New Online Settlement Platform Could Help Chinese Fintechs Sidestep Banks


China has just launched the trial run of its “Non-banking Payment Organisation Internet Payment Settlement Platform” (非银行支付机构网络支付清算平台), in a move which is set to shake up the payments sector by enabling fintechs to sidestep banks.

The new platform will establish a joint transfer and settlement platform for third-party online payment organisations like Alipay and Tenpay, as well as bring them under the supervisory and regulatory purview of China’s central bank.

The official website for the China Payment and Settlement Association  said that a number of banks and payment organisations were participating in the trial, with others already scheduled to come on board following the initial trial’s completion.

According to analysts the launch of the platform could have dramatic implications for China’s payments sector, as it will eventually obviate the need for third-party online payment platforms to deal with the banks directly.

Xue Hongyan, a senior researcher with Suning Institute of Finance, said that the launch of the platform would enable third party payment organisations to shift from a direct bank connection model to a unified third party platform transfer and settlement model.

Third party fintech companies already enjoy roaring success in China, with Alipay establishing itself as the world’s largest online and mobile payments platform in 2014.

The popularity of online payment platforms in China has had a major impact on the payments sector and hit traditional players like China UnionPay especially hard, compelling them to negotiate with third-party payment organisations over processing fees.

The new settlement platform could also help regulators solve a number of problems that regulators have identified in relation to the current state of the payments sector.

Chief amongst these problems is increased diffusion of information and deposit payments, giving greater scope to malfeasance in the payments sector.

Wang Pengbo, an analyst from Yiguan Finance, notes that third-party payment platforms perform interbank fund settlement by placing deposits in reserve accounts at each of the commercial banks, making their operations outsized and unwieldy.

Wang notes that the increased centralisation of deposit payments is a prerequisite to the establishment of the Settlement Platform, with  the People’s Bank requiring online payment organisations to place a set percentage of their customer deposit payments in special accounts at designated organisations since April 17.

The establishment of the Settlement Platform will also serve as huge boon for the authorities by enabling them to harvest data on transactions in China’s burgeoning e-commerce sector, which will in turn support adjustments to monetary and fiscal policy.

Impacts to be Felt in Two to Three Years

Academics expect the Settlement Platform to begin changing the configuration of the Chinese payments sector in a little as several years time.

Yin Zhentao, the vice-chairman of the Law and Finance Office of the Chinese Academy of Social Sciences Finance Faculty, said that despite its official status the Settlement Platform is a commercial organisation in nature, and can be expected to begin changing interactions between third party payment organisations and the banks in as little two to three year’s time.