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на
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языке
)
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Ю.
А.
Шекихачева.
Нальчик:
Кабардино
-
Балкарский
государственный
универси-
тет
им.
Х.
М.
Бербекова,
2023. –
С.
54–59. – URL:
https://
https://www.academia.edu/120829416/DIGITAL_TRANSFORMATION_OF_THE_C
ONSTITUTIONAL_LEGAL_STATUS_OF_INDIVIDUALS_IN_THE_FIELD_OF_
(дата
обращения:
05.09.2024).
Li Jingrong,
Bachelor student,
Lanzhou University of Finance and Economics
Shawuya Jigeer,
PhD student,
St. Petersburg Polytechnic University
RISKS AND REGULATORY FRAMEWORK
OF THIRD-PARTY PAYMENT IN CHINA
Abstract.
Since the beginning of the 21st century, with the development of fi-
nancial technologies and rapid growth of e-commerce, third-party payment (such as
Alipay and WeChat Pay) has become a widely used payment method in China. Third-
party payment provides convenience to the economy and society, while there are po-
tential risks, which is forcing the introduction of regulation. This paper analyzes the
financial risks in the context of third-party payment and the regulatory measures
adopted so far, and proposes prospects for improving the effectiveness of regulation.
Keywords:
third-party payment, e-commerce, privacy, security, risk, risk pre-
vention, regulation
РИСКИ
И
РЕГУЛИРОВАНИЕ
СТОРОННИХ
ПЛАТЕЖЕЙ
В
КИТАЕ
Аннотация.
С
начала
XXI
века,
с
развитием
финансовых
технологий
и
стремительным
ростом
электронной
коммерции,
сторонние
платежи
(такие
как
Alipay
и
WeChat Pay)
стали
широко
распространенным
способом
оплаты
в
Ки-
тае.
Сторонние
платежи
обеспечивают
удобство
для
экономики
и
общества,
но
при
этом
существуют
потенциальные
риски,
что
вынуждает
вводить
регулирова-
ние.
В
данной
статье
анализируются
финансовые
риски
в
контексте
сторонних
платежей
и
принятые
на
данный
момент
меры
регулирования,
а
также
предлага-
ются
перспективы
повышения
эффективности
регулирования.
Ключевые
слова:
сторонние
платежи,
электронная
коммерция,
конфи-
денциальность,
безопасность,
риски,
предотвращение
рисков,
регулирование
Introduction.
Third-party payment refers to a payment service provided by a
non-banking institution for fund transfer, payment and settlement through the Internet
or mobile devices
[1;
2;
3]. With the development of financial technologies and the
rise of e-commerce, third-party payment has rapidly spread worldwide and become an
indispensable part of the modern financial system. In China, the competitive pattern in
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the payments industry can be summarized as a “2+1+N” structure: Alipay and WeChat
Pay account for nearly 60% of
transactions;
UnionPay provides key clearing and set-
tlement
services;
and a few third-party licensed payment companies are competing for
market share in this field. According to the statistics of China Internet Network Infor-
mation Center, the proportion of China's online payment user scale to the overall num-
ber of Internet users has stabilized at the level of over 85% in 2022. According to Mo-
bile Payment Network, China's third-party payment transaction scale will be 338 tril-
lion yuan in 2022.
Third-party payments have played a positive role in economic and social devel-
opment. Third-party payment has become an important part of e-commerce, effective-
ly solving the problems of high cost and lack of credit in e-commerce [4][5]. Third-
party payment is becoming increasingly important in the payment system, and the po-
tential risks brought by new technologies and business models have put forward higher
requirements for regulation. This paper analyzes the regulatory framework and poten-
tial risks of China's third-party payment industry by reviewing the relevant regulatory
framework, and proposes possible solutions to improve the effectiveness of regulation.
Main part.
1.
Development status and regulatory framework of third-party payment
1.1.
Current status of development of third-party payment
There is no unified definition of third-party payment in academic field current-
ly. The emergence of third-party payment is mutually relevant to the development of e-
commerce in the case of China. For e-commerce, electronic payment is an essential
and vital instrument. The emergence of the third-party payment service is in line with
the development of e-commerce, and is also one of the specific forms of online pay-
ment innovations. Alipay is one of the largest payment platforms in China, which was
introduced as a payment instrument for secured transactions to solve the trust issue
that hindered the development of e-commerce marketplace of Alibaba [6]. The third-
party payment service is based on large-scale online portals, and uses the credit of the
banks with which it cooperates as its credit guarantee
[7;
8]. In this context, third-party
payment refers to a payment service provided by a non-banking institution for the pur-
pose of transferring, paying and clearing funds via the Internet or mobile devices.
