China’s central bank has demanded that mobile payments and the use of virtual credit cards be halted immediately, amid concerns over the security in verification procedures by major internet firms Tencent, Baidu and Alibaba Group.
The move comes just a day after Alibaba and Tencent launched virtual credit cards, which the central bank ruled too risky, state media said.
It is the latest in a series of clashes between China’s finance sector and IT companies, which have pushed into the banks’ territory by offering financial services such as online payments and wealth management products.
It is the latest in a series of clashes between China’s finance sector and IT companies
Chinese officials have so far permitted the firms’ growing roles in the finance sector, viewing online and mobile payments as beneficial to ordinary consumers and as a potential booster for the economy. However, the incursion into traditional banking turf has caused banks to call for stricter regulations as opposition towards tech firms continues to mount.
As such, the People’s Bank of China said in a statement that it has ordered the temporary halt of virtual credit cards and QR payment systems.
“The level of risk control directly impacts the users’ information security and financial security,” the central bank said, adding that further research was needed to assess whether the virtual payment services could handle such risks. In addition, the companies have to submit detailed reports on their procedures.
This follows recent tension between state-owned China UnionPay, the country’s monopolistic credit card provider, and the internet firms, which were set to launch virtual credit cards that could potentially hurt UnionPay’s revenues significantly. In February, Chinese and international media reported that UnionPay had put pressure on Alipay to route its new virtual card service through UnionPay’s system so it could increase its commission earnings on transactions.
However, Tencent and Alibaba announced just this week that they would partner with Citic Bank to launch the virtual credit cards, thereby eliminating UnionPay from being able to charge fees on the online card transactions.
Tencent, Alibaba and Citic have all confirmed to Reuters that they’ve received notice of the restriction, which has caused shares in all three firms to drop significantly. Spokespeople from both Alibaba and Citic said they had adhered to the correct application procedures before launching the virtual credit cards and that they would await further information from the PBOC.