Is your business ready for the digital yuan?
* By Victoria White
The Macau government earlier this month revealed provisions allowing the future introduction of China’s new digital Yuan currency to Macau. We take a look at what this means in practice for Macau businesses and how best to prepare for it.
For Macao, the Digital Yuan is looming on the horizon. Macau Chief Executive Ho Iat Seng on Tuesday revealed the government’s intention to change Macau’s laws to allow acceptance of digital currency in the SAR. At the same time, the Macao government will also work with the People’s Bank of China on a feasibility study for the launch of Digital Yuan in Macau.
While digital payment technologies, such as MPay, Alipay, and WeChatPay are already widely used in Macau businesses, the introduction of the Chinese digital yuan will mark a new milestone for payment transactions in the local economy. In the long run, the Digital Yuan appears likely to replace all physical RMBs in circulation, according to the stated targets of the People’s Bank of China.
Essentially, the Digital Yuan is expected to simplify cross-border transactions involving RMB payments and speed up payment transaction processes. Potentially, this could allow better access to cash for Chinese visitors to Macau and remove the need for currency exchange and the associated costs.
Chinese buyers will start arriving in Macau in the future with Digital Yuan e-wallets, and when they do, companies that have updated their operations and strategies to adapt to the new digital currency will likely benefit the plus the increase in cross-border spending.
At the same time, the Digital Yuan promises to combat the risk of counterfeiting and fraud inherent in cash payments. The benefits of the Digital Yuan are not limited to payments to consumers. Potentially, companies that conduct cross-border B2B transactions and payments to continental suppliers stand to gain from more direct and efficient payment processes.
Concretely, the ongoing Digital Yuan pilot tests conducted in Shenzhen, Beijing, Suzhou, Shanghai, Hainan and other mainland cities since May of last year provide insight into the configuration and equipment of the system that can be used to support traders and consumers. – Faced with transactions in digital Yuan.
Participating merchants would use upgraded point-of-sale machines that accept Digital Yuan or work with a Digital Yuan API. However, merchants do not need to upgrade WiFi onsite for customers to make payments in Digital Yuan. Digital Yuan electronic wallets work on NFC technology, so an active internet connection is not required to process transactions.
Meanwhile, two Chinese banks, the Bank of China and the China Construction Bank, recently started accepting applications for digital Yuan commercial accounts for local Chinese companies in Beijing and Suzhou. The introduction of Digital Yuan merchant accounts enables the widespread use of the Digital Yuan in the retail economy and for larger corporate transactions in the future.
Typically, these business accounts are used for payroll, vendor payments, retail transactions, and tax payments. At present, the new Digital Yuan corporate bank accounts on the mainland are not yet operational, but will hold Digital Yuan when they are active in the future.
Strategically, the introduction of the Digital Yuan offers new business opportunities for suppliers to develop an API on the Chinese blockchain-based service network for integration with the Digital Yuan payment system. Macau-based tech companies could therefore take the lead in creating relevant cross-border APIs for commercial use.
Meanwhile, from an operations point of view, the advent of the Digital Yuan may trigger a number of changes in the workshop. Businesses may find that cash management processes become obsolete and merchants subsequently look to redesign checkout stations and general store layout to a digital-only payment setup.
New designs may prioritize security and privacy aspects of Digital Yuan e-wallet transactions on smartphones. Likewise, the demand for and use of ATMs for physical cash withdrawals and money exchanges could decline in the future. Surrounding sites may experience a decrease in foot traffic and businesses that depend on passing visitors may need to anticipate accordingly.
Going forward, we see that the increased focus on security standards and protocols for these digital currency transactions could result in a displacement of resources from traditional physical security services (for cash transactions).
Instead, the focus will likely be on cybersecurity and risk management services to mitigate security breaches and vulnerabilities due to data loss. The increasing collection of digital transaction data may also prompt companies to review existing cyber insurance policies and data to ensure that the scope of coverage includes transaction data related to the digital yuan.
With the increase in digital transaction data available, companies have the opportunity to integrate this data into internal business systems for improved business analytics and performance information. Upgrading or purchasing new systems may be necessary to take full advantage of the available data.
At the same time, when businesses intend to record and use this new digital transaction data, data privacy considerations come to the fore. Privacy impact assessments and a comprehensive review of personal data collection policies, processes and staff training across the company are recommended in advance to identify new arrangements needed to digital transaction data.
Ultimately, companies that plan digital yuan-related transactions in advance will be in the best position to take advantage of new business opportunities and efficiency and deliver the best experience for customers and business partners in the future.
[Victoria White is a special counsel at MdME Lawyers, heading the firm’s Digital Transformation team which focuses on the legal, regulatory and policy aspects of the digital economy. She is a data privacy law expert and Certified Information Privacy Professional/Asia by the International Association of Privacy Professionals]