The major US investment bank, Goldman Sachs, has released a report on the DC/EP digital yuan that China is developing. According to forecasts, by 2029, the proportion of domestic consumption will account for 15%, bringing benefits to commercial banks competing with Fintech.
Commercial banks regain competitiveness in the payment sector because of DC/EP
In the next 10 years, according to the report, it is expected that the number of DC/EP user addresses will reach 1 billion, the issue amount will be 1.6 trillion yuan, and the total annual payment amount will be increased exponentially with an estimated 19 trillion yuan.
According to Coinpost, Goldman Sachs estimates that by 2029, Fintech will account for 77% of total annual payments, DC/EP payments will account for 15%, cash accounts for 5%, and bank cards will account for 3%.
In China, mobile payments like Alipay and WeChat pay are popular, and Fintech payments have hit 68% in 2019 and 78% in 2020.
Fintech payments will increase to 82% by 2024 but are expected to decline moderately with DC/EP’s introduction. Cash payment, which is 20% in 2019, will plummet to 5% by 2029.
Traditional banks are the only institutions that are allowed to process DC/EP. Consequently, the report predicts that banks will regain the strength to compete with Fintech.
By linking the DC/EP payment wallet with a bank account, consumers will be more likely to use bank-provided mobile apps. Other banking services such as “wealth management” for the rich provide comprehensive support such as real estate management and investment management, and retail lending can be promoted.
Banking app users up 10% are expected to grow revenue from 2% to 5%.
The impact on Fintech will eventually be lessened over the next few years as DC/EP will gradually be operational, but will eventually face new competition with banks in the payments sector.
However, Goldman Sachs estimates that fintech payments will still account for 77% of payments by 2029 and remain the mainstream payment method after the advent of DCEP.
Over the next five years, Fintech companies are expected to grow revenue twice as fast as banks, and they can add DC/EP as a payment method for their apps.
The software/hardware vendors will also benefit from contract research and development of DC/EP payments from banks and third-party payment companies and support the hardware update.
In the first phase, DC/EP will primarily pay small payments for food, groceries, transportation, and other uses. However, the report argues that as security and functionality improve, applications will expand to larger, more complex, and value-added services, such as government subsidies and international payments.
As a recent move against the digital yuan, on November 9, the Beijing government announced that it would open a pilot area for trade and finance and announced that it would test-drive the digital yuan issued by the People’s Bank of China as part of its effort. This will be the second move after a large-scale test run in Shenzhen.
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