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Third-party payment market reshuffle underway

Xinhua Financein CFBOND
2018-08-10 10:36

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The People’s Bank of China (PBC) imposed fines on two third-party payment companies on July 30. One of the two violators, Kayou Payment Services Co., Ltd. (Kayou Payment), was fined 24.9 million yuan, 27 times of its illegal gains.

Meanwhile, the pace of opening up of payment industry is accelerating and payment licensing is expected to resume after three years of suspension.

As to giving access to foreign investors in the payment industry, an official from the PBC said, realizing the same entry standards and regulation through equal treatment to both domestic and foreign investors will help create innovation-driven competitiveness and further improve structure of the industry.

-- Payment sector gets huge fines again

Since last year, national watchdog has toughened administrative penalty in the payment industry, an obvious evidence of their firm determination to rectify the payment market.

According to the penalty information, from October 2017 to January 2018, the PBC launched inspection on the payment and settlement transactions of Kayou Payment and Free My Pay. It was verified that Kayou Payment has violated payment regulations on transaction information management, payment outsourcing management and provisions management, and it has illegally kept sensitive information of bank cards.

More seriously, Kayou Payment has also violated regulations of keeping intact transaction records, and regulations of merchant real name system. Moreover, it did not cooperate with the PBC in the inspection process.

Free My Pay was fined out of almost the same reasons as Kayou Payment. In addition to confiscating its illegal gains of 1.4733 million yuan, the PBC also fined it 7.4495 million yuan.

Over the past years, with the upgrade of domestic consumption and the rapid development of mobile payment, payment market has seen a bulge in size, long since crossing the threshold of 100 trillion yuan in trading volume.

However, there is an increase in violations such as secondary liquidation, changing merchant category code and embezzlement across the sector. Faced with the situation, the national watchdog has issued multiple documents in the past two years, stipulating that the direct link between third-party payment and banks should connect with legal clearing platform and that provisions should be turned over collectively, in a bid to rectify third-party payment market.

Meanwhile, the national watchdog has intensified administrative penalty over payment companies with tougher punishments on violations.

According to Wang Pengbo, an analyst of Analysys, a big data analysis agency, the punishment move of the PBC was another landmark event in strengthening supervision over payment sector, and there will be even stricter supervision in the future. As the third-party payment agencies are confronted with huge pressure from transformation and a decrease in profits, the pace of shakeup is picking up across the industry, leading to the possibility of weeding out some agencies.

Previously in May, the PBC punished DDBill Payment Co., Ltd. (DDBill Payment) was punished by the PBC and the State Administration of Foreign Exchange, with staggering fines and forfeitures totaling over 40 million yuan.

--Giving access to foreign investors

Together with stricter supervision, the PBC is opening door to foreign third-party payment companies.

Recently, the PBC publicized the application for payment transaction license of a payment company named Yuefan wholly-owned by British company World First Aisa Limited with 100 million yuan of investment. The company has applied licenses for both internet payment and mobile payment.

Its application will be reviewed by the PBC. If approved, Yuefan will obtain a payment license, indicating it will be the first payment license issued by the PBC to a foreign payment company after three-year suspension.

According to the official website of World First, the company, founded in the UK in 2004, is specialized in cross-border payment, remittance and other business for B2B enterprises in foreign trade, cross-border e-commerce and others.

Zhao Yao, an invited researcher of the Research Center of Payment and Settlement under the Chinese Academy of Social Sciences, considered it a move of China to ease access restrictions on non-bank payment agency market.

In March this year, the PBC issued a notice to make clear access rules and supervision requirements for foreign payment agencies, and encourage foreign agencies to develop and compete in China’s payment service market. Less than two months later, World First submitted its third-party payment license application.

Statistics show that currently there are 238 existing payment licenses in the market, representing the high degree of market saturation and concentration, especially in mobile payment market. Alipay and WeChat Pay, the two payment giants, take up nearly 92 percent of the market share, with the rest 8 percent being divided up by other payment agencies.

According to Wang Pengbo, if foreign payment agencies enter the market now, they barely have any chance to wrest a share in the consumer market. So, it is more than likely that they will focus on cross-border payment services for business market. Zhao Yao also believes, with opportunities in business market payment or cross-border payment, Yuefan can better serve domestic enterprises to “go global”.
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