New payment rules from PBOC

The People's Bank of China (PBOC) unveiled a new raft of policies aimed at preventing the misuse of online payment money by third-party payment service providers.

To minimize fraud risk, shoppers paying for goods or services online typically deposit their payment funds - known as buyers' provisions in industry terms - with a third-party payment institution which later remits the money to the seller once the transaction clears on the customer's end.

Under the PBC's latest rules, which were published Sunday on its official website, independent payment service providers are now required to keep buyers' provisions in full until the transactions are finalized. The central bank also stated that these funds are only to be directed toward business operations authorized by buyers.

Although China's voracious appetite for e-commerce has supported a thriving market for payment services, top financial authorities only began devoting special attention to this immensely lucrative market relatively recently, Wang Weidong, a third-party payment analyst with iResearch, explained to the Global Times.

In June 2010, the PBC issued guidelines explaining how it would regulate institutions engaged in online payment and transaction settlement. This outline also established policies on licensing requirements and profit collection for payment service institutions.

"The PBC's pervious moves were designed to put the third-party payment market under regulatory oversight - yet they failed to impose supervision over buyers' provisions," Wang said.

China's third-party payment institutions settled 3.8 trillion yuan ($619.4 billion) in online transactions in 2012, nearly triple the previous year's turnover, according to figures from Analysys International, a Beijing-based IT consultancy.

Drawing encouragement from the strength and scale of the country's online shopping market, hundreds of firms have clamored into the payment industry, explained Wang, who went on to explain that many of these businesses have defaulted on payments at one time or another.

Of the 223 domestic financial and non-financial institutions currently authorized to conduct third-party payment services, 90 percent have reported instances of embezzlement of buyers' provisions, according to figures issued Sunday by the PBC.

As Wang told the Global Times, the majority of China's payment firms haven't done an adequate job separating their own capital from buyers' provisions, which has made it easy for them to use funds awaiting settlement confirmation for their own investment and financing purposes.

The PBC's latest rules also require payment institutions to submit reports covering buyers' provisions to the central bank on a regular basis.