Due to the characteristics of high-risk industry PSPs (e.g. e-commerce, social media), such PSPs have specific requirements for security management and business operations. As a result, risk control measures are different from traditional financial institutions.
This article introduces the regulatory policy on a license application in high-risk industry PSPs and analyzes the characteristics of license types in high-risk industry PSPs.
Those high-risk industries include the following fields: e-commerce, Internet, mobile Internet, and some other areas.
The regulatory policy on a license application in high-risk industry PSPs is based on three aspects: security management, risk control, and business operations. The scope of the license ranges from customer acceptance to risk assessment, operation review, and external inspection.
Type Of License In High-risk Industry PSPs
After the payment services reform in 2011, China’s high-risk industry PSPs mainly rely on three different types of licenses to provide payment services according to their business models.
- The first type is the payment institution (PI) license.
- The second type is the business qualification certificate for non-banking credit institutions (QCNCBI).
- The third type is the business license for providing financial services (e.g. service platform, payment intermediary).
Payment Institution (PI) License
The payment institution (PI) license is a unified payment and clearing service provider license issued by the People’s Bank of China. It includes two kinds of licenses: Full Payment Institution (FPI), and Limited Payment Institution (LFI).
PIs can provide a wide range of payment services such as current, savings deposits, credit cards, and online banking.
PIs are mainly used by banks and other financial institutions, as well as non-financial institutions such as internet companies. Outside of the high-risk industry PSPs, PIs provide payment services that are relatively low risk.
In recent years, some new entrants have obtained PI licenses to participate in the online marketplace or social media based on their low-risk business models.
As of March 31, 2018, there are 60 PIs operating in China. The number of PIs has reached 44 since the payment services reform started on April 1, 2017. In addition to regulatory supervision by the People’s Bank of China (PBoC) and the State Council Information Office (SIIO), PIs are also required to be audited by the China Banking and Insurance Regulatory Commission (CBIRC) and the China Securities Regulatory Commission (CSRC).
In 2021, PIs will be allowed to provide credit card services in conjunction with the restructuring of China’s payment industry.
As a result, high-risk industry PSPs usually obtain FPI licenses when obtaining PI licenses.
Business Qualification Certificate For Non-banking Credit Institutions (Qcncbi)
QCNCBI was issued by the PBoC on November 15, 2012. Its main purpose is to regulate non-financial institutions that have been engaged in the credit business without obtaining a banking license for many years.
This certificate was particularly applied to online marketplaces and social media platforms that provide payment services such as e-commerce, travel, package delivery, and pre-paid game cards.
Since the issuance of the certificate, some non-banks have obtained this certificate as a basis for providing payment services. As of 2020, the total number of QCNCBIs is expected to have reached 1 billion.
Lending institutions that provide payment services through this certificate should not be regulated by the PBoC as long as they do not have less than RMB 100 million in registered capital and annual revenue of more than RMB 100 million. The service scope for these institutions includes online payment, online lending, and lending through connected devices.
Business License For Providing Financial Services
As a result of the implementation of the payment reform, some non-financial institutions that provide financial services and want to provide payment information services need to obtain a business license for providing financial services issued by local governments or ministry-level departments according to their business scope and credit limit.
The business license for providing financial services includes service platform business, payment intermediary business, and other new types of businesses such as online lending, mutual funds, and insurance brokerage. It is a less strict policy to regulate high-risk industry PSPs with this type of license compared to PI or QCNCBI.
In 2020, when the second phase of payment reform is completed, more online marketplaces and social media companies are expected to obtain such a business license.
Besides the three main types of the license mentioned above, some high-risk industry PSPs may use the authorization certificate issued by the PBoC as an alternative qualification license.
After obtaining the above-mentioned licenses, high-risk industry PSPs are permitted to provide payment services in China. However, they need to be supervised by the PBoC and other regulators such as SIIO, CBIRC, and CSRC according to their major type of business.
Although it is difficult to obtain these licenses, high-risk industry PSPs may find it more practical and efficient to enter the Chinese market through Partnerships With Existing
Positive Regulatory Policy For High-risk Industry PSPs
High-risk industries can provide financial services to consumers via different types of licenses. In addition to the requirements of the People’s Bank of China (PBoC), they are also required to be audited by the market supervision department of the PBoC and comply with the regulations issued by the state council.
The PBoC focuses on cooperation with other ministries and regulatory organizations to ensure the quality of financial services provided by high-risk industry PSPs.
Because it is convenient for consumers, easy to understand, and has no complicated legal procedure, Alipay has become one of the most intuitive payment methods. In addition to banks’ efforts in promoting Internet banking, more mobile phone operators are paying attention to the development of payment services to increase their profits.
Therefore, it is difficult for high-risk industry PSPs to obtain banking licenses in China because some definitions in the law still need clarification. As a result, most high-risk industry PSPs have obtained non-bank payment service certification (such as QCNCBI) or business license for providing financial services. Well-known high-risk industry PSPs, such as Didi and Meituan, have obtained a payment business license issued by the central bank.
Conclusion: As long as the payment services provided by high-risk industry PSPs do not include acceptance, pay-out, or other payment functions that are explicitly prohibited in their nonbank payment service certification (such as QCNCBI) or business license for providing financial services, the PBoC is willing to cooperate with other regulatory organizations to properly supervise such services.
However, in the future when high-risk industry PSPs want to obtain a banking license or apply for payment business approval from PBoC, they will encounter more difficulties because of complicated legal procedures and heavy requirements.
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