China cbank defends online payment rules
China's central bank has moved to defend draft rules that would force online payment processors to channel large payments through traditional bank accounts, a requirement that industry observers say will stifle innovation while protecting the interests of incumbent banks.
The People's Bank of China in mid-July laid out a broad regulatory framework for internet finance, which includes payments, wealth management, peer-to-peer lending and crowd funding, among other services.
Those guidelines sought to strike a balance between promoting innovation by upstarts seeking to compete with large, stateowned banks, while also imposing order on the chaotic world of internet finance, where hucksterism has thrived amid a lack of regulation. The PBoC followed up late on Friday with specific rules governing online payments, a sector dominated by Alipay, an affiliate of ecommerce giant Alibaba, and Caifutong, the payment arm of social media and gaming group Tencent.
Online payments are expected to hit Rmb11.8tn ($1.9tn) this year, up from Rmb8.1tn in 2014, according to iResearch. The rules set a cap on payments by thirdparty processors of Rmb5000 per client per day and Rmb200,000 per year. Larger payments must be routed through the payer's account at a commercial bank. Online groups reacted with dismay. "It's not even enough to buy one iPhone. If I want to donate Rmb210,000 to the Winter Olympics, I guess I'd have to spread it over two years," Yi Huanhuan, secretary-general of IFC1000, an online finance trade group, wrote in a commentary, referencing Beijing's successful bid to host the 2022 winter games. "Basically this blocks off the industry's space for development." In an unusual move, the central bank issued a follow-up statement at the weekend responding to criticisms of the payment cap.
The PBoC cited data showing that 71 per cent of online payment platform users made payments of less than Rmb1000 for all of 2014, to support its claim that most users will be unaffected by the cap.
The central bank also clarified that online payment companies can process payments of more than Rmb5000 but that the excess portion must be debited directly from a bank account linked to the user's payment platform account, rather than from cash already stored on the platform.
"Transfer limits are proposed based on a holistic consideration of payment efficiency and convenience, as well as factors such as anti-money laundering and client fund security," the central bank said.
The new rules also forbid payment companies from opening accounts on behalf of financial institutions, as well as financial intermediaries involved in peer-to-peer lending, crowdfunding, wealth management, or foreign exchange. Instead these companies' funds must be held at commercial banks.