CHICAGO, IL – 04 APRIL, 2016: Kate Spade store at 900 North Michigan, Chicago. Kate Spade New York

Service providers and their millions of users are affected by a significant regulatory change to China online payments announced by the Chinese Central Bank.

From July 1, third-party online payment service providers must ensure that all user accounts bear the real name of the account holder. In addition, accounts will be categorised into three types based on security requirements, capped with maximum annual payments.

The policy was created with an aim of preventing large deposits of money into third-party payment accounts unprotected from bank deposit insurance.

China’s third-party mobile payments market reached RMB9.31 trillion (US$1.4 trillion) last year, up 57.3 per cent from 2014. Analysts expect the industry will continue to grow at a fast rate in the coming years, reaching RMB52.11 trillion by 2018.
Mobile payments have become a useful tool for companies in their China market strategy. The two largest third-party online payment platforms in China are Alipay and WeChat.

Dominant player

Dominating with roughly half of the market, Alipay is a subsidiary of Alibaba Holding Group, serving Alibaba’s B2B eCommerce network similar to how PayPal works with Amazon and eBay. Alipay co-operates with Visa and around 65 banks, including the Bank of China, China Construction Bank, the Agricultural Bank of China, and the Industrial and Commercial Bank of China.

As well as being the primary payment method for and Taobao, it serves more than 500,000 external merchants, covering online retail, gaming, communications, air tickets, commercial services and utility bill payments.

Its international version, Alipay Global processes payments in RMB and automatically converts them to the merchant’s currency of choice. It supports 12 currencies, with exchange rates decided by either the Bank of China or China Construction Bank. Alipay Global’s transaction fee is 2 to 3 per cent.

Account procedure

To set up a service account with Alipay China, a company must first register an account, providing company information for verification. Once approved, an application can be made and a QR code issued.

Applicants must provide a business licence, ID card information and public bank account details. If the applicant is not the company’s legal representative, a power of attorney must be provided.

WeChat Payment was launched by Tencent Holdings in 2013. It is different to Alipay in that it serves as both a payment platform and an instant messaging service. It also differs from Tencent’s TenPay, which is similar to Alipay. WeChat Pay can be used to pay in stores, on websites, WeChat shops and third-party apps, with its payment procedure easier and for both customer and company alike.

Paying through WeChat has revolutionised how retailers and customers interact, with a huge number of customers depending on its social media and instant messenger service.

To set up a service account, a company first needs to apply for an official WeChat account, specifying reasons for the application and supplying the category or type of company.

Applicants need to supply the full name of the contact person, phone number and email address; the website address of the company (not necessary for non-IT companies); full company name; description of the product; customer service number; and company bank account information.

For non-financial entities such as Alibaba and Tencent to provide third-party online and mobile payment services in China, a payment business licence must first be obtained. Regulations stipulate that the business scope, qualifications and contribution ratio of foreign-invested institutions applying for the licence will be decided by the People’s Bank of China and State Council separately.

Pile of documents

Meanwhile, Apple Pay has entered the China market, partnering with China UnionPay and nearly 20 Chinese banks. In its first two days, more than three million bank cards were linked to its service, which uses Near-Field Communication (NFC) contactless payments as opposed to QR codes, which are used by Alipay and WeChat Pay.

Apple Pay, along with Edenred and Sodexo, is among the few foreign-invested companies with a Chinese payment business licence.

Applicants for the licence must be companies established in the China and must submit a pile of documents to a local branch of the People’s Bank of China – a written application specifying the name, domicile, registered capital and organisational structure of the applicant business, payment business being sought, a copy of the company’s business licence, articles of association, verification certification, financial and accounting reports audited by an accounting firm, feasibility study report, acceptance materials on anti-laundering measures, certification on technical safety testing and authentication, resumes of senior management personnel, certification that the applicant and senior management personnel are free of criminal records, relevant materials of major capital contributors, and an authenticity statement regarding the application materials.

Entry into China’s lucrative third-party online payments can unlock huge market potential, but the requirements are strict and the application process and approval is by no means easy.

In comparison, the process for obtaining an online payment QR code is relatively straightforward, but the recent restrictions imposed on payment account types and security checks might change both the way third-party online payment platforms work as well as consumer behaviour.

  • From China Briefing, published by Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and other ASEAN countries.

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