China hits the brakes on fi­nan­cial dis­rup­tion

The Pak Banker - - OPINION - Robyn Mak

China is hit­ting the brakes on dis­rup­tion in the fi­nan­cial in­dus­try. The cen­tral bank is crack­ing down on the coun­try's $2 tril­lion online pay­ments mar­ket, which is dom­i­nated by web giants Alibaba and Ten­cent. Pro­posed trans­ac­tion lim­its and stricter se­cu­rity re­quire­ments ap­pear to ben­e­fit tra­di­tional banks that have failed to keep up with online play­ers. It's a re­minder that, even in China, there are lim­its to tech in­no­va­tion.

The draft rules, pub­lished by the Peo­ple's Bank of China on July 31, look like a nui­sance for con­sumers. Online pay­ment com­pa­nies will only be able to han­dle trans­ac­tions worth less than 5,000 yuan ($805) a day. That means web users shop­ping for, say, a 5,700 yuan 64GB iPhone 6 will have to use a reg­u­lar bank ac­count or credit card. In­di­vid­u­als wish­ing to open an online pay­ment ac­count will have to pro­duce at least five of­fi­cial iden­ti­fi­ca­tion doc­u­ments. That's more than are typ­i­cally re­quired to open a de­posit ac­count in a bank branch.

Cen­tral bank of­fi­cials say the rules will only af­fect the 20 per­cent of online pay­ment ac­counts that ex­ceeded 5,000 yuan in daily trans­ac­tions last year. But for mar­ket leader Ali­pay, which han­dles 78 per­cent of trans­ac­tions for Alibaba, and Ten­cen­towned Ten­pay, the im­pact adds up. Even if the cap af­fects just a fifth of Ali­pay users, that's 80 mil­lion ac­tive ac­counts. Any signs of a slow­down in user growth and trans­ac­tions could also un­set­tle in­vestors in Ali­pay's par­ent com­pany Ant Fi­nan­cial. The Ali­pay par­ent re­cently raised funds at a $45 bil­lion val­u­a­tion, and is plan­ning an ini­tial public of­fer­ing.

China's re­stric­tive bank reg­u­la­tions and slow-mov­ing state lenders have en­abled new online play­ers to charge into legally untested ar­eas, build­ing fast-grow­ing busi­nesses in ar­eas like money mar­ket funds, peer-to-peer lend­ing and in­sur­ance. Now the author­i­ties are crack­ing down. Just last month, reg­u­la­tors tar­geted an elec­tronic trad­ing plat­form part-owned by Ant Fi­nan­cial as part of a wider crack­down on un­reg­u­lated mar­gin trad­ing. The fi­nal rules may yet be wa­tered down, and the likes of Alibaba may find cre­ative ways around them. Even so, it seems of­fi­cial tol­er­ance for dis­rup­tion in the fi­nan­cial in­dus­try is reach­ing its lim­its.

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