On May 26, a group celebration occurred among 27 third-party payment enterprises. After six years of prolonged waiting, the central bank finally issued "Payment Business Licenses" (commonly known as "payment licenses") to third-party payment enterprises. This signifies that third-party payment enterprises, originally considered "grassroots," have finally received formal national recognition. This has profound implications for the development of China's financial settlement market and the perfection of the financial service system. Upon the release of this news, a batch of mobile payment concept stocks and information security-related individual stocks strengthened.
The acquisition of the license also marks a turning point for the development of the third-party payment industry.
### Formal Recognition
In June 2010, the central bank officially released the detailed rules of the "Management Measures for Payment Services by Non-financial Institutions," marking the countdown for the inclusion of the third-party payment industry into the national regulatory system. Electronic payment companies submitted their applications for the license accordingly.
At that time, the third-party payment industry had already been developing for six years. During these six years, third-party payment companies were in an awkward position regarding their "identity" because their business involved fund settlement, but they themselves were "non-financial institutions."
Take Alipay as an example. When Taobao was established, the issue of trust between buyers and sellers was unresolved. Alipay partnered with banks, allowing buyers to transfer money to Alipay first, then sellers would ship the goods. Once the buyer received the goods satisfactorily, the money would be paid to the seller. Through this guaranteed transaction model, the initial challenge of trust in electronic commerce payments was resolved.
With the rapid development of e-commerce, third-party payment companies sprang up like mushrooms after rain. Some of these companies provided payment services based on their own businesses, while others acted as technical providers, offering payment channels for other e-commerce websites or enterprises and individuals with payment needs.
The core business model is inevitable: Third-party payment enterprises collaborate with banks to create technical interfaces, transforming themselves into payment platforms. Merchants requiring electronic payment services can use these third-party payment platforms to provide payment services to their users without needing to negotiate with all banks individually. In this process, third-party payment enterprises charge a service fee of 1% to 3% as their revenue.
Because banks cannot provide mutual interfaces, a large number of users require payment services across different bank cards. Additionally, many merchants have varied payment needs. Banks are institutions that offer standardized financial services and cannot meet the personalized payment solutions required by countless enterprises individually. Third-party payment enterprises, whose core business model focuses on providing payment platforms and payment solutions, have found their market in the gap between the services banks can offer and the needs of merchants.
Meanwhile, third-party payment enterprises with different business models have also emerged, such as personal payment represented by Alipay and Tenpay, and industry solution-focused or B2B transaction-oriented third-party payment enterprises like Yibao Payment, Kuaiqian, and Huifu Tianxia.
With the rapid development of e-commerce, the penetration rate of domestic third-party payment applications in traditional industries has increased sharply since 2005. According to a report published by Analysys International in 2010, the scale of the domestic third-party payment market reached 454.6 billion yuan in the first half of the year, growing 33% quarter-over-quarter and 89% year-over-year. By 2012, China's online payment market size could reach 1.6 trillion yuan.
Tang Bin, CEO of Yibao Payment, pointed out that the positioning of third-party payment enterprises has evolved from simple fund settlement platforms to diversified resource integration platforms that connect various links in the industrial chain and upstream and downstream industries.
Despite the rapid development of third-party payments, the "gray" identity of non-financial institutions engaging in financial business has always troubled these enterprises. Issues such as capital accumulation and credit card cashing through third-party payment platforms frequently surfaced. For the past six years, these enterprises have been in a precarious situation.
The issuance of licenses not only "formally recognizes" third-party payments but also has far-reaching significance for China's financial service system. Zhang Kuanhai, Director of the China Payment System Core Center and Associate Professor at the School of Economic Information Engineering at Southwestern University of Finance and Economics, stated that the payment system is a financial infrastructure that provides payment clearing and settlement services to society, supporting the transfer and flow of funds in social economic activities. With the issuance of payment licenses, in the future, more entities such as banks, UnionPay, third-party payment companies, and telecommunications suppliers will participate in the construction of the payment system, gradually improving the financial service system.
