China is to blow open its huge digital payments industry to foreign entities that meet certain criteria, in a move that will set payments companies scrambling to obtain licenses.
A statement from the People’s Bank of China (PBOC) on Wednesday (March 21) said that those entering the market must set up local presence, have the requisite payment infrastructure, and host their client information domestically.
The statement reads: “Overseas institutions intending to provide electronic payment services for domestic transactions and cross-border transactions of the main entities within the territory of the People’s Republic of China should have corresponding qualifications and access conditions”, adding that those that do so will not be treated differently to China’s payment services companies.
The PBOC says that payment agencies handled Rmb169tn (about US$27tn) in payments last year, showing 75% growth since 2013.
While some companies, such as PayPal, which has partnerships with Chinese tech company Baidu and e-commerce giant Alibaba, Mastercard and Visa have some presence in the Chinese market, it has largely remained closed to international investment.
At the same time, the likes of WeChat Pay, owned by TenCent, and Alipay, owned by Alibaba, have expanded aggressively overseas. WeChat Pay has expanded to 25 countries around the world, targeting Chinese tourists and migrant workers.
Similarly, Alipay has partnered with Yelp in the US to help Chinese people in cities there make payments and has also negotiated agreements with Stripe, a PayPal-like service based in San Francisco.
The PBOC remarks that certain Chinese providers, such as TenCent’s WeChat Pay and Alipay, have “stepped out” to provide payment services to customers overseas, but that international institutions will be permitted to enter to boost “the continuous improvement of China’s openness”.
This week, blockchain-based payments provider Ripple told GTR that it was confident of entering the Chinese market this year. Ripple, which is chasing the market share of trade finance payments messaging system Swift, has been aggressively targeting banks and other financial institutions in Asia Pacific.
“I am personally very confident that by the end of this year we’ll have some traction in the market. But again it would be difficult to say for certain. Although even as we speak, our team is strategising about entering the market it’s still very early days. In the next three or four months, we would be better positioned to answer the question,” said head of government and regulatory relations for Asia Pacific, Sagar Sarbhai.
The pronouncement from the PBOC comes just as a trade war between the US and China looks set to heat up. Today, US President Donald Trump is expected to unleash further tariffs and investment restrictions on China for theft of intellectual property pertaining to trade and technology. Experts estimate that such measures would cost China US$50bn a year, which is in addition to the billions in lost exports it is facing due to the US levy on aluminium and steel imports.