The Internet Banking Union may help you transfer money from Alipay to Wechat pay

Written by Felix Yang || 02 Dec 2016

This week, the Internet Banking Union (IBU) was approved by China’s central bank the People’s Bank of China (PBOC) thus creating a 'Digital Union Pay' that may bring cross-platform interoperability to digital payment platforms including Alipay and WeChat Pay. The platform is expected to launch by the end of the year and may bring a big change in the digital payment industry in China.

A Digital Union Pay

As a clearing platform, IBU has similar functions to China Union Pay. It connects the consumer’s payment account and bank’s receiving account, and provides interbank clearing services. However, different from Union Pay, the IBU focuses on the online payments paid by non-bank institutions, mainly the third party payment companies like Alipay or WeChat Pay, where as Union Pay focuses on offline interbank payments clearing.

The IBU will be set up by the China Payment Clearing Association and, although it has not announced the exact shareholders, it is clear that there will not be more than 50 of them and they will all be from third party payment companies (so will not include banks and Union Pay). Each shareholder’s paid in capital will be limited to RMB50 million.

The platform will essentially sit between the banks and the third party payment companies with the purpose of bringing more stability to the payments industry, but it also provides the PBOC insight into the payments that are going across the platform. At the moment, over 90% of third payment companies are connected with banks directly without any interface from Union Pay or other parties. Under that model, it it difficult for consumers to transfer money among different third party payment accounts which can create a barrier for competitors. 

A benefit or hinderance?

There have been concerns that the set up of IBU will make the process more complicated. The PBOC clarified that the purpose of the IBU is to provide a safer digital payment ecosystem. The IBU will encourage all payment companies to compete in a fair environment as it will be open to all licenses payment providers as well as the general public. It can also improve the efficiency of clearing, secure the data history, and improve risk control.

We think that one of the most important reasons to set up the IBU is to limit the waste of internet resources. Because each company is setting up separate platforms and storing data themselves, it is difficult for the whole society to share the resources. It also creates certain waste and risks due to different level of technology standards. So the setup of IBU will show more transparency to the central bank and help them to be involved in the accumulated data resource.

In the future, there are a few issues we may need to pay more attention to. First, is the competition between Union Pay and the IBU as their business models overlap in certain areas. Although third payment companies and IBU are more focused on services online, they also conduct offline business. The same for Union Pay - although the majority of its transactions are offline POS, it also runs an online payments business. Besides that, there will be challenges with interoperability and on-boarding all the payment companies at the same time. Will the IBU capacity satisfy big shopping events in China such as “double eleven”? In the end, would IBU make it possible to transfer money from your Alipay account to WeChat wallet or other digital wallets for free?

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