China’s central bank digital currency (CBDC) doesn’t carry merchant fees. If shops can process payments for free, you’d expect that would be an advantage for the digital renminbi (RMB) versus WeChat Pay and Alipay. Not so.
For every transaction that uses the CBDC, reportedly point of sale (POS) equipment manufacturers will lose their cut of the fees from other payment methods. Hence there’s a disincentive for them to adapt existing POS equipment to support the digital RMB. The result is a shortage of POS equipment that supports the CBDC.
Berkshire Hathaway’s Charlie Munger famously said: “Show me the incentive and I will show you the outcome.”
It was suggested that a solution is for banks to hand out free equipment.
That’s according to a series of chat messages on the online version of the government newspaper People’s Daily. Supposedly they were posted by an average reader. However, the People’s Bank of China responded to the message saying that the digital renminbi is still in the pilot phase and it will consider the comments. It says it actively offers free upgrades to POS equipment or free equipment.
Of course, this conversation could be a promotion for the digital RMB pushing the incentives for merchants.
The article asserts that for other mobile payment types, smaller merchants usually pay 0.3% and larger ones 0.6%. Other internet data indicates WeChat Pay generally charges 0.6% and Alipay 0.55%, but that information may not be current.
Incentives are a key issue for CBDC solutions in other jurisdictions. For example, in Europe there’s been some discussion about the significant costs that banks are expected to undertake for the digital euro and the limited upside.
