Round-up of China’m88 casino appolicy on Online Payment

m88 casino appOVID-19 pandemic undoubtedly accelerated the shift from the traditional way of doing business towards a more modern digital economy. The e-commerce surge and further development of other forms of online trade in the wake of this accelerated paradigm shift have also fuelled the growth of the electronic or online payment market, both domestically and globally. Unlike traditional brick-and-mortar business transactions, e-commerce and other forms of online transaction do not require a physical presence and accordingly, electronic or online payment methods have become not just an option, but more a necessary solution for carrying out digital or online business.

“...developments in recent years may have inaugurated a new era of m88 casino appountry’s digital economy, and some believe that China now has the largest digital population in the world.”

With the proliferation of smartphones or tablets, and the rapid digitalisation of more and more aspects of daily life in China, it is reported that developments in recent years may have inaugurated a new era of the country’s digital economy, and some believe that China now has the largest digital population in the world. For the purpose of this article, we will discuss only the regulation in China of online payment companies such as Alipay, which provide alternative payment solutions including open online virtual accounts for customers, transfer of funds between customers’ virtual accounts and traditional bank accounts for the purpose of settling online transactions, and other payment products or functionality am88 casino appermitted under Chinese law. Issues relating to payment servicem88 casino approvided by banks, financial institutions or other types of payment intermediaries will not be addressed here.

Introduction to m88 casino appaymentCo

In China, a particular phrase “third-party payment company (第三方支付公司)” is often used in practice, although “payment institute (支付机构)” – defined as a non-financial institution acting as an intermediary between payer and payee and providing fund transfer services – is the official name provided under the law (here, we will use the “PaymentCo”). It was so named reportedly during the emergence of China’s e-commerce market, when there was a need to appoint an independent third party (or an “escrow agent” in a sense) that was mutually trusted by both consumers and merchants to handle the money arising from online transactions. Such third party receives and processes m88 casino appayment from sales transacted online according to the distribution waterfall, online platform policies or relevant arrangement agreed among consumers, merchants and m88 casino applatform.

In m88 casino approcess of providing payment services, the funds of customers are transferred to and maintained in a designated bank account under the name of such PaymentCo. However, according to the law, the customer funds in such bank account still belong to the customer despite being in PaymentCo’s bank account, and PaymentCo’s own funds need to be strictly segregated from these customer funds.

“The third-party payment company was so named during the emergence of China’s e-commerce market, when there was a need to appoint an independent third party that was mutually trusted by both consumers and merchants.”

Under Chinese law, as in many other jurisdictions, m88 casino appaymentCo is not a bank or financial institution. Some argue that m88 casino appaymentCo acts as a payment technology enabler that creates access to but does not itself provide the financial services of a bank or financial institution, and this makes it easy to confuse it with other payment intermediaries offering a similar service: for example, bank card clearing houses like UnionPay or Visa, and integrated payment companies that integrate and consolidate numerous electronic or online payment methods from different platforms, also known as “fourth-party payment agents”. However, Chinese law distinguishes m88 casino appaymentCo from other such intermediaries, and different regulatory requirements are applied.

Regulatory Highlights

The payment business of the PaymentCo im88 casino apprimarily regulated by the People’s Bank of China. A candidate that wishes to engage in the payment business first needs to receive a payment business licence (支付业务许可证) (a “Licence”) from the authority prior to starting any operation or business, and it will remain under the authority’s supervision during the course of business. The payment business is generally defined under the law as “...monetary capital transfer servicem88 casino approvided by non-financial institutions as the intermediary between payers and payees”. When applying for such Licence, the candidate needs to select itm88 casino approposed business from within three key categories of specific payment business, and once approved, the category selected will be shown on the Licence am88 casino approof of its authorised scope of payment business. The three categories of business include:

• network payment (including, for example, internetpayments, mobile phone payments, etc);

• prepaid card issuance and acceptance; and

• bank card acquiring.

This so-called “three-pillar” scheme is reportedly a regulatory classification based on the three different types of medium for processing payment, and accordingly, the candidate needs to meet related criteria or qualification requirements (technical or otherwise) based on the respective features of the three for m88 casino appurpose of ultimately obtaining approval for m88 casino approposed business scope of its choice. The Licence expires after five years, and accordingly, to continue its business a licensed PaymentCo needs to renew the Licence every five years by meeting the relevant renewal requirements.

