PBOC licenses foreign payment firms

Shanghai Sodexo Pass Service Ltd and Edenred China - the Chinese subsidiaries of two French multinationals - have become the first foreign-funded companies licensed to offer third-party payment services in China, a breakthrough which experts say could pave the way for more foreign competition in the local payment market.

Shanghai Sodexo and Edenred China were among 27 companies that secured clearance from the People's Bank of China (PBOC) to conduct payment transaction operations, according to statements issued Wednesday by the central bank.

Specifically, the two businesses were given the greenlight to provide services related to the issuance and acceptance of prepaid cards - approvals to operate in the Internet and mobile payment markets remained reserved for local Chinese businesses.

"The central bank's decision provides these two companies with an important legal status in China which can be used to win more opportunities," Wang Weidong, a research fellow from iResearch, told the Global Times Thursday.

Shanghai Sodexo and Edenred China were established in 1999 and 2000 respectively, when the country's payment service market was still largely unregulated. As the market expanded, Chinese financial authorities began supervising and licensing payment providers in 2010. Although the PBC has been relatively liberal with market entry for homegrown companies, approvals were slower in coming for overseas-funded peers due to larger regulatory hurdles - foreign payment firms, for instance, are required to obtain the State Council's nod before seeking licensing credentials from the central bank.

"It's possible that more licenses will be given to overseas payment companies in the future now that the PBOC is showing that it is willing to let more of these outfits enter China," Zhang Meng, a third-party payment analyst at Internet consulting firm Analysys International, told the Global Times.

Zhang remarked that this latest round of approvals probably won't threaten local firms too much; especially since so much activity is now concentrated in the Internet payment market, which is still off-limits to Shanghai Sodexo and Edenred China.

The PBOC handed out its first batch of payment service licenses in May 2011. Since then, 250 third-party payment companies have been approved by the central bank to offer various services in the local market.

More than 10 trillion yuan ($1.63 trillion) in transactions were handled by local third-party payment firms in 2012, according to a recent report by the Payment & Clearing Association of China.