The Chinese Central Bank has announced significant regulatory changes to the operation of online payments, widely affecting service providers and their millions of users in China. 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 categorized into three types based on security requirements, capped with maximum annual payments. The policy, which started July 1, 2016, was created to prevent large deposits of money into third-party payment accounts unprotected from bank deposit insurance.
Table 1 outlines the details of these account categories.
In 2015, the size of China’s third-party mobile payments market reached 9.31 trillion renminbi (RMB), up 57.3% from 2014. Analysts expect that the industry will continue to grow at a fast rate in the coming years, reaching RMB 52.11 trillion by 2018. Mobile payments have become an extremely useful tool for companies to optimize in their China market strategy. Here, we examine the two largest third-party online payment platforms used in the country: Alipay and WeChat Pay (see Table 2 for quick reference).
With around 50% of the market share, Alipay is by far the largest payment option in China. A subsidiary of Alibaba Holding Group Ltd., Alipay serves Alibaba’s B2B e-commerce network much in the way that PayPal operates for eBay and Amazon. Alipay cooperates with Visa and approximately 65 banks, including the Bank of China, China Construction Bank, the Agricultural Bank of China, and the Industrial and Commercial Bank of China. On top of being the primary payment method for Taobao and Alibaba.com, it also serves more than 500,000 external merchants, covering online retail, gaming, communications, air tickets, commercial services, and utility bill payments.
Alipay Global is the international version of Alipay, which processes payments in RMB and automatically converts them to the merchant’s currency of choice. Alipay Global currently supports 12 currencies, with exchange rates decided by either the Bank of China or China Construction Bank. Alipay Global’s transaction fee is 2%-3%. To set up a service account with Alipay China, a company must first register an account and provide company information for verification. Once approved, an application can be made and a QR code will be issued. The following materials are required to make an application:
- Business license
- ID card information of applicant
- Public bank account
- If the application is not from the company’s legal representative, the applicant is required to provide power of attorney
WeChat Pay, operated by Tencent Holdings, was launched in 2013. It operates differently from Alipay in that it serves as both a payment platform and an instant messaging service. It also differs from Tencent’s TenPay, which operates in the same way as Alipay. WeChat Pay can be used to pay in stores, on websites, WeChat shops, and third-party apps, and its payment procedure is easier and simpler for both customer and company alike. Being able to pay through WeChat has revolutionized how retailers and customers interact, and has the potential to reach, and make its payment method essential for, a huge number of customers because of their dependency on its social media and instant messenger service. It is therefore a very useful and effective marketing tool.
To set up a service account, a company will need to first register an official WeChat account. It is then necessary to specify reasons for the application and supply the category or type of company. The following documentation will be required in the application:
- Full name, phone number, and email address of the contact person
- Website address of the company (not necessary for non-IT companies)
- Full company name
- Description of the product
- Customer service number
- Company bank account information
In order for non-financial entities such as Alibaba and Tencent to provide third-party online and mobile payment services in China, a payment business license must first be obtained. Regulations stipulate that the business scope, qualifications, and contribution ratio of foreign-invested institutions applying for the license will be decided by the People’s Bank of China and State Council separately.
Third-Party Payment Business License
Despite the opaqueness of China’s regulatory framework and its exclusion of foreign companies, Apple Pay has recently entered the China market, launching on February 18 this year by partnering with China UnionPay and approximately 19 other Chinese banks. In its first two days of operation, more than three million bank cards were linked to its service, which utilizes 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 very few foreign-invested companies in possession of a Chinese payment business license.
Applicants for the license must be companies established in the People’s Republic of China and must submit the following materials to a local branch of the People’s Bank of China:
- Written application, specifying the name, domicile, registered capital, and setup of organizational structure of the applicant, payment business to be applied for, etc.
- A copy of the company’s business license (duplicate)
- Articles of association
- Verification certification
- Financial and accounting reports audited by an accounting firm
- Feasibility study report on payment business
- Acceptance materials on anti-laundering measures
- Certification on technical safety testing and authentication
- Résumé materials of senior management personnel
- Certification that the applicant and its senior management personnel are free of any criminal records
- Relevant materials of major capital contributors
- Authenticity statement of application materials
Entry into China’s lucrative third-party online payments business can unlock huge market potential. However, applicants should consider carefully whether they can fulfill the above strict requirements, as the application process and approval are by no means simple. 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 operate and consumer behavior.
Since its establishment in 1992, Dezan Shira & Associates has been guiding American investors through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll, and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India, and emerging ASEAN, including liaison offices in Boston and Waltham specifically established to support our American clients, we are your reliable partner for business expansion in Asia and beyond. For inquiries, please email us at [email protected]. For further information about our firm and how we can support American investors in Asia, please visit our North American Desk.