Financial houses at wit’s end for green light
Third-party license resale heats up as regulators tighten screws
“A good shell company with a third-party payment license to sell,” blared a posting on Zhihu — the Chinese mainland’s question-and-answer community version of the US-based Quora site.
“It’ll be very expensive as such licenses are scarce. Only interested parties with a solid certificate of deposit need to inquire,” it warned.
But, by the time a China Daily reporter called the contact person named in the posting, a Beijing-based agent with the pseudonym Xiaoli claimed that the shell company holding the license, which authorizes nonbank financial institutions to run online payment operations on the mainland, had already been sold.
The agent, however, added that she still had information on two other companies with such licenses, and would only help potential buyers to seal the deal if they had a funding certificate of 750 million yuan ($113 million) — the current market price of shell companies with the license.
Potential buyers are nonetheless warned that the two companies mentioned are not “clean” as they had either incurred the wrath of the central bank, the People’s Bank of China (PBOC), or had been sued, reducing the chances of getting their licenses renewed every five years.
Despite the high risks involved in such transactions, many buyers, apparently, remain undeterred amid a red-hot market for the resale of financial enterprise licenses.
Mainland financial regulators have tightened the screws on the financial market as a risk-control measure by curbing or restricting the issuance of various financial house permits. The supply of such licenses has almost dried up as demand from burgeoning financial services companies, fueled by the proliferation of internet finance on the mainland in recent years, keeps rising. Market players eager to enter the market are very often frustrated by the long queues needed to get the green light, forcing them to turn to the secondary licenseresale market, which operates under the pretext of facilitating mergers and acquisitions.
The mainland’s internet finance era hit a high in 2013 with a string of blockbuster launches, including those of Yu’ebao — the country’s biggest online payment platform — and its domestic rival WeChat Pay. The online payment trend built up the infrastructure for the creation of varied internet financial applications, such as P2P lending, crowdfunding, online investment fund sales and online insurance sales.
“These online investment platforms are changing the way consumers access financial products on the mainland. They are able to reach the critical masses quickly due to their broad appeal and accessibility,” explained Xue Hongyan, a senior analyst at JD Finance — the financial arm of leading mainland e-commerce company JD.
Conventional licenses for financial institutions, such as banks, insurance, trust, securities and future trading houses, have been unable to cope with the huge demand from internet finance and stay aligned with the industry’s development.
At the same time, new registration and a host of licenses have been introduced by mainland financial watchdogs. Third-party online payment, credit scoring, online insurances and the like have sprouted in recent years.
“Chinese regulators have been relatively tolerant. They need time to study and observe the booming nascent sectors as well but, when the risks are exposed, they quickly move to tighten the screws,” said Xue.
One of the most notorious scams that came to light was the Ponzi scheme run by Ezubao — then China’s largest P2P lender — in 2015 when some 900,000 investors were ripped off to the tune of 50 billion yuan.
Xue Hongyan, JD Finance