China Third-party Digital Payment Market

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2005 was the first year of the China digital payment’s era. Since then, digital payments in China have experienced a dramatic growth. A variety of payment methods, such as online payment, phone payment and mobile payment have sped up the pace of the entire digital payment industry.

At present, China’s third-party digital payment market has entered its mature stage due to, firstly, laws and regulations on business segments such as online payment pre-paid card being promulgated one after another, while the industrial competitive environment has become balanced and stable; second, e-commerce businesses, traditional trade groups, Internet giants, telecommunication operators and independent third-party payment enterprises have all accomplished their business models for the market; and third, the businesses scope of the third-party digital payment service has expanded from traditional online shopping, travel, online gaming and telecommunications to the online sale of financial products, fashion, logistics and catering services.

Possible Risks of Third-party Digital Payment

These innovations, however, are not immune to negative side effects. The possible risks in third-party digital payments are found in in customer information leakage, Internet fraud, counterfeit pre-paid cards, illegal purchases and many others. All these risks are due to the following supervision difficulties: the virtual nature of its participatants and the transaction itself make it difficult to check and control the course of the transaction, and thus makes it a hotbed of money laundering and cash filtering crimes. Cyber security is a huge problem that no one has solved; hackers can still easily attack the Internet.

Supervision of Third-party Digital Payment

Such a major change in the nature of money has had significant unintended consequences. Advantages for criminals and tax evaders are considerable. How can China maximise the benefits to the society while reducing the risks by legal means?

The main regulation pertaining to this is Yin Jian Fa [2014] No. 10 Document, the full name of which being “Circular of the China Banking Regulatory Commission and the People’s Bank of China on Strengthening the Administration of Cooperative Business Between Commercial Banks and Third-party Payment Institutions”. It sets out regulations regarding consumers’ fund and information security while using third-party digital payments, as well as the qualification and legal requirements for third-party payment enterprises.

At the end of last year, the Announcement of the People’s Bank of China [2015] No. 43 – Administrative Measures for Internet Payment Services of Non-banking Payment Institutions was published on the official website of China’s central bank, courting public comment. This announcement sought to impose restrictions on maximum amounts transacted within one day through third-party digital payment amounts, account opening and transfer, etc. The stringent announcement, once in effect, will require third-party digital payment users to be in compliance to ensure effective checking of the user’s identity. This check will be performed through at least three lawful and safe channels such as the Public Security Bureau, the Administration of Industry and Commerce, commercial banks, etc.

Transactions via third party payment accounts within one day will be limited to ¥5,000 RMB. There is no need to worry for online shoppers who shall still be able to make purchases exceeding ¥5,000 by adopting payment method of online banking. The restriction may also mean that interbank transfers for accounts through third-party digital payment will no longer be freely available; in other words, we will have to pay service charges for that.

Many people hold the opinion that the new announcement, once effective, will play a positive role in safeguarding transaction security, but it also will reduce the innovation and operating flexibility for third-party digital payments.

Disclaimer
This article is intended solely for informational purposes and does not constitute legal advice. Although the information in this article was obtained from reliable official sources, no guarantee is made with regard to its accuracy and completeness. For more information please visit dandreapartners.com or WeChat: dandreapartners.

 

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Legal columnist Carlo D’Andrea is Chair of the Legal & Competition Working group of the European Union Chamber of Commerce in China; Shanghai Chapter, Coordinator of the Nanjing Working Group of the Italian Chamber of Commerce in China and has taught Chinese law (commercial and contractual) at Rome 3 University. 法律作家代开乐担任中国欧盟商会上海分会法律与竞争工作组主席,中国意大利商会劳动集团的协调员与曾经在罗马三大担任企业咨询课程中中国商法、合同法的课程教授。

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