99Bill and China's new payment license rules

In our previous post about the new license requirements for third-party payment providers in China, we stated that we expected the largest companies to face little trouble in getting licenses. It is still unclear how the regulations will affect 99Bill, however. Just around the time the PBOC's statement was released, a 99Bill executive was arrested for transferring funds of over RMB 3 billion to an offshore gambling syndicate, according to a report (Chinese) by the Ministry of Public Security. 99Bill, however, has issued a response (Chinese) decrying what they describe as "media reports" and claiming that the man arrested is not a high level executive in their company. The details are still murky and it is not clear whether this matter will impact 99Bill's eligibility for a license. We'll continue to monitor the situation.

China Payment Regulations Announced - Implications and Analysis

On June 21, the People's Bank of China (PBOC), China's central bank and chief financial regulator, issued a statement stipulating that non-financial institutions will be required to obtain a license from the central bank in order to provide third-party payment services. This long-awaited announcement, which goes into effect on September 1, targets online payment providers such as Alipay, Tencent, YeePay, and 99Bill.

According to the PBOC statement, license applicants must meet the following key stipulations (for a Chinese-language list of all requirements and application procedures, click here):

• The company should have a minimum registered capital of RMB 100 mln if offering payment services nationwide, and RMB 30 mln if at the provincial level.
• The company must have recorded a profit for at least two years as of the application date.
• The company should have at least five senior executives with extensive knowledge of payment services.
• The company's senior managers must not have been penalized for committing or enabling any illegal activities via payment services in the past three years.
• Foreign companies will be issued with a separate set of rules.

We prefer the most straightforward interpretation of these new rules: that they are simply the government's response to the recent growth and maturation of China's payment sector. Although some have suggested the regulations aim to protect the interests of domestic incumbent players against foreign competition, we think Stan Abrams at The China Tracker has it right when he argues that it is common practice for China's government to allow a new market to evolve for a period of time before establishing official regulatory measures. Initial speculation on the announcement of these regulations started as early as 2006; in the interceding years, many key players have taken an active role in helping China's regulators lay out the rules.

Since China's major third-party payment providers already comply with the license requirements, which they have likely been aware of for quite some time, we expect them to be awarded licenses with little trouble. Larger companies are likely to favor the new rules, which will increase barriers to entry for smaller and newer competitors. Therefore it is fair to say that China's leading payment providers will be the main benefactors from the legislation.

Finally, we wish to modestly point out that our clients have known these regulations for years, starting with our Mobile Payment in China: Bricks and Clicks Going Mobile? report. (The most recent version of the report is available here, and the next edition is scheduled for release this summer.)

Maverick China and Yankee Group to Merge?

Back in December 2009, someone named Gabriel Gheorghiu, writing for something called the "TEC Blog", penned an interesting piece entitled "What-if Scenarios for Analyst Firm Mergers and Acquisitions":

Now that Gartner is acquiring AMR, we cannot help but wonder what will be the next acquisition or merger in the business software research field. There are not so many companies doing business software research and analysis, so the number of permutations is quite low. Let’s look at some of them and what the end result would be.

Gartner acquires Aberdeen and launches The Magic Axis (Magic Quadrant + Aberdeen Axis). If theydecide to acquire Forrester, that would be the Magic Wave (Magic Quadrant + Forrester Wave). Aberdeen and Forrester will probably not merge or acquire one another because the Axis Wave simply doesn’t sound right.

To avoid any COMMfusion, ITI and ITTI could merge and form ITTTI. After US President Obama’s visit to China, Maverick China Research and the Yankee Group might merge, forming the strongest analyst firm in the world, which will slowly acquire all competitors.

Although we are flattered by Mr. Gheorghiu's predictions, such a merger just wouldn't make sense for us. To be sure, moving several hundred employees from Boston to Beijing would be a bit of a hassle. The biggest problem, however, would be explaining the move to our current employees, who already think we're the "strongest analyst firm in the world"....

 

 

Happy New Year From Maverick China Research!

Dear clients, colleagues, and friends,

We at Maverick China Research would like to wish all of you a happy and prosperous Year of the Tiger!

 

 

Consumers Still Favor Cash

The flip side of having a "bankcard penetration rate" of 26% is that bankcards are still not being used for most payments. As in many developing countries, cash remains the most widely used form of payment in China. For convenience, for perceived safety, for a lack of other payment options, and even for no better reason that it being a lifetime of ingrained habit, cash is king. Even with recent advancements in payment and money transfer services (such as debit cards and interbank fund transfers), it is still quite common in China to settle major transactions with cash.

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