“The rumour is that in response to the less-than-satisfactory historical performance and various non-compliant activities of licensed payment entities throughout the years, the government has decided to further regulate this vital industry...”

When there is a need for cross-border payment business, in addition to the above basic licence requirement, further filing or registrations with the foreign exchange authority or People’s Bank of China would be needed. The State Administration of Foreign Exchange regulates the cross-border payment business denominated in foreign exchange, and cross-border RMB payments are subject to the jurisdiction of m88 casino appeople’s Bank of China.

Furthermore, a candidate will also need to complete steps at the business registration bureau, telecommunications authority, Payment & Clearing Association of China, etc, and comply with anti-money laundering and anti-terrorism financing requirements, as well as data or privacy protection and other compliance requirements. Given that the customer fund processed by m88 casino appaymentCo will need to be deposited or transferred to a bank and related transactions need to be processed through the centralised clearing platform, related agreements and clearances need to be made with the bank and also the NetsUnion Clearing Corporation respectively.

Developments and Complications

Although historically there was a time when the Licence was reportedly easy to come by, it appears that now in practice the government has stopped issuing new Licences. The rumour is that in response to the less-than-satisfactory historical performance and various non-compliant activities of licensed payment entities throughout the years, the government has decided to further regulate this vital industry and participants in it by applying such measures as: properly raising the bar for market entry, controlling the size of the market or strengthening the administration of the operation of licensed payment entities and their Licence renewal etc. As a result, many operations in recent years have acquired a Licence from an existing licence holder rather than making a fresh application for a new Licence.

Order No 2

The current regulatory framework as described above is based on the Administrative Measures for the Payment Servicem88 casino approvided by Non-financial Institutions (非金融机构支付业务管理办法) ( “Order No 2”), a rule issued in 2010. Although amended in 2020 and although various separate ancillary rules have been issued over the past decade, Order No 2 still sets the tone for China’s regulatory reality for the payment services industry. However, a new draft rule, the Regulations on Non-bank Payment Institutions (非银行支付机构征求意见稿) has been issued for consultation, and if it is made effective it will supersede Order No 2 and significantly change the current regulatory landscape of thim88 casino apparticular sector.

Some argue that the potential changes are fundamental and that the new order would greatly deviate from itm88 casino appredecessor, and accordingly affect how this sector would be regulated in various respects. For example, the existing “three-pillar” scheme mentioned above would change to a more functional “two-pillar” classification including (1) the operation of stored-value accounts (which would involve opening payment accounts or providing prepaid value), and (2) payment processing services (with no such payment account or prepaid value) and accordingly qualification requirements once tailored to fit the previous “three-pillar” scheme would undergo fundamental change. There are also other potential changes worth mentioning, such as, increased scrutiny of unlicensed payment operations, and the introduction of the antitrust review, etc.

Administrative measure for cross-border payment service

In addition, the regulatory reality in relation to m88 casino appross-border payment business is arguably even more complicated than the domestic one. Since it concerns various issues and challenges as a result of connecting both the domestic and global market (eg, the extent of regulatory jurisdiction and the required licence/qualification for foreign participation in China’s market, etc), it has had an ongoing struggle to find balance and harmony between maintaining the right amount of regulatory oversight and preserving the economic vitality and continuous growth of cross-border businesses.

“In m88 casino appast decade more and more regulations have been made in an attempt to perfect a consolidated administrative system and eliminate any regulatory blind spots in this cross-border area...”

From the early pilot programme to the formally enacted rules at a later stage, in m88 casino appast decade more and more regulations have been made in an attempt to perfect a consolidated administrative system and eliminate any regulatory blind spots in this cross-border area. For example, every few years a new rule governing the cross-border forex payment business is issued, and the latest draft Administrative Measure for Cross-Border Payment Service (跨境支付业务管理办法), potentially creating new paths for foreign participation in this sector, has been circulated for consultation within m88 casino appayment community. However, the continuous effort to overcome the challenge of legislation that is lagging behind the constantly and rapidly evolving technology and business landscape has undoubtedly been much more than an academic exercise. Numerous issues or difficulties need to be properly dealt with in m88 casino approcess of making new rules and creating regulatory policies, such as:

• there have been debates and discussions about how to best ensure proper regulatory visibility or oversight relating to data or transaction information and fund flow in the cross-border payment business for varioum88 casino appurposes, eg, anti-money laundering, anti-terrorism financing, data protection, tax and foreign exchange control; and

• there have also been non-compliance controversies or dilemmas in practice where many licensed payment companies, in the supply of their so-called cross-border “passage service” to non-licence holders, only provide a fund settlement channel but do not maintain client relationships or hold related client information as so required under compliance and risk control requirements.

