China’s central bank has released draft rules that centralize large online payments with the country’s traditional banks, effectively curbing services of leading e-payment firms like Alibaba Group’s Alipay and Tencent Holding’s Tenpay provide.

 

Citing safety reasons, China is limiting fund transfers and capping the size of daily transactions for e-payment affiliates of e-commerce giant Alibaba and social networking firm Tencent.

 

Analysts believe the draft rules will have limited impact on individual users but will fundamentally reshape the third-party online payment industry and impact the fund custodian of peer-to-peer (P2P) companies.

 

The Chinese central bank's proposal, which will be adopted after a consultation period with the industry, says Chinese citizens will be limited to making payments of 1,000 renminbi a day on payment sites that require only one source of identification, and up to 5,000 renminbi a day on sites that require at least two proofs of identity. Larger payments must be done through the payer's account at a commercial bank.

 

State-owned brokerage firm CITIC Securities says the measure will have limited impact on about 90% of individual users of e-payment services. The value of third-party internet payment reached over 8 trillion renminbi in 2014, according to internet research firm iResearch. As of the first quarter 2015, Alipay accounted for about 48.9% of the third-party online payment market while Tenpay took 19.9%.

 

The new rule also bans third-party providers’ financial services to institutions. They will not be allowed to open payment accounts for financial institutions or other entities that conduct businesses such as giving loans, funding, wealth management, guarantee and currency conversion.

 

They will also be prevented from  providing  fund custodian services to P2P platforms. As of end 2014, there were 2,376 P2P platforms in China, with asset under management at 500 billion yuan of which about 30% were put in their online payment accounts with custodian fee of 0.3%, according to Guosen Securities. Taking into consideration the low fee rate, high cost for innovation and risk of the P2P industry, banks may not be interest in taking over such business, Guosen Securities’ analyst Wang Xueheng says.

 

With all the restrictions, CITIC Securities believe the restricted rules would refine the third-party payment as a supplement to the banks by providing small-amount transactions and convenient services to internet users.

 

In a note, CITIC Securities analysts Xiao Feifei and Xiang Qi say the proposed measure is positive for China, citing  that money channelled through the Internet is usually hard to control. They noted as an example the recent volatility in the stock market that was largely attributed to the crackdown on unregulated over-the-counter margin lending that originated from unmonitored online transactions.