- China is introducing an “aggregate” QR code compatible with digital yuan and other leading digital payment systems, Alipay, WeChat Pay, and UnionPay QuickPass.
- Despite the proliferation of the digital yuan’s use-cases, consumer adoption remains low, overshadowed by established giants like Alipay and WeChat Pay.
Bridging the Adoption Gap: The Aggregate QR Code
In a bid to spur adoption of the digital yuan, Chinese authorities are innovating with an “aggregate” QR code, a digital scan-able imprint that’s compatible not just with the Central Bank Digital Currency (CBDC) but also with industry-leading mobile payment platforms Alipay, WeChat Pay, and UnionPay QuickPass. This initiative aims to overcome one of the chief hurdles facing the digital yuan: consumer unfamiliarity with where and how it can be used.
The development is noteworthy given the digital yuan’s less-than-expected uptake. While the CBDC is increasingly being used in governmental transactions and ceremonial ‘red envelope’ gifting, it hasn’t quite penetrated the commercial sphere. This inertia exists despite a broadening array of opportunities for its use.
The Dominance of Existing Payment Systems
It’s important to contextualize the digital yuan within China’s existing mobile payment ecosystem, which is heavily dominated by Alipay and WeChat Pay. UnionPay’s QuickPass initially encountered the same dilemma; however, by 2021, QR codes between these services were made interoperable. Now, when an aggregate QR code is scanned, logic is triggered that converts the QR format into something that can be digested by the respective payment app being used.
From a merchant’s perspective, the digital yuan offers an economic advantage by skirting the transaction fees imposed by Alipay and WeChat Pay, which start at 0.55%. However, given the low threshold of these fees, the financial incentive for merchants to prefer the CBDC remains muted.
On the consumer side, the payment giants’ already comprehensive network and ease of use mean there’s little compelling reason to switch to the digital yuan. While user preference for Alipay or WeChat Pay is deeply entrenched, the introduction of an aggregate QR code could, in theory, level the playing field by embedding the digital yuan into the existing financial infrastructure.
By creating this interoperability among the digital yuan and existing popular payment apps, the Chinese authorities seem to be leveraging the network effects of Alipay and WeChat Pay to bootstrap adoption of their CBDC. With the digital yuan increasingly finding applications in business and finance, this innovative approach might just be the impetus it needs to gain traction.