The Chinese mobile payments industry could face a tough 2014
China has seen exponential growth in the mobile payments sector. It’s taken the nation by storm, with a growing e-commerce presence whipping up interest from the Chinese youth, and an explosion of Chinese startups beginning to grow in the space. Even Alibaba and Tencent were getting in on the action over Chinese New Year with mobile payments replacing the red envelopes families traditionally give to one another.
However, that bubble could burst. At least, that’s if China’s central bank goes through with the plans it’s considering about placing limits on how much users can spend via their smartphones.
It also seems that it’s looking at requiring online money market funds – such as Alibaba’s Yu’e Bao – to being holding minimum reserves on the deposits they collect. Such regulation has already begun to creep in as mobile users have been hit with limits on transfers to mobile financial products, with four of China’s state-owned banks banking the restriction. China has also stopped the use of virtual credit cards and QR codes for online shopping purposes.
As you can understand, this is quite a strange ban to bring in, especially as the e-commerce and mobile payments sector is by far the countries best market. Last year alone, around 1.67 billion financial transactions were made by mobile, turning over 9.64 trillion yuan ($1.6 trillion) in the process.
The difference is that these purchases, transfers, and balance management solutions aren’t coming from the state-owned banks. Instead they’re coming from the likes of Alibaba, Tencent, or Baidu. Mobile carriers are also missing out on the action, and that also means that the state is too.
Understandably they aren’t happy, and that’s one explanation as to why China feels the need to push back. However, China claims that the new regulation is to help reduce risks to information security.
While the need to protect the state’s own interests is a priority for China, surely such measures could damage the quickly-growing payment industry – sealing off almost all potential for expansion within the region.