Recent regulation stirs up mobile payment sector in cashless China - PingWest

Recent regulation stirs up mobile payment sector in cashless China

Recent regulation stirs up mobile payment sector in cashless China

Zijing Fu

posted on December 2, 2021 8:50 amEditor : Rebbeca Ren

The banking regulator aims to block the loopholes in personal QR codes, and promote vendors to switch to business QR codes.

Recently, news about China's top banking regulator prohibiting personal QR codes from being used for commercial payment collection has sparked controversy on the Internet, raising concerns about the market status of Alipay and WeChat Pay.

On October 13, The People's Bank Of China issued "Notice on Strengthening the Management of Payment Acceptance Terminals and Related Businesses," ordering changes in the mobile payment sector. According to the notice, personal QR codes can no longer be used for commercial payment collection, and screenshots of personal QR codes can no longer be used for remote payment collection. The notice will take effect on March 1, 2022.

According to an article reposted by People’s Daily, a money-laundering activity known as “paofen” has caught law enforcement’s attention in China. By using multiple payment methods, including Alipay, WeChat Pay, Pinduoduo, and Douyin, as well as multiple innocent civilians’ accounts, criminals have been able to disguise illegal income as money from legitimate sources. Therefore, by limiting the use of personal QR codes, regulators can reduce financial crimes and crackdown on “paofen”.

As the new regulation sparked heated discussion on Weibo, China's Twitter-like social platform, netizens argue it imposes an impossible challenge for street vendors. Like ones selling breakfast on the side of the road or selling fresh produce in farmer's markets, street vendors may not be familiar with technology and have no operating licenses. Therefore, many think they would encounter difficulties when switching from personal QR codes to QR codes for business.

As the Chinese society has gone cash-less, street vendors, like all the other businesses in China, have long adopted WeChat Pay or Alipay's QR codes. One simply has to download their personal QR code from WeChat Pay or Alipay, print it out, display the code for customers to scan.

Photo by billow926 on Unsplash

Switching from personal QR codes to business ones can complicate the process. Both WeChat Pay and Alipay offer payment systems for businesses, including functions like bookkeeping, revenue analysis, setting up coupons, and, most importantly, business QR codes.

Yet, contrary to common belief, people can enjoy the service of WeChat Pay and Alipay's payment systems for businesses and set up their own business QR codes even without an operating license.

WeChat offers a special classification for "micro-businesses." To apply for a QR code as a micro-business, one only needs to fill in the scope and location of operation and upload two pictures of the site and products they are selling.

The registration page for micro-businesses in WeChat's mini program

Another way to use WeChat's payment system for business is to buy an "official QR code" from WeChat's store. The "official QR code" is a laminated card with the business's name on it. According to Tencent's customer service, once users receive the official QR codes and activate them, WeChat's payment system for business would automatically be open.

WeChat Pay offers two versions of the official payment QR code

However, there is a transaction fee ranging from 0% to 0.6% (0.6% for most businesses). WeChat offers preferential terms designed to help small businesses grow, reducing the transaction fee from 0.6% to 0.38%. The program will end on December 31, 2021.

On the other hand, Alipay does not accept applications without an operating license. According to Alipay's customer service, even micro businesses need licenses to use Alipay's payment system for business.

Yet, there is a way to get a business QR code without even applying — reportedly, Alipay invites selected users to upgrade their personal QR codes to business ones. With just one click and no further documentation needed, the business codes would be automatically generated. A code obtained by the aforementioned method is still entitled to all the benefits of Alipay's payment system for business, such as no transaction fees.

Alipay also offers free withdraw-to-bank for business users, for every transaction completed through the business QR code. A direct transaction to the business user's account would not be qualified for that benefit. The free withdrawal amount would expire one year after the original date of the transaction.

Although code scanning and paying would not generate any transaction fee, there is a 0.6% fee if the customers pay with Huabei, Alipay's buy now pay later service.

There is another option for users who wishes to avoid all the hassle — mobile payment systems by major banks in China, which would allow users to directly receive money in their bank accounts and avoid withdrawal fee.

For example, Quick Pass by China Union Pay has achieved interconnectivity with most of the major banks in China, as well as Alipay and WeChat Pay, allowing for mutual scanning and recognition.

Previously, despite Quick Pass rolling out many promotions such as "10 yuan off an 11 yuan purchase" and "1 cent bus rides", many did not embrace the mobile payment system. The reasons are threefold: 1. Before interconnectivity was achieved, Quick Pass was not considered convenient. 2. WeChat Pay and Alipay are already sufficient for daily use. There is no need to find alternatives. 3. Just like most mobile payment systems by banks, Quick Pass offers T+1 payment arrival (1 business day after the initial transaction) instead of instant arrival, with a 0.38% transaction fee.

Payment aggregation, also known as the fourth party payment system, is also affected by the regulation. Lakala, one of China's most prominent payment aggregation service providers, saw its stock price rise by 18.02% on November 26, after the People's Bank of China's regulation went viral on Weibo. Lakala offers diverse payment solutions, supporting WeChat Pay, Alipay, digital RMB, card swipe, facial recognition, and NFC. 

According to Lakala's response to Shenzhen Stock Exchange's attention letter, the new regulation will prompt users to switch from personal QR codes to business QR codes or payment aggregation services, thus opening up market share for players like Lakala.