Tencent Holdings has been urged by Chinese regulators to decrease the market share of WeChat Pay in the mobile payment sector shortly after the initiation of the digital yuan pilot in Hong Kong.

Reports indicate that Tencent Holdings is facing pressure from Chinese regulators who have instructed the tech conglomerate to reduce the mobile payment market dominance of its WeChat application. The focus of the regulatory request centers on lowering the market share related to in-person QR code payments rather than online retail transactions, according to sources familiar with the situation.

While specific targets for the reduction in WeChat Pay's market share have not been disclosed, an insider revealed that WeChat is adopting a cautious approach and avoiding aggressive user expansion to mitigate the risks associated with excessive growth.

With WeChat Pay and Ant Group's Alipay reigning over China's mobile payment domain, despite the presence of numerous non-bank payment entities, the recent regulatory pressure aligns with Beijing's objective to promote the state-backed digital currency, the digital yuan (e-CNY).

Since the digital yuan's pilot launch in 2020, it has encountered challenges in gaining widespread acceptance. Some individuals, such as Sammy Lin, an account manager at a state-owned bank in Suzhou, are hesitant to store funds in the e-CNY application due to concerns surrounding interest accrual and usability limitations.

The regulatory scrutiny on Tencent coincides with the expansion of the digital yuan pilot beyond mainland China to Hong Kong, allowing local residents to load up to 10,000 CNY into digital wallets through 17 retail banks in the region, while restricting peer-to-peer transfers.

China's mobile payment landscape presents significant opportunities, with over 92 trillion yuan in transactions recorded in the first quarter, including a substantial portion from QR code-based payments. This regulatory intervention forms part of broader efforts to prevent private tech giants from overshadowing the government-supported digital currency.

By diminishing WeChat Pay's market dominance, Beijing intends to create space for the digital yuan to flourish and seamlessly integrate into the daily financial habits of Chinese individuals, facilitating the widespread adoption and integration of the state-backed digital currency.