China’s tech giants that are almost out of reach
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As mobile payments gain ground in China, the People’s Bank of China is moving to implement regulations that will require nonbank financial companies to provide greater information about financial flows. Indeed, it is thanks to two internet giants that Chinese consumers have increasingly been using their smartphones for settling all sorts of bills: debts between friends, dumplings at the local shop, moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More for the homeless and increasingly for loans.
Starting as an online Bazaar, Alibaba quickly launched Alipay, surpassing PayPal back in 2013. The other, known firstly as China’s most popular chat platform – WeChat – quickly became n°2 in mobile payments. These tech giants have quickly expanded their grip on consumers from retailing to financial services.
Not only have these platforms, who now share the mobile-payments market between themselves at 54% for the former and 40% for the latter, been able to avoid going through any clearance system usually required by the central bank for financial services providers, but they have also been able to grow their empires richer thanks to the data they collect on their users – in addition to the 0.6% they receive in merchant fees for each transaction.
The central bank has already showed its unease at the power and size Alibaba (Alipay) and Tencent (WeChat) have acquired in so little time. Just recently, the People’s Bank of China required AliPay to be more discreet during the cashless weeks it organised in the summer of 2017, in fear that its campaigns disrupt the country’s financial flow.
Without better regulation, there is a risk that capital flows through these mobile apps might be supporting money launderingThe operation of attempting to disguise a set of fraudulently or criminally obtained funds as legal, in operations undeclared to tax authorities, and therefore not subjected to taxation. Money laundering activities are strongly pursued by authorities and in most countries, there are strict rules for credit institutions to cooperate in the fight against money laundering operations, to declare and report any transactions that could be considered suspicious. More and fraud. In fact, although both Alipay and WeChat are always connected to the user’s bank account, the bank has no visibility on transactions when they are carried out via a third-party platform, like a mobile app. Also very surprising for a country where consumers generally despise debt, “short-term consumer credit in China soared 160% in the first eight months of 2017 from a year earlier” [paywall].
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