Prepaid e-CNY flies in Shenzhen

More than 200 firms in Shenzhen, Guangdong province, have adopted a new prepaid digital yuan or e-CNY platform, marking the nation's first pilot of prepaid e-CNY applications.

"We have expanded the prepaid e-CNY applications to many industries, including education and training institutions, gyms, beauty and hair salons," said Peng Baiping, vice-president of the Shenzhen branch of China Construction Bank, at a contract signing ceremony for one such platform in Shenzhen on Friday.

Prepaid card-based consumption is a popular model in many industries, but refunds and compensation are usually difficult through conventional payment methods if the services are terminated due to various reasons.

Digital currency can empower consumers to protect their legal rights and interests and minimize the risk in prepaid capital because the fund will be supervised through smart contracts and it is unalterable.

Through the novel channel, consumers' payments will be frozen in their digital wallets and they will automatically pay an amount of money each time the service is provided under a contract. Taking the pilot applications in the education industry as an example, participating training schools can receive a payment every time they give a lesson.

If the service providers fail to continue the service due to their own reasons, consumers can apply for a rapid refund of prepaid money.

"The move indicates the applications of the digital yuan are expanding from traditional consumption to more innovative scenarios," said Yu Lingqu, vice-director of the Center for Financial Studies at the China Development Institute.

"It also demonstrates the technological improvement of the digital yuan, considering the distinguished usage of 'smart contract' in the prepaid card model.

"The conventional prepaid card used to cause piles of disputes and some even used to take advantage of it as an illegal fundraising tool, leading to various financial and social risks. The prepaid digital yuan solution can help reduce such disputes and improve market supervision efficiency."

He said he believes the method is also suitable for apartment renting deposit payments, sales promotions of beauty salons and supermarkets' prepaid cards.

"Currently, some of our students have started to use the prepaid e-CNY platform and we will promote it to our thousands of students gradually," said Fang Jinfeng, president of a training school TaoLiWeilai in Shenzhen.

On clients' response to the platform, Fang said the financial service has been "much well-received than expected" as it is not easy to change consumer behavior normally and the convenient design of the platform helps a lot.

He disclosed that the local government has started supervision of prepaid funds by setting up dedicated regulatory accounts since 2020, but the settlement each time takes quite long and needs several processes.

"The new platform makes the capital utilization more flexible for us and payment disputes easier to deal with as the whole process is transparent to the authorities," he said.

Shenzhen is among the first batch of cities to pilot the digital renminbi services. So far, more than 10 cities in China have joined the pilot program.

According to the People's Bank of China, the country's central bank, more than 260 million digital yuan wallets had been set up by individuals by the end of 2021 and the total transaction volume was about 87.57 billion yuan ($13.11 billion).