China is introducing new rules for mobile payments, in a move that some experts say could pave the way for the future deployment of the country’s central bank digital currency — the e-CNY.
The People’s Bank of China (PBOC), the central bank, has issued new regulations for mobile payments — the predominant payment method within the nation — that looks to further stipulate the use and classification of payment collection barcodes in a bid to crack down on crimes related to such payment barcodes such as illegal gambling.
Specifically, the new rules, set to take effect next March, will require merchants to use merchant barcodes for business activities rather than using personal collection barcodes. It’s common in China for small business merchants, such as food vendors, to use personal codes to collect payment.
The PBOC has said in a statement such new rules are designed to clarify the use of personal collection barcodes to monitor relevant risks. The central bank said there have been cases where some businesses would use personal collection barcodes to transfer a large amount of operational funds, making it harder to monitor risks.
The new regulations come as China is actively developing its own digital currency. Many expect the e-CNY, also known as digital RMB, to be formally launched in time for the Beijing Winter Olympics in February.
Mobile payment platforms such as Alipay and WeChat Pay have long been the major payment tools in China, with both controlling over 90% of the Chinese nonbank payment market.
The regulatory shift in supervising the use of payment barcodes would not impact too much the dominant positions for Alipay and WeChat Pay, as pointed out by an analyst from Chinese securities firm Huaxi Securities.
An analyst of Everbright Securities said in a Sunday research note the new rules could enhance payment security and curb tax evasion to improve payment stability. A Huaan Securities research note pointed out that in the long term, the new rules could benefit the promotion of e-CNY, helping merchants to reduce costs.
An analyst from Huaxi Securities said the country’s banking system could potentially take back the dominant position in payment as the digital yuan continues to be distributed.
“The new rules regarding commercial collection codes look like another regulatory measure related mainly to the main mobile payment providers Alipay and WeChat Pay, and not necessarily as a promotion for the digital RMB deployment,” Amnon Samid, CEO of Israel-based cybersecurity company BitMint, whose technology was used in the e-CNY trial of Bank of Shanghai, told Forkast.News.
However, Samid said the new measures may support the digital RMB deployment in the future — in the mature phase — when other distribution measures of the digital RMB will be promoted, such as direct phone-to-phone payment, or hard-wallet-to-hard-wallet offline payment.
“We have to realize the main differentiation between digital currency and mobile payment. The digital RMB is the money itself, while mobile payments are distribution measures,” Samid added.
Matteo Giovannini, a senior finance manager at Industrial and Commercial Bank of China, one of the country’s biggest commercial banks, told Forkast.News that by tapping critical loopholes, Chinese authorities aim to create a safer payment ecosystem that disincentivizes any form of crime such as cross-border gambling, tax evasion and money laundering.
“At the end of the day, this process will lay the perfect foundation for an acceleration in the promotion and an extensive rollout of sovereign digital currency as a result of improved risk management and more transparency,” Giovannini said.
China has remained stringent in supervising the financial services provided by the tech giants, and the authorities have already been cracking down on the duopoly.
For example, just recently, Tencent’s Tenpay — the operator of WeChat Pay — was fined 2.8 million yuan (US$440,000) for violating foreign exchange rules. The authorities last year also fined Tenpay 8.7 million yuan (US$1.36 million) for violations including offering payment services for illegal transactions.
In April, Alibaba was charged with a monopoly and fined 18.2 billion yuan (US$2.85 billion). In July, the Market Supervision and Administration bureau sent a total of 22 antitrust fines to technology companies such as Alibaba, Tencent and Meituan, as part of the government’s antitrust clampdown.