On 21 June, the People’s Bank of China (PBOC) published the long-awaited Payment Services by Non-financial Institutions Administrative Measures, which will come into effect on 1 September. The Measures cover the scope of payment services, market access conditions and regulatory requirements, and other related areas. (Please also see Electronic payment rules protect domestic banks but hit internet companies on page 8.)
Scope of service
- In the Measures, payment services by non-financial institutions are defined as money transfer services provided by non-financial institutions which act as intermediaries between payers and payees. These services cover online payments, the issuance and acceptance of prepaid cards, settlement services for bank cards and other payment services approved by the PBOC.
- Online payment is defined as the transfer of money between payers and payees supported by a public or dedicated network, including currency exchange, internet-based payment, and payment by mobile telephone, fixed-line telephone and digital television. Currently popular third-party payment platforms, such as Alipay and Tenpay, are included in the definition of online payment.
Market access
- Pursuant to the Measures, a non-financial institution that provides payment services must possess a payment business licence, becoming a payment institution subject to supervision by the PBOC.
- An applicant for a payment business licence must meet various requirements set out in the Measures, such as minimum registered capital, various qualifications relating to capital contributors, and anti-money laundering measures. The Measures impose specific registered capital requirements on payment institutions, which is a major concern of the industry, by stipulating that if an applicant wishes to operate a nationwide payment business, its minimum registered capital must be RMB100 million (US$15 million); if the business is to be conducted solely within one of the provinces, autonomous regions and municipalities directly under the central government, the minimum registered capital is RMB30 million. This minimum registered capital must be paid-up monetary capital.
Regulated operations
- Pursuant to the Measures, a payment institution must conduct its business within the scope of business approved and stated in its payment business licence, and is obliged to record and disclose information such as the chargeable items and fee scales relating to its payment business, service agreements, statistical statements and financial and accounting reports on the payment business (which must be reported to local PBOC branches). In addition, it also needs to verify customer identity details, to maintain customers’ trade secrets and to issue invoices in a standard format.
- The Measures specify that excess reserves accepted from customers are not the property of payment institutions and are only transferable according to the payment instructions given by customers. Payment institutions are not allowed to embezzle the excess reserves of their customers in any way. Excess reserves accepted by a payment institution must be deposited in a dedicated account opened with a commercial bank unless otherwise provided by the PBOC. A payment institution may only use one commercial bank as a depository bank for excess reserves, and only one dedicated deposit account may be opened with one branch of that commercial bank.
Regulatory aspects
- The duties and powers of the PBOC in its role as regulator are also defined in the Measures. Pursuant to laws and administrative regulations, as well as its own rules, the PBOC and its branches are to conduct regular or irregular on-site and off-site inspections of payment institutions in terms of their corporate governance, business activities, internal controls, risk status and anti-money laundering measures.
- The PBOC and its branches have the right to order a payment institution that has accumulated losses of more than 50% of its paid-up capital, is exposed to a significant business risk, or has conducted major wrongdoing, to cease handling part or all of its payments business.
The introduction of the Measures suggests that China has begun establishing a unified market access policy and a stringent regulatory mechanism for payment services by non-financial institutions. This will inevitably have a major impact on the third-party payment sector that has been operating for many years. It should be noted that non-financial institutions which have been engaged in the payment business before the introduction of the Measures will have to cease their operations if they fail to obtain a payment business licence within a year of the effective date of the Measures.