Third-party payment includes online payment and offline payment. Online payment is
usually used for e-commerce transactions, where users complete the payment through
the third-party payment
platform;
offline payment is mostly observed in physical
stores, where users complete the transaction through mobile devices. Figure 1 shows
China's third-party payment market share in 2023 [9].
The data of China's third-party payment market share shows that Alipay,
WeChat Pay, and UnionPay ranked the top three with market shares of 34.5 %, 29 %,
and 10.2 %, respectively, and the sum of the market shares of these three reached 73.7
%, indicating a high degree of concentration in the market.
According to the People's Bank of China presented in Figure 2, the transaction
scale of China's third-party payment operations grew from 99.27 trillion yuan in 2016
to 337.87 trillion yuan in 2022, and it is predicted that the scale of China's third-party
transactions will maintain its growth in the future, and is expected to reach 644 trillion
yuan by 2028 [10].
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Figure.
1.
China's third-party payment market share
Figure. 2. Transaction scale of China's third-party payment operations
1.2.
Regulatory framework of third-party payment
The growing importance of third-party payments in the payment system and
the potential risks associated with them make it necessary to include third-party
payments in the framework of financial regulation. China's third-party payment regu-
latory framework has a long process from absence to existence, from loose to strict
regulation.
Prior to 2010, China had no clear regulatory organization and regulatory
framework for third-party payment, and the third-party payment sphere was relatively
unorganized, with high level of risks associated with payments. In 2010, the People's
Bank of China (PBOC) promulgated the “Administrative Measures for the Payment
Services Provided.This clearly establishes that China adopts an institutional regulatory
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model for third-party payment institutions. The adoption of the regulation signifies the
beginning of the third-party payment legislation [11].
From 2010 to 2023, the People's Bank of China (PBOC), the China Banking
Regulatory Commission (CBRC), the State Administration of Foreign Exchange
(SAFE) and other financial regulators issued many relevant regulations and legisla-
tions to ensure that the third-party payment industry operates in a stable and prudent
condition. Table 1 summarizes China's main regulations and legislations related to
third-party payments.
Table 1
China's main regulations and legislations related to third-party payments
(source: collected by authors)
Regulations
Date
Main content
Administrative Measures for
the Payment Services Provid-
ed by Non-financial Institu-
tions
2010.06.14 The document clearly stipulates that third-party
payment institutions should submit applications
to the Central Bank for the issuance of payment
service license. It also requires third-party pay-
ment institutions to meet the qualifications for
registration, which raises the entry threshold,
and larifies the issue of attribution of customer
provisioning funds
Measures for the Supervision
and Administration of Com-
bating Money Laundering
and Financing of Terrorism
by Financial Institutions
2012.08.01 The document emphasizes that third-party pay-
ment institutions should set up a special anti-
money laundering and anti-terrorist financing
department to take charge of anti-money laun-
dering measures. Third-party payment institu-
tions are required to verify the authenticity of
users' identities
Measures for the Custody of
Clients' Reserves of Payment
Institutions
2012.06.07 The document clarifies the depository and use of
funds in transit, and strictly bans diversion by
third-party payment institutions
Announcement of the China
Banking Regulatory Com-
mission on the Results of the
Review of Regulatory Docu-
ments
2014.04.09 The document sets specific requirements in
terms of customer authentication, information
security, transaction limits, transaction notifica-
tion, liability for compensation, qualification and
activities of third-party payment institutions, and
risk management
Notice of the State Admin-
istration of Foreign Exchange
on the Pilot Cross-border
Foreign Exchange Payment
Business of Payment Institu-
tions
2015.01.29 The document specifies that payment institutions
engaged in cross-border payment activities are
subject to the supervision and administration of
the SAFE
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Regulations
Date
Main content
Administrative Measures for
Online Payment Business of
Non-bank Payment Institu-
tions
2016.07.01 Payment institutions are subject to classification
evaluation in accordance with the relevant regu-
lations of the PBOC and implement correspond-
ing classification and supervision measures
Notice of the General Office
of the People's Bank of China
on Matters concerning Im-
plementing the Centralized
Deposit of the Funds of Pend-
ing Payments of Clients of
Payment Institutions
2017.01.13 The document requires that, starting from April
17, 2017, payment institutions should deposit a
