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James Griffiths

Proposed regulations to severely limit online payments in China could shake up one of the country's most innovative and valuable markets, experts warned this week.
The People's Bank of China, the country's central bank, recently published a series of draft measures that, if implemented, would impose caps on the value of online transactions of as little as 1,000 yuan (US$157).
The regulations suggested on July 31 could greatly shake up China's 8 trillion yuan (US$1.28 trillion) third-party online and mobile payments market, which has given rise to hugely successful companies like Alipay and Tenpay.
They are run by two of China’s biggest internet giants, respectively – market dominating e-commerce player Alibaba and top internet services provider Tencent, which has mobile messaging apps Wechat and QQ under its wing.
Under the proposed rules, third-party payment services that have two or more security measures but do not provide verification processes will have a daily transaction limit of 5,000 yuan per user. 
Payment services that offer less than two security measures will have a daily transaction limit of 1,000 yuan.
Annual limits of between 100,000 and 200,000 yuan will also be imposed on online payment accounts. 

Moreover, third-party payment processers will be banned from providing financial services in any form, such as cash deposits and withdrawals, money lending, funding, wealth management, guarantee services or currency exchange.
Payment providers must also report to PBOC before providing any "innovative" internet payment products or services, according to the draft regulations.
A one-month consultative period on the draft regulation has now closed. It is unclear at present what, if any, changes PBOC will make to the proposed rules.
"The new regulations, if implemented, could close the market to potential new players due to the significant costs involved in operating multiple verification methods," said law firm DLA Piper in a report this week.
"The fairly low transaction caps are also likely to impact overall revenue for online payment providers."
The stringent new rules, which would favour established state banks over disruptive technology start-ups and internet firms, would seem to be strongly at odds with Chinese premier Li Keqiang's much-vaunted "Internet Plus" policy.
Li has promoted companies like Alibaba and Tencent as key future drivers of growth and employment as the country attempts to diversify its economy away from the traditional twin pillars of manufacturing and construction.
China has around 430 million online shoppers, according to official statistics, with that number expected to surpass 500 million later this year.
However, both Alibaba and Tencent have built much of their success on their financial products: Alipay Wallet, which powers online markets Tmall and Taobao; and Tenpay, which is used in WeChat and to pay for rides on market leading taxi-hailing app Didi Kuaidi.
The proposed cap on online spending could severely limit the growth of those services, while the stringent verification rules could prevent a future competitor entering the market.
In a report, Barclays said that the move would likely lead to increased consolidation, strengthening the position of Alibaba and Tencent and making it extremely difficult for smaller payment companies to compete. 


China's booming e-commerce market faces challenges as regulators seek to restrict online payments

An ad for Alipay Wallet in Hong Kong's Causeway Bay metro station. Photo: David Wong

The measures suggested by the central bank could end up handicapping Premier Li Keqiang's much-touted 'Internet Plus' policy, experts warn. Photo: EPA

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