China’s lack of trust in third party payment platforms

According to McKinsey, in China, mobile & online payments rose by 47% last year to 5.37 trillion Yuan or $ 863.48 billion. But recent times are witnessing clashes between Chinese banks and third-party payment platforms.

The Chinese government has clearly instructed banks to set up transfer caps against such platforms amid rising no of mobile & online payment transactions. As per official documents issued by national banking regulator, restrictions will be made against capacity of an individual to transfer money to platforms like Alibaba on a per day basis based on that person’s financial status. Banks are supposed to comply with such by end of June this year and also set up means to verify linking of consumer’s bank account with payment platforms. Other implied measures include set up of firewalls and dedicated channels to protect banks’ internal data.

Although, Officials have cited reasons behind such implications like safety of bank clients’ information, funds and accounts and also maintain clients’ legitimate rights along with strengthening of business relation between banks and third party payment firms.

Such impositions aren’t happening in China for the first time though. Earlier this year, China’s central bank suspended use of virtual credit cards as well as scanning of bar code through smartphones for payment purposes. This deeply impacted business of payment firms Tencent and Alibaba Group Holding. Last year, in the month of December, the bank banned financial institutions and payment providers from conducting payments using Bitcoin.

In relation to such bans, officials cited quite a no of reasons like experimental stage of code scanning, no uniform and technological certification standards, ineffective formation mechanism and transmission process, lack of security guarantee at payment terminals and shortage of protective tools for verification. A number of cases also been cited by officials citing loss of money and leakage of information. Specifically to virtual credit cards, concerns have been over need of face-to-face checking and unfair competition.

As a point of view, Internet security has also been a major concern of Chinese government. Back in 2007, 283,000 new viruses and Trojans were reported by kingsan, one of the biggest software developers in China, with 119,000 among them being password-stealing Trojans.

With many valid reasons being cited by the Chinese government, companies like Tencent and Alibaba really need to step up and try harder in convincing officials and gain approval of their services for profitability.