### Industry Restructuring
It is understood that the central bank used methods such as document review and on-site inspections to issue the first batch of "payment licenses." The overall number of licenses will not be limited. However, upon comparing the list of companies that had previously applied, it was discovered that five companies did not make the cut. Among them, Lian Dongsheng (a joint venture between China Mobile and China UnionPay) and Shanghai UnionPay (a subsidiary of China UnionPay) being excluded surprised the industry.
Analyst Zhang Meng from Analysys International analyzed that from the perspective of the first batch of licensed companies, the central bank places greater emphasis on the "systemic importance" of payment enterprises, including operating levels, profitability, management structure, risk prevention, etc.
Industry insiders pointed out that the issuance of licenses eliminates the distinction between "national team" and "non-national team" payment enterprises, affirming the market position of scaled enterprises. This lays the foundation for industry restructuring.
According to the "Management Measures for Payment Services by Non-financial Institutions" announced by the central bank and implemented starting September 1, 2010, non-financial institutions already engaged in payment services must apply for a "Payment Business License" within one year of the implementation of these measures. Those who fail to obtain the license by the deadline will no longer be allowed to continue their payment business. In other words, September 1 of this year is the "deadline" for third-party payment enterprises to acquire their licenses.
Previously, Tang Bin told the China Business Journal that he did not rule out the possibility of acquiring other payment enterprises. Although the central bank did not impose restrictions on the nature of third-party payment capital, it made strict regulations regarding registered capital and applicants. Under these dual constraints, small payment enterprises that do not meet the registered capital requirements may seek financing from larger enterprises with stronger capital capabilities. The third-party payment industry may experience a wave of mergers and acquisitions. Industry insiders estimate that half of the payment enterprises may disappear.
Additionally, despite the rapid development of third-party payment enterprises, capital entry has been quite cautious. Industry insiders predict that after the issuance of licenses, third-party payment enterprises will become the focus of capital pursuit. It is also not impossible that third-party payment enterprises may go public consecutively within the next two years.
### Market Penetration
The significance of the license goes beyond just resolving identity issues. Currently, China's third-party payment sector has a huge market prospect, but its biggest competition comes from traditional payment methods.
The long-term "gray" identity has restricted the development of this industry. Zhou Ye, President of Huifu Tianxia, once told reporters that due to the lack of proper identity, some traditional enterprises do not fully trust third-party payments, increasing the difficulty for third-party payment companies to develop industry clients.
"After issuing the license, the change in the payment landscape will not only occur within the third-party payment industry but will also profoundly impact the competition between the entire electronic payment industry and traditional payment methods. Despite cooperation with traditional enterprises, due to licensing issues, many large state-owned enterprises still feel the absence of a 'peace of mind.' The issuance of licenses actually legitimizes those larger, credit-worthy third-party payment enterprises, making many large traditional industries and state-owned enterprises more accepting of this emerging payment method," Tang Bin pointed out. While the market effect may not be immediate, in the long term, some large state-owned enterprises may accelerate their introduction of cooperation with third-party payments.
It is understood that industry application-focused enterprises such as Yibao Payment, Kuaiqian, and Huifu Tianxia mainly began their industry user expansion from the aviation industry, which was one of the earliest traditional industries to undergo electronic transformation.
In recent years, enterprises like Yibao Payment have started expanding their businesses into areas such as insurance, funds, logistics, and education. After the issuance of licenses, third-party payment enterprises will penetrate more industries.
In addition to penetrating traditional industries, different payment enterprises will gradually penetrate into both enterprise and individual user markets. Guan Guoguang, CEO of Kuaiqian Company, pointed out that two directions of the payment industry’s landscape are gradually becoming clear: user stickiness platforms represented by Alipay and Tenpay, and open platforms represented by Kuaiqian and Yibao Payment. In the future, the mutual penetration pattern of serving users and enterprises will become clearer. Payment enterprises represented by Alipay and Tenpay will shift their strategy development from relying more on their own resources to serve users towards serving enterprises. Payment enterprises represented by Kuaiqian have established strategies to tailor payment services for enterprises while also expanding services targeting individual users.
#### Related Reports:
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- Delayed Third-party Payment Licenses Highlight Homogenization Issues of Alipay-like Companies