A number of recent events in the Chinese payments industry suggest that the duopoly that includes Ant Group and Tencent could be shaken.
Following the sudden cancellation of Ant's public sale and a government directive to reform the business, Chinese authorities sent another message this week signaling their plan to curb concentration in the burgeoning digital payments industry.
The series of draft rules, designed to settle non-bank payments and released by the People's Bank of China (PBOC) this week, said that any non-bank payment processor with more than a third of the non-bank payment market or two companies with a overall half of the market could be subject to regulatory warnings from the anti-monopoly authority of the Council of State.
Meanwhile, a single non-bank payment provider with over half of the digital payments market or two companies with a total of two-thirds of the market could be examined to see if they constitute a monopoly.
The difference between the two rules is blurred here, with the second clause focusing digital payments as opposed to non-bank payments in the first.
Additionally, the rules did not specify how authorities measure an organization's market share, such as whether the judgment is based on an entity's total transaction value, its transaction volume, or other metrics.
Alipay processed more than half of China's third-party payment transactions in the first quarter of 2020, according to market researcher iResearch, while Tencent handled nearly 40% of payments over the same period.
As China increases control over its payment giants, it is also opening up the financial market to international players. In December, Goldman Sachs moved in to take full ownership of its Chinese joint venture. This month, PayPal became the first foreign company with 100% control of a payment business in China after acquiring the remaining stake in its local payment partner Guofubao.
Industry insiders told ProWellTech that PayPal likely won't chase the domestic payment giants, but could instead explore opportunities in cross-border payments, a market with established players like XTransfer, founded by a team of Ant veterans.
Ant and Tencent also face competition from other Chinese Internet companies. Companies ranging from the Meituan food delivery platform, to the Pinduoduo and JD.com ecommerce platforms, to the parent company of TikTok ByteDance have introduced their own e-wallets, although none of them posed an imminent threat to Alipay or WeChat Pay. .
The PBOC's comprehensive proposal also defines how payment processors handle customer data. Non-bank payment services need to store certain user information and transaction history and work with the relevant data control authorities. Companies are also required to obtain user consent and clarify to customers how their data is collected and used, a rule that reflects China's broader effort to crack down on unscrupulous data collection.