*By Victoria White
The Macau Government revealed earlier this month provisions to allow for the introduction of the new Chinese Digital Yuan currency in Macau in future. We look at what this means in practice for Macau businesses and how best to prepare.
For Macau, the Digital Yuan is on the horizon. The Macau Chief Executive, Ho Iat Seng, disclosed on Tuesday the Government’s intention to amend Macau’s laws to enable the digital currency to be accepted in the SAR. At the same time, the Macau Government will also work with the People’s Bank of China on a feasibility study for launching the Digital Yuan in Macau.
While digital payments technologies, such as MPay, Alipay, and WeChatPay are already widely used across businesses in Macau, 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 RMB cash in circulation, according to the reported objectives of the People’s Bank of China.
Essentially, the Digital Yuan is predicted to simplify cross-border transactions involving RMB payments and expedite payment operation processes. Potentially, this could allow greater access to money for Chinese visitors to Macau and remove the need for currency exchange and the associated costs.
Chinese shoppers will start to arrive in Macau in future with Digital Yuan e-wallets, and when they do, the businesses which have updated their operations and strategies to accommodate the new digital currency will likely profit most from the enhanced cross-border spending.
At the same time, the Digital Yuan promises to combat the risk of counterfeits and fraud that is intrinsic with cash-based payments. The benefits of the Digital Yuan are not limited to consumer-facing payments. Potentially, companies with cross-border B2B transactions and payments to mainland suppliers stand to gain from more direct and efficient payment processes.
In practical terms, the on-going Digital Yuan pilot trials conducted in Shenzhen, Beijing, Suzhou, Shanghai, Hainan and other mainland cities since May last year provide insights into the system’s set-up and equipment which may be used to support merchant and consumer-facing Digital Yuan transactions.
Participating merchants are reported to use upgraded POS machines that accept Digital Yuan or work with a Digital Yuan API. Merchants, however, do not need to upgrade onsite Wifi in order for customers to make Digital Yuan payments. The Digital Yuan e-wallets run on NFC technology, so an active internet connection is not required in order to process the transactions.
Meanwhile, two Chinese banks, the Bank of China and China Construction Bank, have recently started to accept applications for Digital Yuan business accounts for local Chinese companies in Beijing and Suzhou. The introduction of Digital Yuan merchant accounts allows for the widespread use of the Digital Yuan in the retail economy and for larger corporate transactions in future.
Typically, those business accounts are used for payroll, supplier payments, retail transactions and tax payments. At present, the new corporate Digital Yuan bank accounts on the mainland are reportedly not yet in operation but will hold Digital Yuan when active in future.
Strategically, the introduction of the Digital Yuan offers new business opportunities for vendors to develop API on China’s Blockchain-based Service Network for integration with the Digital Yuan payment system. Macau-based tech businesses, therefore, could take a lead in creating relevant cross-border APIs for commercial use.
Meanwhile, from an operations perspective, the advent of the Digital Yuan may trigger a number of changes on the shop floor. Businesses may find that cash-handling processes become obsolete and merchants subsequently look to re-design cashier stations and overall store layout towards an exclusively digital payments set-up.
New designs may prioritize the security and privacy-related aspects of Digital Yuan e-wallet transactions on SmartPhones. Similarly, demand and use of ATM machines for physical cash withdrawals and money exchanges may drop in future. Surrounding sites may experience a decrease in foot traffic and businesses that rely on passing visitors may need to anticipate accordingly.
Going forwards, we see that the increased emphasis on security standards and protocols for these digital currency transactions could result in a shift of resources away from traditional physical security services (for cash based transactions).
Instead, the focus will likely switch to cybersecurity and risk management services to mitigate security breaches and vulnerabilities through data loss. The rising collection of digital transaction data may also trigger a need for businesses to re-visit existing cyber and data insurance policies to ensure the scope of coverage includes Digital Yuan-related transaction data.
With the increase in digital transaction data available, businesses have the opportunity to integrate this data into internal business systems for enhanced business analytics and performance insights. Upgrade or procurement of new systems may be needed to leverage the full potential of the data available.
At the same time, where businesses intend to record and use this new digital transaction data, data privacy considerations come to the forefront. Privacy impact assessments and a full review of personal data collection policies, processes and staff training across the business are recommended in advance to identify new provisions needed for the digital transaction data.
Ultimately, businesses that plan ahead for Digital Yuan-related transactions will be best placed to take advantage of the new business opportunities and efficiencies and provide an optimal experience for transacting customers and business partners in 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]
