China Curbs Online Payment in Fresh Blow to Internet Finance

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China mobile payment
A man works on a laptop at an office in Beijing. Photographer: Greg Baker/AFP/Getty Images

China plans to tighten regulations governing the nation’s 270 online-payment firms including Alibaba Group Holding Ltd.’s finance arm, dealing another blow to the booming business of Internet finance.

Under draft rules published on July 31, the central bank will limit the amount an individual can pay online to 5,000 yuan ($805) per day through third-party payment accounts, unless the customer’s identity can be verified by a security token and electronic signature. The People’s Bank of China is seeking public feedback by Aug. 28.

The central bank last month imposed stricter rules on the industry, which analysts expected to lead to sweeping changes and failures among online lenders.

Internet finance is posing a rising challenge to China’s traditional banks, which have lobbied for more regulation on third-party payments and peer-to-peer lending platforms. Online lenders helped fuel a stock-market boom that drove the benchmark index up 152 percent in the year to June 12 before crashing.

According to Friday’s draft rules, customers with at least five methods of verifications can open a so-called “comprehensive account,” which limits annual online or mobile payments to 200,000 yuan per person. With three to five verification methods, customer can only open a “consumption account,” with an annual transaction limit of 100,000 yuan.

‘Unfair Advantage’

The new rules will put an end to the “unfair advantage” of Internet companies in competing with banks as they have been benefiting from the absence of regulation for capital, liquidity and provision requirements, Ma Kunpeng, a Shanghai-based banking analyst at Sinolink Securities Co., said in a note on Saturday.

The third-party payment industry may consolidate following the new rules, China International Capital Corp. analysts Mao Junhua and Sarah Tian wrote in a note published Monday. “Strict client identification and transaction verification will demand more technological investments and imply more challenges for irregular players.”

Third-party payment companies that have the licenses to operate online lenders such as Alibaba’s Zhejiang Ant Small & Micro Financial Services Group Co. and Tencent Holdings Ltd. will have an edge over other players which are not allowed to offer full financial services through third-party payment accounts, the analysts wrote.

Ant Financial’s MYbank and Tencent’s WeBank are among a wave of new private banks being licensed by the government to target small loans and aim to use facial-recognition software to let users set up accounts.

The rules on third-party payment accounts followed measures imposed last month on the nation’s more than 2,000 peer-to-peer websites. Internet finance firms must park all client funds at established banks and must obtain approvals from financial as well as cyberspace regulators, the PBOC said July 18. The sites must also provide sufficient disclosure and send risk reminders to customers, it said.

— With assistance by Jun Luo, and Aipeng Soo

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