How China's mobile payment regulations fit into the broader strategy for the financial industry

Written by Zennon Kapron || December 29 2015

On the 28th of December, China promulgated the next set of mobile payment regulations. Although some of the regulation was expected, how will the rest impact the mobile payment industry development in 2016?

So we already kind of knew about the different spending brackets and it was based on the level of security on the account, so that was interesting, but not surprising. Basically the total value of mobile payments permitted in a calendar year will have an upper-limit per account topping out at 200,000 RMB per year. Whilst the details weren't clear before, we knew that this was in the works. 

What is really fascinating about the regulation was the timing, as it came out roughly at the same time as the national security / counter-terrorism law that appears to backtrack on backdoors, but is just as strong on information security and encryption. It seems like the government overall is reacting very similarly to what we would expect from the US and other governments - namely, a continued push to have better insight and clarity on electronic money flows. 

And the new mobile payment regulations seem to be very tightly connected to KYC and AML as well. If you remember, CUP was facing trouble in Macau as people were increasingly using their CUP cards to evade the currency controls by purchasing goods in Macau and then being ‘refunded’ in HKD. We had heard that Alipay was being used similarly, which is increasingly an issue especially as international Alipay acceptance continues to grow. We don't know yet what the different levels of ‘security’ requirements will be for mobile payments and it is a bit shocking that there was no real-name registration already, but if you never linked the account to a bank, you wouldn’t need a real name, and those accounts are likely the more risky ones involved in laundering, illegally moving money abroad, avoiding tax, etc..

Just a side thought as well, for the times that I have paid using Alipay, I have never really noticed whether it goes to a merchants account or a personal account - and I would guess most people don’t. So picture this: you could have an Alipay personal non-realname account at your restaurant, cafe or whatever and just accept payments and then you would never have to report that income to the government. I paid my taxi ride right as I was leaving Shanghai and it went to the driver’s personal account, not a company account. 

So, our thinking is that the regulation: 1. will help to better manage illegal outflows of money, 2. ensure that the mobile payment accounts are being used properly and 3. (secondary effect) protect the banks a bit by limiting the transaction volumes going across the mobile payment platforms. 

In terms of impact, we're not sure it will be that great. Although 200,000 RMB isn’t a tremendous amount of money, it is likely enough for most users at least for the current typical uses of digital payments. What will be interesting is how the government continues to push KYC regulations in 2016.