Central Bank of China to set up clearing house for online payments providers

This measure is due to protect consumers and the financial system from an excessive use of internet-based payments which already accounts for 3% of the country’s non-cash payments.

The China National Clearing Centre, the Chinese central bank’s settlements and clearing arm, signed an agreement on July 28 to establish the platform’s operating company with 44 financial firms, including Ant Financial, Tenpay and UnionPay’s affiliate.

Banks and online payment systems must connect to the new platform by October 15, and be ready to route transactions through it from June 30, 2018. The new platform is the internet version of UnionPay’s clearing service for bank-to-bank transactions, while the new platform is for transactions involving third-party online payment firms and banks.

According to consultancy Analysis, the adopted measure is related to the current direct connection model which bypasses the central bank’s clearing system, making it difficult for regulators to track and monitor the capital flow of those payments, leaving loopholes for money laundering and other irregularities.

Under the current direct connection model, a payment firm is directly connected with a number of banks, being able to make de facto interbank payment.

Online payments through non-bank payment services expanded 60% in the Q1 of 2017 to 47 billion transactions valued at USD 3.9 trillion, 43% more than 2017, according to the central bank’s data.

The new platform has been tested since March 31 2017 to verify its functions and risk control measures, according to the Payment & Clearing Association of China.