certain percentage of customers' provision funds
into a special deposit account of a designated
institution
Notice of the General Office
of the People's Bank of China
on Matters concerning Com-
plete Centralized Deposit of
the Funds of Pending Pay-
ments of Clients of Payment
Institutions
2018.06.29 The document stipulates that from July 9, 2018,
payment institutions will increase the centralized
deposit ratio of payment institutions' customer
reserve funds monthly, and achieve 100% cen-
tralized deposit by January 14, 2019
Notice of the General Office
of the People's Bank of China
on Matters concerning Im-
plementing the Centralized
Deposit of the Funds of Pend-
ing Payments of Clients of
Payment Institutions
2018.11.20 The document requires payment institutions to
revoke the customer provisioning accounts
opened in provisioning banks before January 14,
2019, and open “centralized provisioning de-
pository accounts” in the branch of the People's
Bank of China where the legal person is located
Regulation on the Supervi-
sion and Administration of
Non-Banking Payment Insti-
tutions
2023.12.09 The document is the first administrative legisla-
tion in China's payment industry, which raises
the level of non-bank payment supervision and
aims to comprehensively strengthen the supervi-
sion of non-bank payment institutions
Since 2010, with the rapid development of e-commerce and mobile payment,
the central bank has issued relevant regulatory legislations, issuing a large number of
licenses to encourage the development of the non-bank payment industry and officially
including non-bank payment institutions into the regulatory framework. With the in-
creasing number of users of non-bank payment institutions, more and more customers'
information is concentrated in these platforms, but compared with traditional banks,
non-bank payment institutions have more vulnerabilities in terms of customer infor-
mation management. As a result, regulators are gradually strengthening this aspect of
supervision to protect customer information security. The central bank stopped issuing
new licenses after 2015, and at the same time, introduced more strict rules to regulate
the development of the industry, with a particular focus on the safety of customer
funds and the security of personal information [11].
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After decades of development, China has established a payment and clearing
system centered on the central bank's payment and clearing system, with the joint par-
ticipation of commercial banks, clearing agencies and non-bank payment institutions,
which is widely accessible and efficient. China has implemented an institutional regu-
latory model in the field of third-party payments, but with the development of Internet
finance, the boundaries between various financial and non-financial institutions are
gradually becoming ambiguous, and the drawbacks of the institutional regulatory
model are gradually becoming apparent. In 2023, State council issued “Regulation on
the Supervision and Administration of Non-Banking Payment Institutions”, which is
the first administrative legislation in China's payment industry. The document provides
a clearer definition of the rights and obligations of all parties in the payment industry,
and enables the supervisory authorities to exercise their administrative functions in ac-
cordance with the regulatory framework [12] [13].
2. Risks Related to Third-Party Payments
2.1.
Inadequate regulation
Third party payments in China are regulated by the People's Bank of China.
However, due to its issuance of departmental regulations, the legal status of regulatory
regulations is low. This limits the strength of its regulation. This leads to inadequate
supervision and regulatory loopholes. In the regulatory system, there is the problem of
common supervision by multiple departments, which leads to poor coordination
among regulatory departments and unclear regulatory responsibilities. In addition, the
lack of uniform standards and norms for supervision makes it difficult to effectively
regulate the third-party payment industry [14].
Secondly, compared with the traditional financial industry laws and regulations
system, third-party payment as a new industry, rapid development. Targeted special
laws and regulations are still scarce and lagging behind. Although China has promul-
gated a "Management Measures" to make specific provisions on the access and super-
vision of third-party payment, it cannot meet the rapid development of Internet tech-
nology and the large-scale use of third-party payment, which has led to the emergence
of a variety of risk issues. It is impossible to prevent legal problems arising in the
third-party payment industry in a timely manner, and there are still a large number of
gaps in supervision [15]. At the same time, there are also some gaps and shortcomings
in the third-party payment regulatory rules in cross-border payment, risk prevention,
user information protection, which makes it difficult to fully protect the rights and in-
terests of users. Especially in cross-border payment, the regulatory regulations are
weak and difficult to regulate, and it is easy to have capital outflow and security loop-
holes.
