Prices of China’s third-party payment licenses plunge by half

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The price bubble surround China’s third-party payment license has burst as the trading price of the once coveted resource slumped by half over the past few months, Chinese local media is reporting.

“The market demand for third-party payment licenses is cooling down while its prices plunged from RMB 800 million (around $115 million) – RMB 1 billion to RMB 300 million to RMB 400 million. Despite the price drop, buyers are scarce,” the report said, citing people with knowledge of the matter.

For companies that run online payment service in China, it’s mandatory to obtain a license in order to conduct transactions legally. China’s central bank has issued a total of 271 online payment licenses from 2011 to 2015 and suspended issuing new licenses since 2016. Currently, there are 238 such licenses in the market. 33 licenses have been revoked by the bank due to malpractice by the agencies.

China’s booming online payment industry has drawn an increasing number of companies to the online payment business, which is a prerequisite for all services to create a comprehensive business circle. Rising demand and scarcity of resources has pushed the price of third-party payment licenses as high as RMB 3 billion at the beginning of this year, local media points out.

Although online payment is still on the rise with market size hitting RMB 40.36 trillion in the first quarter of this year, internet company’s craze to enter the market is cooling down due to a highly consolidated market.

Two of China’s largest online payment service Alipay and Tencent’s financial unit, the operator of WeChat Pay, take a combined 92.71% in the country’s mobile payment market with 53.76% and 38.95% share respectively. It leaves little space for other competitors who have to fight for a meager 7% share with over 200 companies who hold the same license.

In addition, the price drop is also the result of tightening regulation on third-party payment service providers. China’s central bank has written over 60 fines to payment services operators for breaching financial regulations. The cost for such violations is skyrocketing. In August this year, four companies including Alipay were fined a combined RMB 100 million by the Shanghai branch of the Chinese central bank.