Tight Rein on Third-party Payment

On July 31， Chinas central bank， the People Bank of China （PBoC）， issued the draft rules on non-banking institutions online payment operations， which will be open for public consultation till August 28.

The PBoC made several new requirements， such as enhanced verification of payment account users identification， a ceiling on payments， and a ban on payment services accepting deposits.

“Once the draft rules take effect， the biggest beneficiaries will be banks， while the third-party payment platforms and online retailers will take the brunt of the hit，” an insider told to CBF.

Online Shopping No Longer Convenient

The rules are called as the strictest regulation rules on the third-party payment， due to a slew of limits imposed on third-party payment institutions on the aspects of account opening， payment and account transfer services， which sparked controversy.

For online shoppers， a daily cap of 5，000 Yuan （$817） on transactions through third-party online payment systems is the most controversial requirement.

Under the draft rules， the amount shoppers can spend through third-party online payment will be restricted to between 1，000 Yuan and 5，000 Yuan per day， depending on how sophisticated the systems security checks are.

While third-party online payment platforms that have both digital certification and signature qualification checks will be exempt from the restrictions， the limit would be set at 1，000 Yuan per day for platforms that have only one qualification check.

For third-party payment platforms that fail to include digital certification and signature but has two or more checks， the limit would be 5，000 Yuan.

Some netizens complained： “The amount is not even enough to buy an iPhone 6.” The central bank explained that there will be no limits on the online spending amount. When the spending amount exceeds the cap， consumers would be transferred to banking payment platforms to pay the surplus， according to the PBOC.

Therefore， the implementation of the new rules will have no influence on the online or mobile spending amount and it is no need for online shoppers to worry， according to experts.

In response to a question about why the central bank choose 5，000 Yuan as the criteria， an official of the PBoC said it is based on the analysis of the online payment service data in 2014， which showed that about 98.5% of customers spent or transferred less than 5，000 Yuan through third-party payment accounts last year， while 80.1% less than 5，000 Yuan and 61.3% no more than 1，000 Yuan.

According to the draft rules， with three to five verification methods， customers only can open a “consumption account，” which is subject to an annual online or mobile transaction limit of 100，000 Yuan， while those customers with at least five methods of verifications can open a so-called “compre- hensive account，” which limits annual online or mobile payments to 200，000 Yuan per person.

According to the above-mentioned insider， third-party payment institutions are under pressure to solve the crossverification problem.

Currently， only Chinese citizensID information is available through the public security website while other data， such as tax and social insurance records， are not complete， as some consumers never paid taxes or social insurance.

Besides， in the third- and fourth-tier cities and rural areas， it is very difficult to collect consumers information， no mention to achieve the cross-verifica- tion.

“Internet innovation is partly targeted at providing services for the group that never enjoys services from traditional financial institutions，” said the insider. “However， judging from the current situation， consumers may face the prospect of being unable to open an account.”

In his opinion， the third-party payment institutions will bother to expand their new consumer base in the future.

In addition， the PBoC also prohibits online third-party payment providers from transferring cash between two people. Instead， individuals can only move cash from their third-party wallets to their private bank accounts. Besides， the central bank also proposes limiting offline， QR code-enabled payments to 200 yuan a day.

Promote Third-party Payment Platforms Back to Focus on Payment Service

The country plans to tighten the rein on its 270 licensed online payment firms， including Zhejiang Ant Small and Micro Financial Services Group Co.， an affiliate of e-commerce behemoth Alibaba Group Holding Ltd.， to ensure security for consumers information and money.

Under the rules， third-party payment platforms will be banned from opening accounts for firms engaged in financial operations， such as offering credit， financing， wealth management and guarantees.

According to Huang Zhen， a law professor with the Central University of Finance and Economics， the ban should be implemented.

Huang said： “In terms of financial innovation， third-party payment platforms should be aware of their duties as a payment portal first， and then innovate in data risk control instead of becoming a bank-like service provider， or becoming a deposit platform.”

Analysts also said that the new rules aim to limit online payment business to pure payment service rather than “fund business”. The so-called fund business of online payment institutions is in fact banking service.

For example， Alipay， a payment platform under Alibaba Group， has an impressive banking service. Its money market fund， YuEBao， has a very good liquidity to withdraw and offers a return ten times higher than demand deposits in banks.

The draft rules came after measures imposed on the countrys more than 2，000 peer-to-peer （P2P） lending websites in July.

According to a statement made by the PBoC on July 18， those P2P platforms must park all client funds at established banks and must obtain approvals from financial as well as cyberspace regulators. The websites must also provide sufficient disclosure and send risk reminders to customers.

Some critics warn those rules could stifle the development of online payment sector， which is one of the most innovative sectors of the economy.

Reshuffle for Third-party Payment Sector

Chinas mobile payments industry is massive， with gross merchandise volume （GMV） hitting 5.99 trillion yuan throughout 2014， up 50.3% from a year earlier， which was attributed to the rise of user base and improved users sticki- ness.

It is worthy to note that most of those transactions occur through Alipay Wallet， an Alibaba-affiliated payments app.

According to latest data from market intelligence firm iResearch， China third-party mobile payment GMV hit 2，001，560 million Yuan in Q1 2015， up 139.2% from a year earlier and increasing 11.7% from the previous quarter.

Alipay occupied 77.1% of the thirdparty mobile payment， while Tencents Tenpay accounted for 13.5%. The both， as a whole， occupied 90.7% of China third-party mobile payment market.

However， the booming mobile payments businesses could hit a speed bump in China after the rules take effect.

Third-party payment companies that have the licenses to operate online lending， such as Ant Small and Micro Fi nancial Services and Tencent Holdings Ltd.， will have an edge over other players， which are not allowed to offer full financial services through third-party payment accounts.

Ant Small and Micro Financials MYbank and Tencents WeBank are among a wave of new private banks being licensed by the government to target small loans and aim to use facialrecognition software to let users set up accounts.

“The central banks new rules are to prevent the barbarian growth of online finance， especially the wealth management and investment，” the insider said.“Those nonstandard small-sized players may be hit hard， even be forced to shut down.”