2.2. Financial risk
Sinking fund risk. Sinking funds refer to unused idle funds in society. As an in-
termediary between buyers and sellers, the third-party payment platform always does
not have the ownership of the funds during the whole transaction process, but with the
continuous growth of the transaction scale, the amount of funds deposited on the third-
party payment platform becomes very huge [15]. As China's largest third-party pay-
ment platform, Alipay holds a large amount of funds that have not yet been timely
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transferred to the counterparty's account, and this large amount of funds is temporarily
stagnated in the Alipay system. The flow of large amounts of funds may be exploited
by some speculators to engage in malicious market manipulation and cause abnormal
market volatility. At the same time, the flow of a large amount of money may create
pressure on the market and affect market stability [16].
Cash-in disorder. Alipay relies on network electronic information technology,
but due to the virtual nature of the network, some users may maliciously use fake
transactions to cash out. This compromises users' personal information and causes
losses to users' private property [17].
2.3. Technology risk
With the rapid development of technology, hacker attacks, data leakage and
other security issues are becoming increasingly serious. If the technical protection
measures of online payment companies are not in place, they may suffer serious secu-
rity incidents, resulting in consequences such as leakage of user information and theft
of funds. In addition, technological upgrades may also pose a challenge to online pay-
ment companies, e.g., the application of new technologies may require companies to
invest a large amount of money in upgrading and transformation, while technological
failures may lead to difficulties for companies. Third-party payment platforms have
the commonality of survival based on financial technologies, the main causes of opera-
tional risk in the Fintech industry may also exist in these platforms [18][19].
3. Recommendations on Enhancing the Effectiveness of Third-Party Pay-
ment Regulation
3.1.
Establish a perfect legal system
Continuously improve the laws and regulations on third-party payment, clarify
the responsibilities and obligations of all parties, and provide legal protection for the
healthy development of the payment market. Establish a unified third-party payment
regulatory authority to specifically supervise the field, ensure the compliance of third-
party payment institutions and punish violations. Update laws and regulations on third-
party payment in a timely manner to ensure that there is a law to follow.
3.2. Supervision of funds
Regulatory authorities will supervise the clearing, custody and risk management
of third-party payment institutions. A firewall will be established between the deposit-
ed funds and the operating funds, and different financial institutions will be selected
for specialized supervision to prevent misappropriation of funds [20]. In strengthening
the management of reserve funds, it is necessary to clarify the legal ownership of the
precipitated funds and the fruits thereof, and to strictly control and screen the invest-
ment fields and investment directions of the precipitated funds, curb money launder-
ing, and strive to establish and improve the relevant legal supervision system [13].
The use of funds is strictly in accordance with the Bank's audit procedures to
improve the management of deposited funds. Second, third-party payment institutions
are required to keep users' funds in separate accounts from their own funds, and con-
duct regular inspections and reports to ensure the safety of funds and the smooth oper-
ation of clearing. At the same time, regulators will also review and guide third-party
payment institutions on risk management and contingency plans to ensure that risks
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can be dealt with in a timely manner when they arise, so as to safeguard the stability
and security of the market.
3.3. Technical assurance
The technical systems of third-party payment institutions are monitored and au-
dited to ensure that their systems are stable, reliable, secure and efficient. At the same
time, regulators may also use encryption technology to protect user information to en-
sure that it is not illegally accessed or misused.
Third-party payment plays an important role in e-commerce, and the govern-
ment should strengthen supervision and establish an appropriate regulatory system to
protect consumers' rights and interests. Regulatory authorities should strengthen the
formulation and adjustment of regulatory policies, improve the regulatory system and
unify the market order. Third-party payment platforms should strengthen internal risk
control management, increase technical investment, improve network security and en-
sure fund security. Only under the premise of achieving security, stability and compli-
ance can third-party payment achieve healthy, stable and comprehensive development
and play an important role in the e-commerce ecosystem.
Conclusion.
Third-party payments have played a positive role in economic and
social development. Third-party payment has become an essential part of e-commerce,
effectively solving the problems of high cost and lack of credit in e-commerce. The
rapid development of third-party payments poses significant regulatory challenges.
The financial innovation of third-party payment is bound to bring a lot of payment risk
problems. Therefore, it is necessary to seriously summarize, review and study the cur-
rent status of the development and regulation of third-party payment in China, so as to
provide practical evidence for the implementation of effective regulation. On the
premise of security, stability and compliance, we will help third-party payments devel-
op in a healthy, stable and comprehensive manner. Through joint efforts, we will re-
duce the risks of third-party payments and safeguard payment security and financial
stability.
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