China's mobile payment market recorded $199 Billion in transactions in 2013, according to Beijing-based firm iResearch. On 14th March 2014, China's central bank demanded that payments made by scanning a bar code with smartphones be suspended temporarily. This move struck the payment arms of Internet companies Tencent and Alibaba Group Holding pretty badly. The bank cited concerns over the security of their verification procedures.
The move also comes barely two days after Alibaba and Tencent launched virtual credit cards. Following the notice from People’s Bank of China, the central Bank ordered the suspension of the virtual cards as well as smart phone payments that utilized Bar code technology and symbols. “The level of risk control directly impacts the users’ information security and financial security,” the central bank said in the notice.
"The notice was issued all of a sudden ... This notice had a great impact on our business," an official from Alipay told Reuters. “The PBOC document was issued in order to protect the payment service market, and prevent payment risks.” Shares of Tencent slid nearly 7 percent in Hong Kong.
"It is a negative sign to the market. The central government steps in to control a supposedly very free and innovative area of business. That means even if it is an innovative segment, it is not as free as we have anticipated," said Alex Wong, Director at Ample Finance Group.
The total volume of Alipay’s mobile payments surged past 900 billion yuan, or $150 billion said the company in February. This surpasses the combined volume of U.S.based rivals PayPal and Square. Alibaba Holding Group Ltd is a network of e-commerce B2B businesses constituting an online marketplace, shopping search engine, retail and payment platforms and more. It is led by chairman Jack Ma, whose net worth is $3.6 Bn.
Both Alibaba and Tencent had announced this week that they would partner with Citic Bank, China’s 11th largest by assets, to launch a credit card. Alibaba’s “virtual” card was to be launched next week in the Alipay Wallet app. Citic was to operate the card, but the creditworthiness of applicants was to be based solely on consumers’ online shopping histories, Alibaba said. Tencent had said it too would be offering its own cards, with a top credit limit of $814, through its popular messaging app WeChat.