China’s central bank has ordered online payment groups to operate through a centralized clearing house, a move likely to undercut the dominance of Ant Financial and Tencent by forcing them to share valuable transaction data with competitors.
China is the world leader in mobile payments, with transaction volumes rising nearly fivefold last year to Rmb59tn ($8.8tn), according to iResearch. They are now widely used for everything from high-street shopping to peer-to-peer lending.
In addition to generating fees directly, online and mobile payments are a source of valuable data that can be used for such purposes as targeted advertising and credit scoring.
Now the People’s Bank of China is requiring all third-party payment companies to channel payments through a new clearing house by next June, according to a document sent to payment companies on August 4 and seen by the Financial Times.
“The launch of this clearing house is a one-sided loss for the payment institutions. Originally, payment data were proprietary information for them. Now it’s connected to the clearing house, which will probably share it with other partners,” said Zhang Yi, fintech analyst at iResearch, a consultancy.
Ant Financial, the financial services affiliate of Alibaba Group, is the market leader in mobile payments, with its Alipay unit processing 54 per cent share of all transactions in the first quarter of the year, according to iResearch. WeChat Pay, linked to Tencent’s mobile messaging app, held a 40 per cent share.
Mr Zhang believes the central bank wants to aid commercial banks in obtaining customer data and prevent Alipay and Tencent from gaining excessive market power.
Hundreds of millions of Chinese consumers and businesses have linked their Alipay or WeChat Pay accounts to their commercial bank accounts, enabling third-party payments to be credited and debited seamlessly.
But, unlike swiping a bank card, when an Alipay or WeChat user makes a purchase, banks do not obtain crucial payment details such as the merchant’s name and location. Instead, the bank record shows Alipay or WeChat as the recipient.
Currently, payment groups maintain separate bilateral relationships with commercial banks to facilitate payments to or from users’ bank accounts. But the latest PBoC instructions require all payment companies to connect to the clearing house by October 15 and to channel all payments through it by June 30, according to the document.
“We are actively participating in the preparation work and will complete the adjustment according to the requirements of central bank,” Ant Financial spokesman Anna Wang told the FT.
The PBoC and Tencent did not respond to a request for comment on Wednesday.
Seven units of the PBoC own 37 per cent of the clearing house, known as the Online Settlement Platform for Non-Bank Payment Institutions, according to Caixin, a financial news website. Payment units of Ant Financial and Tencent each own 9.6 per cent, while 36 smaller third-party payment companies own the remaining equity.
Established last year, the clearing house has capital of Rmb2bn. It began testing in March and around 300 commercial banks are already connected.
Beyond data sharing, the new clearing house will also enable the PBoC to monitor online payments directly without requesting data from processors, strengthening their ability to detect money laundering and other illicit transactions.
“Some third-party payment companies have used their licences to create channels for illegal payments. There really is a need to strengthen anti-money laundering and other regulation,” said Wang Pengbo, analyst at Analysys International.