China Sends Shot Across Bows of Alibaba, Tencent With E-Payment Antitrust Draft
Xu Yanyan
DATE:  Jan 21 2021
/ SOURCE:  Yicai
China Sends Shot Across Bows of Alibaba, Tencent With E-Payment Antitrust Draft China Sends Shot Across Bows of Alibaba, Tencent With E-Payment Antitrust Draft

 (Yicai Global) Jan. 21 -- China’s central bank has set online payments squarely within the antitrust framework for the first time in a policy draft it published yesterday. Violations and high risks emerging amid swift growth in China's non-bank payment sector may expose Alibaba Group Holding's Alipay and Tencent Holdings' WeChat Pay platforms to monopoly treatment under the proposed rules, experts said. 

The People's Bank of China issued its draft Rules on Non-Bank Payment Institution for public comment to clarify standards for determining a dominant market position. It also sets forth the procedures and penalties for abusing such a commanding height.

The draft, effectively linked with the Antitrust Law, gives the central bank the authority to determine what constitutes a monopoly position in the payment services market, thus tuckpointing existing regulatory gaps, Merchants Union Consumer Finance's chief researcher Dong Ximiao told Yicai Global.

The PBOC can request the antimonopoly law enforcement arm of China’s cabinet the State Council to warn a single non-bank payment institution that occupies at least one-third of China's non-bank payment services market via such means as regulatory consultations, per the draft. This also applies to two payment institutions with a collective stranglehold on at least half the market and three that control an aggregate minimum of 60 percent. 

The central bank can also direct the State Council's antitrust watchdog to review whether a single non-bank payment institution that holds sway over at least half of the national online payment market is predominant. This also applies to two such institutions that collectively boast a grip on at least two-thirds of the total and three that together claim a 75 percent minimum. 

Funneling Funds

Alipay accounted for 55.6 percent of China's third-party mobile payment transactions in the second quarter, with WeChat Pay at 38.8 percent, a report from Shanghai-based market analytics firm iResearch shows. 

The draft will greatly impact China's non-bank payment market, said Huang Dazhi, a researcher at Suning Institute of Finance. The aggregate share of the two leading institutions has already surpassed the draft's two-thirds threshold in the non-bank payment market, he said. Whether the total share of Alipay and WeChat Pay is above the bar set for the national e-payment market is unclear in the absence of further data, however. 

The market within the scope of the draft is a national e-payment one, and neither Alipay, nor WeChat Pay nor UnionPay has yet gained a one-third market share, a person close to the regulator told Yicai Global. Thus, none of the three yet wields a monopoly within its purview. 

Impairing Health

The PBOC can recommend that the State Council's antitrust enforcement arm takes steps to stop abuse of a dominant market position, break up combinations and split non-bank payment institutions based on their type of payment business should these entities greatly affect the healthy development of the payment services market. 

Regulatory measures are not perforce triggered even when institutions are identified as predominant, Suning's Huang added, because the draft posits that an institution must exploit such an eminence by acting in a way that seriously affects the healthy development of the payment market. The definition of what constitutes this is as yet unclear, however. 

The PBOC has issued 272 third-party payment licenses since 2011. It has braked the issuance of new ones in the last three years, however, and has now shunted existing ones into a clean-up and consolidation siding. 

Chinese non-bank payment institutions processed CNY78.96 trillion (USD12.2 trillion) in 234.5 billion online payments in the third quarter, PBOC data show. That represents a gain of 22.65 percent and 23.38 percent on the year, respectively. 

Editors: Zhang Yushuo, Ben Armour, Xiao Yi

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Keywords:   Alipay,Tenpay,Monopoly,PBOC,Anti-Trust