China’s digital yuan will help banks become more competitive in the payments sector after steadily losing out to popular technology platforms over the years, according to Moody’s Investors Service.
“We expect adoption of [China’s digital yuan] to help reinforce banks’ position in the payments system because it will enhance their data collection ability and broaden their user bases,” analysts led by Zedric Cheung said in a report on Thursday.
China is already a largely cashless society, thanks to huge popularity of digital payment tools operated by Tencent Holdings and Ant Group.
Their dominance has led to spillover effects on banks, such as more customers moving bank deposits to money market funds run by the tech firms, according to the report.
China Merchants Bank was the latest to become an official distributor, on top of six state-owned banks and virtual banks backed by Ant and Tencent, officials at the People’s Bank of China (PBOC) said last month.
The effort to develop a digital yuan “reflects the authorities’ concerns about data concentration among technology companies”, the Moody’s analysts said.
PBOC officials have previously said the digital yuan offers better protection of privacy and the capability to combat crimes.