In a move to strengthen oversight of online financial activities, the People’s Bank of China (PBoC) has required all third-party payment institutions to channel transactions via a newly established central clearing platform.
The new platform, named Nets Union Clearing Corp, started trial operations in April and will be put to use formally on July 1, 2018. By that time, all third-party payment firms, including Alibaba’s Alipay and Tencent’s TenPay, will no longer conduct transactions, such as bank transfers, outside of regulator’s supervision.
“We are actively participating and will complete the adjustment according to the requirement of China’s central bank and the preparatory team,” said Ant Financial.
Previously, some online transactions could escape regulator oversight. For example, when users transfer money from their Alipay account to a friend’s Alipay account, the whole process could be completed on Alipay’s own platform. As a result, the central bank lost oversight over a significant amount of capital flow within the financial system. In addition, with the new central clearing system, the PBoC is seeking to regain control of all online financial transaction data.
"We see that there are some online financial giants that are gathering massive data, and there is the possibility that these companies will become financial data monopolies," said Sun Guofeng, the head of PBoC Financial Research Center, during an industry conference. "Data monopoly could potentially be more harmful than technology monopoly, and will result in a gigantic information gap."
The establishment of Nets Union will also impact China UnionPay’s ambitions to become the biggest third-party payment clearing platform in China. In January, around 120 institutions such as JD Finance joined UnionPay’s clearing network. With a 1.55% stake in Nets Union, China UnionPay will play a much smaller role in online clearing than it has hoped.
Nets Union Clearing Corp was established earlier this year by 45 entities, including the PBoC, which holds a 12% stake directly and is the largest shareholder. The PBoC owns another 15% via five affiliated entities, meaning it has a 27% combined ownership of the new clearing platform.
An investment unit of China’s State Administration of Foreign Exchange owns 10%, while affiliates of Alibaba’s Alipay and Tencent TenPay each has a 9.61% stake. JD.com Inc.’s Chinabank Payments is the fifth largest shareholder, with a 4.71% stake.
Nets Union has a registered capital of RMB2 billion (US$290 million), contributed by the 45 entities. It will charge banks and companies a fee for using its clearing network, just like China UnionPay does. The fees will maintain roughly the same level with current standards, according to Chinese media citing central bank officials.