Banking & Finance

China sets up clearing house for online payment services like AliPay and Tenpay

PUBLISHED : Monday, 07 August, 2017, 7:40pm
UPDATED : Monday, 07 August, 2017, 10:10pm

China’s central bank has ordered the establishment of a nationwide clearing house for online payment services, instructing them to route their transactions via the new platform, to shield consumers and the financial system from an internet-enabled model of finance that’s already made up almost 3 per cent of the country’s non-cash payments.

The China National Clearing Centre -- the Chinese central bank’s settlements and clearing arm -- signed an agreement on July 28 to establish the platform’s operating company with 44 financial firms, including Alibaba Group Holdings’ affiliate Ant Financial, Tencent Holdings and China UnionPay’s affiliate, according to an August 1 statement by HyUnion Holding Co.

Banks and online payment systems including Alibaba’s AliPay and Tencent’s Tenpay must connect to the new platform by October 15, and be ready to route transactions through it from June 30, 2018, according to a notice by the People’s Bank of China.

The new platform is the internet version of UnionPay’s clearing service for bank-to-bank transactions, while the new platform is for transactions involving third-party online payment firms and banks.

“The current direct connection model bypasses the central bank’s clearing system, making it difficult for regulators to track and monitor the capital flow of those payments, leaving loopholes for money laundering and other irregularities,” said Wang Pengbo, an analyst at Beijing-based consultancy Analysys.

For consumers, a unified nationwide platform and unified regulations, mean a safer payment online, he said.

Online payments through non-bank payment services expanded 60 per cent in the first quarter to 47 billion transactions valued at 26.47 trillion yuan (US$3.9 trillion), 43 per cent more than last year, according to the central bank’s data.

Two services dominate China’s online payments, with Alibaba’s AliPay taking 54 per cent of the market, while Tencent’s Tenpay -- also known as WeChat Pay or WePay -- has 40 per cent, according to Analysys’ estimate. Alibaba is owner of the South China Morning Post.

The new platform had been undergoing trials since March 31 to test its functions and risk control measures, according to the Payment & Clearing Association of China.

Some services have begun shifting their transactions to the new platform, the association said in July, noting that the platform will speed up the shift to replace the current “direct connection” model, without giving a date.

Under the current “direct connection” model, a payment firm is directly connected with a number of banks, being able to make de facto interbank payment.

Helen Mu, senior vice president of ChinaPNR and president of PNR Data, said the Shanghai-based payment firm is in the process of getting connected with the new platform, which is expected to trim cost for payment firms with a unified access to all banks.