Third-Party Online Payment Services Got Licenses, Finally

This post was submitted by our contributor Kathy Yang, who was a former project engineer at Advanced Semiconductor Engineering Group. She’s interested in Web and mobile products, with hundreds of articles introducing Silicon Valley products/services published on QQ.com, the Tencent portal. Now she is introducing Chinese technological progress and development to the rest of the world.

The People’s Bank of China（China’s central bank）has finally granted licenses to the first batch of 27 third-party online payment services on May 26, allowing them to continuously run online payment services, while 5 other applicants (including Union Mobile Pay and Fuiou) were rejected.

The lucky ones includes Alipay(a unit of Alibaba Group which owns the largest Chinese B2C platform Alibaba.com), Tencent’s Tenpay, 99bill.com and Shenpay(owned by Shanda).

According to Administrative Measures for the Payment Services Provided by Non-Bank Financial Institutions, a local law aiming at consolidates Chinese online payment market, which came into force as of September 1, 2010, all third-party online payment services have to obtain a new business license from the People’s Bank of China by August 31, 2011, otherwise they are not allowed to continue their business.

Granting of licenses transforming markets

99bill CEO Guoguang Guan once commented that the introduction of payment licenses would bring 3 major changes into Chinese online payment area:

1) With central bank officially confirming the legitimacy of non-bank financials, more investment would flow into this sector;

2) Knowing who is the regulator would significantly stimulate innovation and attract more players;

3) Talents would flock into this sector more rapidly.

An analyst from marketing consulting company iResearch agreed that, payment licenses would transform the sector profoundly: fierce competition in high-concentrated online payment market might be broken up and the initial batch of lucky guys could benefit a lot from this preemptive opportunity.

But some famous bloggers had different thoughts. They say this sector which has been running for nearly ten years is quite mature and very competitive, granting payment licenses might bring less changes than some people thought. In addition, those 27 companies might not be so lucky, since they would be “dancing with shackles on” from now on.

Third-party payment services vs. commercial banks

After getting the license, Alipay vice president Zhiming Fan told media that “Alipay will continue to focus on online payments, while invest more in moblie payment service.” He also insisted that  Alipay “will only provide platform. we are infrastructure and platform provider. There is no plan to issue credit card or provide bank services.”

Some observers commented that commercial banks and third-party online payment services were complementary to each other over the last decade, but the competition between them might grow, and that was why Zhiming Fan especially emphasized Alipay has no plan to “provide bank service.”

China’s online payment market totaled RMB 397.3 billion (US$ 61.3 billion) in Q1 2011, with Alipay owning 45.5 percent of the market, Tenpay’s 20.3 percent and China UnionPay’s 11.7 percent.