The Digital Currency Electronic Payment (DC/EP), China’s central bank digital currency (CBDC), has sparked widespread discussion since the People's Bank of China began releasing information about it in 2019. As a digital form of sovereign currency, DC/EP is expected to reshape the landscape of mobile payments and transform commercial operations across the country.
Under its proposed “one currency, two libraries, three centers” framework:
- One currency: A centrally issued string of encrypted digital tokens backed by the central bank.
- Two libraries: The central bank’s issuance vault and commercial banks’ distribution vaults.
- Three centers: Registration, certification, and big data analysis centers—handling ownership records, identity verification with controlled anonymity, and risk monitoring.
Despite this structural clarity, many operational details remain unconfirmed—especially regarding transaction fees. Will DC/EP transactions incur charges? If so, how much? And who will bear these costs?
Current Mobile Payment Fee Structures
To understand the potential fee model for DC/EP, it's essential to examine existing payment systems.
In traditional card transactions, a merchant service fee is charged whenever consumers swipe their cards. This fee has undergone multiple reforms—in 1996, 1999, 2004, 2013, and most significantly in 2016 with the “96 Fee Reform.” Under current standards:
- Debit card processing costs: ~0.3825%, capped at ¥20
- Credit card processing costs: ~0.4825%, uncapped
- Market rates hover around 0.6%, varying slightly by institution
These fees are split among the issuing bank, acquiring institution, and card network (e.g., UnionPay) in a rough 7:2:1 ratio. Notably, merchants bear the full cost—which can become substantial during high-value purchases like cars or real estate. In fact, some merchants initially refused credit card payments post-2016 due to cost concerns.
Third-party platforms like Alipay and WeChat Pay follow a similar model: transactions generate fees, but they're still borne by merchants, not end users. While convenient, today’s dominant mobile payment methods operate within a fee-based ecosystem.
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Could DC/EP Eliminate Transaction Fees?
DC/EP is designed as a digital version of cash, enabling peer-to-peer (P2P) transactions without intermediaries. In theory, if no third-party service is involved, there should be no need for transaction fees.
However, former PBOC Vice Governor苏宁 (Sun Ying) suggested that while DC/EP eliminates intermediation layers, it won’t eliminate all costs. He estimated that payment processing costs could drop to one-tenth of current levels. Given that current debit card fees average 0.5%–0.6%, a tenth of that would place DC/EP fees in the 0.05%–0.06% range, possibly with per-transaction caps.
But where would such fees come from?
Even in a decentralized system, someone must verify and record transactions. That role falls to the registration center, which acts as the official ledger keeper—similar to miners in Bitcoin’s blockchain network. While Bitcoin rewards miners with newly minted coins (“mining”), DC/EP’s registration center performs a public service without profit motives.
Still, operational costs exist. If we apply the existing 7:2:1 fee split and assume UnionPay receives roughly 10% (about 0.03%) of current transaction fees, then DC/EP might charge a comparable 0.03% registration fee—just enough to cover infrastructure, not generate profit.
Additional Potential Cost Components
Beyond registration, three other cost factors could influence DC/EP’s fee structure:
1. Identity Authentication Fees
To use DC/EP, users must register through a certification center and obtain private cryptographic keys. Identity verification services in China are typically fee-based, though pricing varies by standard and volume. With massive adoption, economies of scale could drive unit costs down significantly.
2. Wallet Carrier Management Fees
Secure storage requires trusted devices—most likely smartphones with Secure Elements (SE) or specialized hardware cards. Using manufacturer-provided wallets (e.g., phone OEM apps) or integrating DC/EP into platforms like Alipay or WeChat may involve platform management fees paid to tech companies.
3. System Operation & Maintenance
Ongoing IT infrastructure, cybersecurity, updates, and support entail real expenses. These operational costs may be amortized across transactions or subsidized by the state.
Thus, while DC/EP aims for near-zero fees, total transaction costs could reach 0.05%–0.06%, primarily covering verification and maintenance—not profit.
Importantly, person-to-person (P2P) transfers may remain free—especially below annual thresholds—while businesses and merchants might face nominal charges.
Alternative Revenue Models: "Free Transactions, Paid Withdrawals"
Another possibility mirrors current third-party payment models: free transactions, but fees on withdrawals.
Alipay and WeChat Pay charge:
- 0.1% for individual withdrawals (minimum ¥0.1)
- 0.2%–0.38% for business accounts
This model generates significant revenue over time. Could DC/EP adopt something similar?
If following Sun Ying’s “one-tenth cost” principle, withdrawal fees could be as low as 0.02%–0.038%—still minimal, especially given DC/EP’s non-commercial mandate.
Yet a key difference exists:
Withdrawing from Alipay means moving money from a third-party wallet to a bank account. But DC/EP is already legal tender—transferring it to a bank is more like depositing cash than “withdrawing.” Since banks don’t charge for deposits (and often incentivize them), introducing fees here may contradict user expectations.
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Fee Implications for the Financial Ecosystem
Regardless of the exact model, ultra-low transaction costs are inevitable with DC/EP.
For merchants, even small reductions translate into major savings—especially for high-volume or large-ticket sellers. Lower costs may incentivize businesses to promote DC/EP acceptance, offering discounts or preferential treatment to users paying via digital yuan.
This shift could disrupt the current “two giants, one strong” mobile payment格局 dominated by Alipay and WeChat Pay.
Winners:
- Commercial banks: As direct participants in DC/EP issuance and distribution
- Clearing networks: UnionPay and NetUnion may play roles in settlement infrastructure
Unaffected Areas:
Credit-based services like credit cards or Huabei (Ant Credit Pay) will remain popular—not because of lower fees, but because they enable deferred payments and spending power. Expect continued promotion of buy-now-pay-later features across platforms.
WeChat is reportedly developing its own credit product akin to Huabei, indicating that consumer credit remains a strategic battleground—even in a low-fee digital currency era.
Challenges to Adoption
Despite its advantages, DC/EP faces hurdles:
- User habits: Over 900 million people regularly use Alipay or WeChat Pay; changing behavior takes time.
- Merchant convenience: A single QR code supports multiple services today—will DC/EP offer equal simplicity?
- Cost-effectiveness: Must match or exceed existing solutions in speed, reliability, and affordability.
Until official guidelines emerge, all discussions—including this one—remain speculative.
Frequently Asked Questions (FAQ)
Q: Will individuals pay fees when using DC/EP?
A: Likely no—or only after exceeding annual free transfer limits. Most fees will target business transactions.
Q: Is DC/EP completely free like cash?
A: Not necessarily zero-cost behind the scenes, but user-facing fees will be negligible compared to current digital payment platforms.
Q: Who benefits most from DC/EP’s low fees?
A: Merchants gain cost savings; banks gain renewed relevance; consumers enjoy frictionless payments.
Q: Can I mine DC/EP like Bitcoin?
A: No. Unlike decentralized cryptocurrencies, DC/EP is centrally issued and cannot be mined.
Q: Will DC/EP replace Alipay and WeChat Pay?
A: Not immediately—but it could reduce their dominance by offering a state-backed, low-cost alternative.
Q: When will DC/EP launch nationwide?
A: Pilot programs are ongoing; official rollout details await central bank announcements.
While many aspects of DC/EP remain under wraps, one thing is clear: it represents a fundamental evolution in monetary technology—one built on efficiency, transparency, and financial inclusion.
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