Online payment industry issues to be further clarified

In the past few years, the People’s Bank of China (PBOC) and government authorities have conducted investigations of illegal or irregular third-party payment businesses in China. The result of those efforts has in part taken the form of the Implementation Plan for Special Rectification of Non-banking Payment Institution Risks, published in October by the PBOC and 13 government authorities. The plan has resolved certain industry issues in the third-party payment sector, while leaving some key issues in the online payment industry unsettled.

Scope of online payment business. The Administrative Measures on Payment Services Provided by Non-financial Institutions, issued by the PBOC in 2010, require that non-financial institutional providers of monetary capital transfer services must obtain a payment business permit – among others, monetary transfer services include “network payments” – which refer to the transfer of monetary capital between payers and payees conducted by non-financial institutions acting as intermediaries through public or special networks.

Ambiguity arises, however, with a common type of payment model adopted in various sectors such as e-commerce, O2O and mobile ride hailing, in which users first top up an online account hosted by a platform, and then make payments directly out of that account to third-party sellers on the platform. Opinions differ on whether such a model constitutes monetary capital transfer services. Some hold that such a model does entail monetary capital transfer services, as simply hosting the top-up account is sufficient to constitute the “transfer of monetary capital”. Others, however, assert that hosting the account alone does not entail any “transfer of monetary capital”, and it is the user him/herself that ultimately transfers the monetary capital to the merchant.

Ben Chai and Cloud Li are associates at DaHui Lawyers