China’s central bank has set up a clearing house for online payment services. The new platform, Nets Union Clearing Corp., will launch next year.
All online payment services will route their transactions via the new platform. The move is aimed at stepping up oversight of the nation’s rapidly expanding online payment market.
In the past banks dominated financial transactions, and the central bank and the banking regulator were able to monitor all the transactions.
But the third-party model has made it much harder for regulators to keep track of all capital flows. (Alibaba’s AliPay and Tencent’s Tenpay together control about 90 percent of the third-party payment market in China.)
As such, the People’s Bank of China has decided to establish a centralized clearing platform to regain control of all online financial transaction data.
The move is seen as essential for the government to ensure financial stability in the new era.
Sun Guofeng, director general of the People’s Bank of China’s research institute, said at a recent industry conference: “We see that there are some online financial giants that are gathering massive data, and there is the possibility that these companies will become financial data monopolies. Data monopoly could potentially be more harmful than technology monopoly, and will result in a gigantic information gap.”
Sun urged financial technology firms to share part of the costs in developing the regulatory technology. “Various parties, including fintech companies, regulators, consumers and industry associations, should work with coordination,” he said.
Nets Union Clearing Corp. was established earlier this year by 45 entities, including the PBoC, which holds a 12 percent direct stake in the company, making it the largest shareholder.
The platform has a registered capital of 2 billion yuan (US$298.64 million), and more than half of the shares are held by state-owned entities, such as an investment unit of the State Administration of Foreign Exchange, Shanghai Gold Exchange, China Banknote Printing and Minting Corp. and Payment & Clearing Association of China.
Affiliates of Alibaba’s Alipay and Tencent TenPay have a 9.61 percent stake each, while JD.com Inc.’s Chinabank Payments owns 4.71 percent.
It is said that the platform will not charge any fee in the first one to two years, although it is unlikely to remain free forever.
This article appeared in the Hong Kong Economic Journal on Aug. 8
Translation by Julie Zhu
[Chinese version 中文版]
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