China’s central bank wants to quash the oligopoly in mobile payments enjoyed by Ant Financial and Tencent, by forcing them to use a centralised clearing house and share their transaction data with industry peers.
The Financial Times reports that the People’s Bank of China issued a “red heading” document on 4 August requiring that all third-party payment companies process their payments through a new clearing house by the middle of next year.
The PBOC directive requires that all Chinese payment companies connect with the clearing house by October 15, and channel all payments by June 30 of next year.
According to Caixin the new clearing house will go by the moniker of the Online Settlement Platform for Non-Bank Payment Institutions, and be 37% owned by the Chinese central bank.
The clearing house was established last year with capital of 2 billion yuan, and 300 commercial banks have already connected to the platform since the start of testing in March.
The payment units of Ant Financial and Tencent will each hold 9.6% equity in the platform, with 36 other third-party payment divvying up the remaining ownership stakes.
The move would severely undermine the dominant position of leading online payment companies Ant Financial and Tencent, who currently maintain their own discrete arrangements with commercial banks to expedite the transfer of funds between customer accounts.
According to Caixin the combined mobile payments market share of Tencent’s Tenpay and Ant Financial’s Alipay is currently in excess of 80%.
According to iResearch Alipay processed 54% of all mobile payment transactions during the first quarter of 2017, while Tencent’s WeChat Pay accounted for 40%.
China’s is host to the world’s biggest market for mobile payments, with data from market consultancy iResearch pointing to a five-fold surge in transaction volumes last year to 58 trillion yuan (USD$8.8 trillion).
Speaking to The Financial Times iResearch fintech analyst Zhang Yi said that PBOC’s decision is a major setback for China’s online and mobile payment companies, given that a key source of potential is the trove of customer data that can be used for targeted advertising and credit ratings.
“The launch of this clearing house isa one-sided loss for the payment institutions,” said Zhang.
“Originally, payment data were proprietary information for them. Now it’s connected to the clearing house, which will probably share it with other partners.”
Zhang believes the move is intended to prevent Alipay and Tencent from acquiring excessive power on the market as oligopoly holders, by dispersing the valuable customer data to other entities such as commercial banks.
In addition to data sharing the new platform will also help Chinese regulators to combat money laundering and other forms of illicit money transfer by enabling them to monitor online payments directly, instead of issuing requests for information to other payment platforms.