For a long time now, China has maintained very tight control over its payment industry and this Announcement certainly fulfills its promise to further open up the financial services sector to foreign investors who have been waiting to enter the China market for almost a decade. The opening-up of China’s payment business to FIEs under the PBOC Announcement is welcome news for foreign investors in the payment industry.
However, the Chinese market has in the last decade cultivated three giant domestic payment institutions including AliPay, Tenpay (used by WeChat users) and Union Pay which collectively own almost 90% of the current payments market. Clearly, it will be challenging for FIEs to secure a decent market share with this level of local competition. It is likely that the real opportunities coming from this Announcement will be in the cross-border payments market. In addition, the cyber security requirements, especially the restrictions on cross-border data transfer under the Cybersecurity Law, pose compliance challenges to payments service providers.
While this regulatory change is a welcome development for foreign investors in the cross-border payments space, careful analysis is advisable before a foreign investor decides to make a significant investment in the China payments market.
Prepared by Sun Hong (Partner, Shanghai), Barbara Li (Partner, Beijing), Ai Tong (Senior Associate, Shanghai) and Jane Wang (Associate, Beijing) of Norton Rose Fulbright LLP