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Online payment policy will help mix the old with the new

By Mike Bastin | China Daily | Updated: 2015-08-11 07:51

The People's Bank of China has unveiled a plan that will limit the size of transactions on third-party online payment systems such as Alipay. The central bank appears to have released this policy for public scrutiny in an attempt to beef up consumer security.

But an extremely important byproduct of this proposal appears to have been overlooked. This would involve a closer working relationship between third-party online payment systems and established banking brands. It could result in "co-branding", which would lead to a successful and symbiotic relationship between the old and the new.

Under the proposal, the amount people will be able to spend through third-party online payments per day will be limited to between 1,000 yuan ($161) and 5,000 yuan, depending on the sophistication of the system's security checks.

Platforms that have digital certification and signature qualification checks, however, will be exempt from the restrictions. Those with only one qualification check will be limited to 1,000 yuan per day. If the system has two or more checks, but does not have digital certification and signature procedures, the limit will be 5,000 yuan per day.

Crucially, in cases where consumers are planning to spend more than the amount allowed, the request will be transferred to established banking payment platforms to make up the surplus, according to the PBOC proposal.

It is this transfer from relatively new third party payment brands to traditional banks that could trigger moves to further modernize China's financial service industry. Co-branding initiatives, or at least increased cooperation between third party payment systems and banking brands, are likely to lead to an extremely effective payment process.

The relationships will also help traditional banks become more market-oriented and consumer friendly in this digital age. On a more general note, closer working relationships between Chinese companies, especially those seeking to grow internationally, will be key to the modernization plans taking place in businesses across the industrial spectrum.

In this case, a blend of the young, often entrepreneurial third party payment brands, and the more mature, but often out-of-touch, established banks, should prove a recipe for success. They will complement each other through their different skill sets.

Third party online payment systems also attract a younger Chinese consumer, who has become disenchanted with established banks. Any co-branding initiatives would, therefore, allow established banking brands to gain a far greater understanding of this new marketplace.

Younger third party payment systems could also infuse the more rigid, structured established banking procedures with innovation and creativity. This in turn could enhance international competitiveness.

Hopefully, the PBOC's limit on third party payments will become policy and will be implemented and enforced effectively in the near future. A raft of co-branding relationships across China's financial services industry is likely to follow.

Symbiotic alliances across industry in general should form a major part of the modernization and internationalization of Chinese companies. In time, this latest central bank policy proposal may be seen as a major contributing factor to that goal.

The author is a visiting professor at the University of International Business and Economics in Beijing and a senior lecturer on marketing at Southampton Solent University's School of Business. The views do not necessarily reflect those of China Daily.

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