The People’s Bank of China hopes to strengthen its monitoring and regulation of third party payments providers by severing their direct ties to banks, and forcing them to process transactions via a centralised platform.
In August 2017 the Chinese central bank issued the “Notice on Non-bank Payment Organization Network Payment Operations Shifting from the Direct Model to China NetsUnion Platform Handling” (关于将非银行支付机构网络支付业务由直连模式迁移至网联平台处理的通知) to relevant financial institutions.
The Notice mandated that starting from 30 June 2018 any online payment operations undertaken by payments organisations involving bank accounts need to be run through the NetsUnion Clearing Corporation’s platform (网联清算有限公司).
The Chinese government has since sought to expedite the incorporation of third party payment providers into a centralised platform, with the central bank issuing the “Notice Concerning Relevant Work Arrangements for the Incorporation of Non-bank Payment Organisation Online Payment and Settlement Platform Channels” (关于非银行支付机构网络支付清算平台渠道接入工作相关事宜) on 20 March.
With a little over two months until the deadline, the move is expected to mark a major shakeup of China’s payments sector by severing direct links between banks and third party payments providers, with the former no longer capable of serving as a withholding channel for the later.
According to members of the banking sector the establishment of China Nets Union as a centralised processing platform will serve to strengthen the People’s Bank of China’s regulation of payment organisations, as well as capsize the business model of many service providers.
Analysts also point out that the move will have a heavy impact upon the asset management sector and funds companies, given that many of them are dependent upon third party payments providers to conduct business.
“If fund companies are completely reliant on third party payments providers, then the impact on them will be very great,” said one IT expert from a publicly offered fund in southern China to Securities Journal.
“The cost of adding new payment channels to their sales systems is also quite high, usually costing between 100,000 to 200,000 yuan.”
Should third party payments providers fail to integrate with the centralised platform on time or find their operations undermined by integration, investment funds may also need to scramble to obtain new sales and processing channels.
Smaller fund companies are expected to be more severely affected, while larger funds are better positioned to weather the transition, given that they enjoy direct ties to multiple banks in addition to third party payments providers.
