China steps up oversight on e-payments, online content

January 03, 2018 13:42
With QR code-based payments becoming very popular in the country, Chinese authorities have stepped up regulatory oversight on the industry. Photo:

Chinese authorities recently suspended the popular news aggregation app Jinri Toutiao and put a cap on e-payment via traditional QR codes at 500 yuan, sending signals that Beijing wants to rein in the breakneck speed of internet technology adoption.

In a brief statement on Friday, the Beijing Internet Information Office said Jinri Toutiao, which means "today's headlines" in Mandarin Chinese, had violated the rules and wasn't qualified to transmit news and information on the internet.

Six of the app's popular channels were suspended for "an upgrade and maintenance".

Jinri Toutiao one of the largest unicorns in China, with a valuation of over US$30 billion.

The app uses artificial intelligence technology to aggregate information to provide readers with a personalized news list. It is said that typically readers would click into 80 percent of the articles the app suggests, indicating its system has a good understanding of users' diverse tastes.

Attention is considered the most precious resource in a world where people are overwhelmed by massive information. Therefore, any platform that can catch people’s attention will become a winner.

For example, Chinese netizens spend over 30 minutes on WeChat on a daily basis, while their American counterparts browse Facebook for over 40 minutes. That’s why Tencent and Facebook have become the world’s leading internet giants.

Coming to Jinri Toutiao, it has 140 million daily active users, who spend up to 74 minutes every day on the platform on average. That is why it is so valuable.

Separately, Chinese authorities also tightened the oversight on QR code payments last week.

A QR code is a two-dimensional matrix of black and white pixels, widely used for online payments in China.

People’s Bank of China (PBoC) announced on December 28 that it would set a daily transaction limit of 500 yuan for static barcode payments.

If customers need to pay over 500 yuan, they can ask the cashier to scan the dynamic QR code or revert to traditional debt or credit cards. Dynamic QR code usually requires extra verification such as password or fingerprint.

Moreover, the central bank required e-payment platforms to set aside 50 percent of the so-called prepayment funds, instead of current 20 percent.

Currently, merchants don’t receive payment from these platforms until the transaction has been completed (e.g. delivery made) and confirmed. Therefore, a huge amount of such prepayment funds are temporarily parked on these payment platforms.

Previously, they only needed to set aside 20 percent into an account with the central bank, and could deposit the remaining 80 percent in banks to earn interest.

As of the end of November, prepayment funds deposited with the central bank hit 99.5 billion yuan, meaning these platforms held the rest, or nearly 400 billion yuan.

At 3 percent interest rate, 400 billion yuan would roughly generate interest income of 12 billion yuan per annum.

The new rule means payment platforms will earn much less than before from interest income.

Chinese authorities are relatively open and tolerant to emerging internet industries. That has led to rapid development of Taobao, Alipay and WeChat.

Still, the rapid development and increasing clout of these tech platforms are keeping regulators on their toes. Authorities may feel they may need to introduce additional regulatory measures to make sure they can keep everything under control.

This article appeared in the Hong Kong Economic Journal on Jan 2

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist