

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Challenges and Industry Response

The rollout of CBDC solutions has caused concern among existing industry players such as banks, POS manufacturers, and private payment operators. Banks, in particular, have expressed worries about the potential risks to their profitability and lending abilities following the widespread use of retail CBDCs.

Enterprises and Businesses Leading CBDC Adoption

Interestingly, new data from China’s Jiangsu province shows that enterprises are leading the usage of the digital yuan in the country, surpassing individual transactions. Corporate entities in the province spent 200 million yuan (US$27 million) in the first six months of 2023.

The PBoC aims to expand CBDCs to more retail use cases before a mainstream launch to encourage individual usage.

To learn more about central bank digital currencies and the design decisions involved in creating and launching them, read nChain’s CBDC playbook.

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By Team