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China Moves to Restrict Daily Online Transaction Limit, Online Financial Service Providers to be affected

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Published on : Aug 11, 2015

Beijing’s proposed rules on online payments will invariably affect Alibaba’s business. The internet giant is expected to release its second quarter earnings this week. However, investors are more interested to hear the company’s stand on the recent rules proposed by the Chinese government regarding online payment. The regulations have been proposed by the central bank in China and are expected to severely affect the businesses of major online companies. The country’s online financial services industry is also expected to bear the brunt. 

Last month, the People’s Bank of China proposed restrictions to limit the daily third-party online payments to either 1,000 yuan or 5,000 yuan on the basis of security measures implemented by a service. The rules would also put a cap on the yearly payments to either 100,000 yuan or 200,000 yuan. However, there is an exception to the proposed rules. The online payments made through China UnionPay will not be affected by the proposed restrictions. 

By proposing these restrictions, the central bank has shocked the third-party online payment service providers. Businesses of these service providers such as Alipay and Tenpay would be severely affected by these rules. Industry analysts point out that this step will block the scope of development in the industry. Many observers have also stated that the step is to facilitate the business of China UnionPay, the online service offered by the state banks in China. Implementation of the proposed rules would see that the large payments are processed through traditional bank accounts only which will help the state-owned banks to charge for such transfers. With the government tightening the noose around the online financial industry in the country, the rapid growth of the online financial services businesses would be severely restrained. 

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