China regulates online payment business of non-bank players
But these impressive figures have come with significant “growing pains” in the industry, as the quality of some of the industry participants has not consistently matched the quantity. The collapse earlier this year of peer-to peer lender Ezubau – an apparent Ponzi scheme that has reportedly cost 900,000 lenders over USD 7 billion – has made the case that tighter regulation is needed in order to curb the excesses of China’s payments revolution.
Against this background, on 28 December 2015, the People’s Bank of China (PBOC) issued the Measures for the Administration of Online Payment Business of Non-bank Payment Institutions (Measures), which will become effective on July 1, 2016.
Non-bank payment institutions in China
Online payments via non-bank payment institutions are now widely seen all over China. The payments are not just being used for retail purchases, but also in increasingly innovative ways to support all manner of payments, investments, loans and money transfers – whether on a business to consumer basis – between consumers or between businesses. The rapid evolution of payment services models in China has led to a number of problems and risks faced by the online payment industry and its regulators, including the following:
- inadequate customer due diligence procedures that result in increased risk of fraudulent payments, money laundering and tax avoidance
- inadequate financial controls enabling the embezzlement or misdirection of funds and creating risks to liquidity
- lapses in system security that allow funds or customer data to be misused or misappropriated, and
- the use of payment technologies to bypass authorities’ traditional controls on “hot money” and liquidity across different financial markets.
The PBOC has issued the Measures in response to these and other issues.
Click here to view the full article as published in our Winter/Spring 2016 TMT China Brief.