PBOC Paves the Way for Paypal to Enter Chinese Market

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China’s central bank is dialling back restrictions and licensing requirements that prevent overseas payment companies such as Paypal from entering the Chinese market.

On 21 March the People’s Bank of China issued its seventh public announcement for 2018 with the approval of the State Council, confirming the entry thresholds and regulatory policies for the entry of foreign payment companies into the Chinese market.

According to the announcement foreign invested payment companies will enjoy treatment that is the same in all respects to that currently given to domestic parties, as part of efforts further open the financial sector and improve the regulatory system for non-bank payment entities.

“Loosening restrictions on the entry of foreign-invested payment organisations and conferring equal treatment to both domestic and foreign-invested companies will achieve unified entry standards and regulatory requirements,” said a senior PBOC official.

The Announcement also states that the “Non-financial Institution Payment Services Administrative Measure” (PBOC Directive [2010] No. 2) (非金融机构支付服务管理办法) will serve as the regulatory framework for both domestic and foreign-invested payment organisations.

PBOC’s latest announcement expands upon the licensing requirements of the Administrative Measures issued in 2010, and places an especially heavy emphasis upon data security.

It stipulates that any personal information or financial information gathered by foreign-invested payment entities in China be stored, process and analysed within China itself, and that foreign parties must observe confidentiality requirements when transmitting information abroad as part of cross-border operations.

The move arrives amidst a broader theme of increased reform and opening of the Chinese financial sector, and will come as welcome news to overseas payment giants such as Paypal.

The Chinese central bank first established a payments sector licensing system in 2010, while PayPal publicly announced in 2011 that it was applying for a license to serve as a third-party payments provider in China.

While PayPal has since continually voiced its ambitions to enter the Chinese market, up until now it’s failed in its efforts to secure a license from PBOC.

Sources said to 21st Century Business Herald that while PBOC’s decision will benefit overseas payment companies such as Paypal, cracking the Chinese market will be a challenge given the established dominance of WeChat and Alipay, as well as intense competition from other domestic providers.

“With respect to the domestic market, the market situation will be hard to change in the short-term,” said Dong Ximiao (董希淼), senior researcher at the Chongyang Institute for Financial Studies, Renmin University.

“At present domestic non-bank payment companies have already dragged prices down to an extremely low level, and whether or not foreign entities making an entry can survive is an issue.

“Of course they will likely have their own models, for example taking the route of he high-end market, continuing to strengthen cooperation with domestic entities, or even establishing joint-venture companies.”

Dong nonetheless contends that expanding the openness of China’s payments sector is a positive, as long as regulation is stepped up and risk prevention measures are in place.

 

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