After years of development, China’s prepaid card industry has formed a complete chain, including card issuing, card acceptance and other related services.
1. Card issuing
Based on different issuers, commercial prepaid cards can be divided into two types: one is issued by professional card issuers, such as banks and third-party issuers. These are cross-region, cross-industry, cross-ownership and widespread-use prepaid cards with multifunction; the others are only issued by retailers which can then only be used at the retailers’ store
By issuing prepaid cards, the retailer can not only acquire customers in advance, but earn profits with the rest of money in the cards as well. Third-party issuers also benefit enormously from issuing prepaid card and the incomes usually include commission charge from customers, issuing fees from merchants and potentially ‘unused’ money sitting on the cards.
Apart from retailers and third-party issuer involved in this market, financial institutions have also taken a share of the profits. For example, BOC Expresspay, a joint venture set up by Bank of China and China Union Pay together, issued the first Union Pay-standard prepaid card named “Yintong Card”. This kind of RMB prepaid card can provide various online services including balance inquiry and money transfer. Furthermore, they can be used on any POS terminal in both CUP’s domestic and international merchant network, so they are more convenient and secure, as compared to other kinds of prepaid cards.
By encouraging financial institutions to issue Union Pay-standard prepaid cards, Chinese regulators expect a healthy and fast-growing prepaid card market in the future, which will also help establish a standard, resource- shared, cross-industry and cross-region low-value payment system.
2. Card acceptance
Some professional institutions are providing issuers with comprehensive card acceptance services, including installation and maintenance for terminals, development and testing for software solutions. Currently, there are more than 200 thousand prepaid-card terminals in use in China.
3. Other related services
Other services include transaction processing, marketing and sales for prepaid cards, and customer services. Some third-party companies even can provide end to end solutions and services for the industry.
Primary use of prepaid cards in China
1) As a kind of commercial gift between individual people, corporations and government.
2) Companies issuance to employees as bonuses
3) Personal purchase and use for the discounts provided by merchants
4) Citizen cards - Issuers cooperate with local governments to issue cards that citizens can then use to pay for transportation fees, utilities, and shopping.
Overall, prepaid cards in China are decreasing the use of cash, facilitating public payment and stimulating consumption.
Because of the poor regulation of prepaid cards market in China, various issues always exist in the market, such as misapplication of prepaid money to obtain huge profits by card issuers, mishandled invoices, tax evasion by purchasers, money laundering and bribery. Thus, China regulators have passed a series of supervisory regulations to standardize and oversee the industry.
On May 23rd, 2011, the China Payment and Settlement Association ("CPSA") was established in Beijing.
On May 25th, 2011, PBOC and other 6 ministries released the regulation of commercial prepaid cards. The document calls for a more full-fledged rules on the prepaid card management.
The main points in the document include:
1) Without the approval of PBOC, any nonfinancial institution cannot issue multifunctional prepaid cards.
2) Adopt real-name system in the card purchase meaning that issuers of prepaid cards need to register customers' identities if they purchase at least 10,000 Yuan in cards.
3) The value of anonymous cards should be below 1,000 Yuan, while ‘named’ should not surpass 5,000 Yuan.
4) Prohibit the use of cash, if companies buy at least 5,000 Yuan in cards, or if individuals purchase at least 50,000 Yuan.
5) The term of validity of prepaid cards must be at least 3 years. All the prepaid money must be monitored by banks
On May 26th, 2011, PBOC for the first time issued e-payment licenses to select third-party payment service providers. Totally 27 third-party companies received licenses from PBOC, and 9 of them were granted to both issue and accept prepaid cards.
Aside from the regulations detailed above, the People's Bank of China, China's central bank, and the Ministry of Commerce will launch an inspection of all prepaid cards circulating in the country by the end of 2011.
On one hand, the Chinese prepaid card market will be confronted with stringent regulations in the future. On the other hand, the stringent regulation just suggests the government’s determination to further develop the market.