China has introduced new draft rules that are intended to tighten regulations governing online payments in the country.
Until now, this sector has been subject to very little legislation, but there have been claims that this hands-off approach has helped facilitate problems such as fraud and money laundering.
Therefore, proposals issued by the country’s central bank will aim to add “much-needed safeguards” to tackle these issues, the Wall Street Journal reports. The regulations will see a number of curbs placed on the online payments industry, such as limiting fund transfers, capping the size of daily transactions and requiring a higher level of authentication when users are proving their identities.
Balancing usability with security is no easy task and it seems China, like many other countries, is struggling to get it just right.
A booming market
China has rapidly become one of the world’s largest markets for online payments, driven by its burgeoning middle class, the growing proliferation of smartphone and tablets, and much improved mobile data coverage.
For example, Alipay – a system affiliated to the country’s largest e-commerce provider Alibaba – has more than 400 million active users, while Tencent offers payment services through its WeChat messaging app, which has 549 million active monthly users.
Such services are used for a wide range of activities by China’s web users, from buying items online and sending money to family and friends, to paying utility bills and investing in money-market funds. Chinese market research company iResearch estimates that in the first quarter of 2015, a total of 2.4 trillion yuan ($386 billion) of transactions were made online, a 30 per cent increase year-on-year.
The impact of tougher regulations
Some industry insiders and commentators in China have already raised concerns that tougher regulations governing transactions will stifle innovation in the country and create more red tape.
“With these new rules, instead of lowering the barriers to innovation, they’ve raised them,” Chinese financial news commentator Yu Fenghui told the Journal. “The implementers of these rules are looking at this from the perspective of protecting the banks. The victims of this would be the hundreds of millions of users of these services.”
One of the biggest challenges for the payments sector as a result of the new regulations would be the addition of more steps for validating user identities. Until now, Chinese citizens could set up online payment accounts by providing identity card details, mobile numbers and bank account information.
However, the proposed rules would require users to give further documentation from sources such as educational institutions, tax bureaus and banks to set up accounts. A research note from Bank of America Merrill Lynch suggested this would make creating accounts with services such as Alipay or Tencent much more onerous, and could slow the growth of new users.
Other portions of the regulations may prove less disruptive to everyday users, however. For instance, it is proposed that transactions be limited to 5,000 yuan ($806) or 1,000 yuan a day, depending on the security features provided by the platform. China’s central bank claimed that in 2014, 61 per cent of individual online payment users did not exceed 1,000 yuan in total transactions across the whole of the year.
Interested parties had until August 28th to offer their feedback on the proposals, but if the current rules are passed, it is likely that third-party payment providers will have to work more closely with banks and clarify their roles and responsibilities.