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.)
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