A woman walks past the People's Bank of China (PBOC). Photo: Reuters/Jason Lee
A woman walks past the People's Bank of China, which is part of the push to get young people away from online loans and back into banks. Photo: AFP

The People’s Bank of China has issued a circular among Chinese banks and third-party payment platforms that will dramatically change the industry, reports The Asset.

The document lays out new policy that will require all transactions from third-party platforms to be handled through an independent clearing house, called Wang’lian, jointly established by the PBOC, Chinese regulatory agencies, and some payment companies.

Under the current system payment platforms connect directly with banks and clear payments themselves, but Wang’lian will now centralize the clearing procedure. The new system could potentially marginalize the state-owned UnionPay clearing company:

“According to Chinese media, the document from PBoC requires that banks and payments companies be ready with the internal infrastructure changes required for the new model by October 15. From June 30 2018, all payments and transfers will be processed by Wang’lian.

According to a government official at the State Council, Wang’lian will weaken the bargaining power of third-party payments platforms in China when they are in negotiations with banks, given that payments companies no longer have exclusive possession over user data. Under the new model, it is possible that banks will have access to user data and even transaction data in collaboration with Wang’lian.

It is widely believed that the new clearing entity will have a direct impact on UnionPay, the state-owned clearing company within the Chinese banking system. As third-party payments platforms continue to take market share from banks, UnionPay, as the sole clearing house in the banking system, is likely to become marginalized.”