News that the People's Bank of China had halted plans by mainland internet giants Alibaba and Tencent to offer virtual credit cards sent Tencent shares tumbling yesterday, along with those of partner China Citic Bank.
The central bank suspended the introduction of payment products based on virtual credit cards and payments made through so-called Quick Response (QR) codes offered by the two companies due to security concerns, Xinhua reported, citing a senior PBOC official.
The news came only a few days after central bank governor Zhou Xiaochuan promised the regulator would strengthen supervision of online financial products but would not ban them, marking a setback for the fast-growing e-finance business on the mainland, which has posed challenges to traditional banking.
"It's a temporary halt, rather than the rumoured 'prohibition'," Xinhua reported, citing Zhou Jinhuang, deputy director of the PBOC's payment and settlement department.
The central bank aimed to regulate such business and protect consumers' interests, instead of targeting any specific companies, he said.
Even so, shares of Citic Bank plunged 6.9 per cent in Hong Kong yesterday before trading was halted pending a clarification announcement. Tencent closed down 4.1 per cent. The Hang Seng Index fell 1 per cent.
The virtual cards, which were to be issued by Tencent and Alibaba's Alipay affiliate, together with Citic Bank, were designed to aid mobile payments amid growing online shopping demand from mainlanders.
The introduction of such a flexible and convenient payment method threatened to lure more clients away from traditional banking services.
A Tencent spokesman said the company would "fully co-operate with PBOC and submit the materials as required". Alipay declined to comment.
Zhou told Xinhua that innovative mobile payment services involved many new technologies.
"Its risk-control level would directly affect clients' information and funds safety," he said. The issue merited "further study", he said, while reiterating the central bank had "always encouraged financial innovation".
The governor of the PBOC said last week that online products, such as Alibaba's Yu E Bao money market fund, were not supervised closely at present but that would change.
"More policies will be implemented to perfect regulation," he said.
Yu E Bao, which offers higher returns than bank deposit rates, has lured hundreds of billion of yuan worth of assets since its launch in June.
Zhang Meng, online finance analyst at Beijing-based Analysys, said the central bank's biggest concern was security.
"The risk-control system of traditional finance is offline … [so] you have to make sure the online products are safe," she said, adding that the suspension would be lifted one day.