Foreign Participation and Cross-Border Collaboration

The development of the export market of Chinese products overseas during the past decades and the e-commerce surge arising from this have been the key stimuli to the growth of many foreign payment companiem88 casino approviding efficient and cost-effective payment solutions to Chinese merchants in such trade. However, the practice of foreign payment companiem88 casino apparticipating in China’s market, either on their own or through establishing Sino-foreign collaboration with the Chinese Licence holder, has been somewhat controversial from a legal and compliance perspective.

“The practice of foreign payment companiem88 casino apparticipating in China’s market, either on their own or through establishing Sino-foreign collaboration with the Chinese Licence holder, has been somewhat controversial.”

The year 2018 was a watershed in the history of foreign participation in this China payment market or cross-border payment business, and in that year the Announcement on Matters concerning Foreign-Funded Payment Institutions (关于外商投资支付机构有关事宜公告的公告) (“Circular No 7”) was issued by m88 casino appeople’s Bank of China, and for the first time the market entry conditions were set out for foreign payment companies to provide domestic and cross-border payment services. In addition to the standard foreign investment requirements, Circular No 7 provides such key qualification requirements for regulatory clearance at m88 casino appeople’s Bank of China as:

• establishing an onshore presence in the form of a foreign-invested enterprise;

• obtaining the Licence;

• the storage, handling/processing and analysis of personal information and financial data needed to be carried out in China; and

• establishing a safe and standardised business system and a disaster recovery system capable of independent completion of m88 casino appayment business in China.

However, the market reaction to this varies, and some argue that the issuance of this rule could serve as a “double-edged sword” to many of m88 casino applayers in this sector: for example, prior to this, in the absence of such legislation, many have conducted such business without an onshore presence or by using a very cost-effective although arguably controversial approach, without technically being non-compliant or doing anything illegal. However, now these business models may have to be changed, adjusted or ended as Circular No 7 has made the legitimate way for foreign players to provide payment services in China official, which effectively means doing business the other way may no longer be compliant or legal.

“During the application process, key factors, such as the size of the investment, features of product lines or business models, forms of investment or presence would need to be discussed.”

Having said that, getting licensed in accordance with Circular No 7 would still be an effort, particularly considering the fact that the regulator is currently rather reserved and cautious about issuing new Licences even for domestic players carrying out only onshore payment business. Starting from the first case of WorldFirst, each application would likely be reviewed and dealt with by the regulator People’s Bank of China on a case-by-case basis with somewhat different conditions and requirements but in line with the principles set out in Circular No 7. During the application process, key factors, such as the size of the investment, features of product lines or business models, forms of investment or presence, etc, would need to be discussed. Given that most foreign applicants have been focusing their services on the cross-border payment business and historically many of them were more or lesm88 casino apparticipating in China’s market before Circular No 7 was introduced, their previous business model or product line should be cleared with the authority and potential adjustments might be expected.

“In practice, foreign payment companies have been allowed to work on their application for regulatory clearance through their Chinese partners and have not yet been required to establish an onshore presence.”

Further to that, although the above regulatory landscape for foreign participation is still effective at the moment, the landscape is expected to change in the wake of the introduction of the 2021 draft cross-border payment service rule, as mentioned above. One of the noteworthy findings in the reading of the draft rule is that if it im88 casino appublished as it is now, the draft rule will allow foreign payment companies to establish collaboration with domestic Licence holders in China without establishing an onshore presence as required under Circular No 7 for the purpose of providing cross-border payment services, and such foreign applicant may work with its Chinese partner to prepare its application and finalise the related terms and conditions with the regulator. Recent experience suggests that such prediction might likely be true, as in recent cases, despite the fact that the draft rule has not yet come into effect, it appears that, in practice, foreign payment companies have been allowed to work on their application for regulatory clearance through their Chinese partners and have not yet been required to establish an onshore presence for thim88 casino appurpose. This arguably means that, in practice, the regulator may not preclude a potential departure from the precedent established by Circular No 7 and might start to review an application with reference to the updated scheme introduced under the said new draft rule despite its current legislative status.