Finance 2.0

by Liu Haile

On November 11， 2012， whichis Singles Day in China due to the numerical reading 11-11， an online shopping surge swept across the nation. An online “war”seemed to break out as buyers rushed to snatch up commodities， but a less noticeable conflict was erupting between banks and third-party payment services.

Statistics show that day Chinas largest e-commerce website， Taobao.com， along with its affiliate Tmall， received 100 million orders worth 19.1 billion yuan， of which 76.8 percent of payments were accepted through the third-party payment platform Alipay， and the other 23.2 percent through online banks.

“This historic event marks the thirdparty payment services integration with peoples daily lives，” declared Ma Weihua， governor of China Merchants Bank. “The internet will make an even greater impact on the banking sector in future. Perhaps many traditional services offered by banks will vanish soon.”

With the increasing popularity of online shopping， internet-based third party payment services （similar to PayPal in the West） have become irreplaceable fixtures in the lives of many Chinese people， while others havent even transitioned from paper cash to plastic debit cards yet. According to iResearch， Chinas leading e-commerce research institution， the market for thirdparty online payment services is estimated to reach 4.1 trillion yuan by 2014 – a seductively massive treasure.

In fact， the first “date” between Chinese banking and the internet can be traced back to 1997. That year， the Bank of China became the first to offer online banking service. As internet shopping became more commonplace， the demand for easy e-payment grew. Many non-financial institutions developed third-party payment platforms， of which the most successful include Alipay， YeePay， and Tenpay. According to Jiang Chaoyang， vice president of security of Alipay， by June 2012， the service had reached 650 million users who made transactions totaling 4.5 billion yuan daily.

Third-party payment tools such as Alipay play an escrow role in online transactions. For instance， after a buyer places an order and deposits payment in his Alipay account， it will not be transferred to the seller until the buyer receives the goods and gives Alipay the green light. This mode has proved a win-win for all involved parties， especially Alipay： The buyer is protected， the seller knows the funds have been deposited before shipping， and passing Alipay authentication testifies to the sellers credibility. And as an escrow service， Alipay takes a small commission before depositing funds in clients accounts.

Wang Yu， 26， a Beijing-based advertising agent， considers himself a big fan of Alipay. “I often buy used electronics on websites such as TomPDA.com and Erji.net，”he grins. “After negotiating a price with the seller， I usually pay through Alipay. Unlike shopping on large B2C websites， these are transactions between two private individuals. Without Alipay， I wouldnt dare deal with strangers online.” To his delight， he can even pay his water and electricity bills online with Alipay， saving himself from long lines at banks.

Along with Alipay， other third-party payment providers such as YeePay and Tenpay started offering traditional banking services and even mobile payments. In September 2012， internet giant Tencent announced it would link its Tenpay service to Weixin， a smart phone app with 200 million registered users. This enables Weixin users to instantly pay at physical purchase points by scanning QR codes with their phones， for which they are rewarded with discounts from sellers. YeePay is working with airlines to provide electronic payment solutions covering tickets as well as realtime refunds.

In the internet era， third-party paymentproviders have been gradually replacing banks in transaction management. Some even worry that the trend will prove too destructive to the banking industry. However， Guo Tianyong， director of China Banking Industry Research Center in the Central University of Finance and Economics， assures consumers that third-party payment providers and banks arent actually competing with each other. “Third-party payment can snatch customers from banks，” he admits. “But， it cannot exist without support from banks. In fact， it merely provides a more efficient payment platform based on existing online banking services.”

Unlike traditional banks， internet finance is more focused on the individual.“In the cyber world， any single person can act as an enterprise and provide services to others，” illustrates YeePay CEO Tang Bin.

However， due to their “self-finance”flavor and lack of the capital and credit that major banks wield， many question how third-party payment companies keep funds and information secure. Rampant Trojan Horse viruses and phishing websites deepen such worries.

Third-party payment companies have been battling the phishing menace by continuously upgrading their security technology. To enhance their own trustworthiness with consumers， they must submit to government supervision. In 2010， the Peoples Bank of China， the countrys central bank， enacted Administrative Measures for the Payment Services Provided by Non-financial Institutions. Beginning in May 2011， Chinas central bank began to require licensing for third-party payment service providers to regulate their entry into the market. So far， nearly 200 licenses have been issued.

Most third-party payment providers have shown positive feelings about the policy. “A new realm is open with the licensing policy，” opines Tang Bin.“Although third-party payment providers are defined as non-financial payment and settlement institutions， the services they provide remain related to finance.” In fact， third-party payment services can develop more quickly and safely when they are well-regulated.