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China's regulators are striving to strike a balance between encouraging fintech development and offsetting financial risks, with the separation of payment firms and other types of business uppermost in their minds.
This was the policy that Yi Gang, Governor of the People's Bank of China, outlined at a virtual conference about fintech and the global payments landscape that the People's Bank of China and the Deutsche Bundesbank hosted on September 18.
He warned virtual conference-goers that some problems had developed as a result of fintech, "including a higher possibility of cross-product and cross-sector risk contagion, as payment institutions started to provide insurance, micro credit, fund management and other financial products, and possible market monopoly as well as lower efficiency in innovation due to the winner-takes-all effect of large fintech companies".
China's regulators, he said, are now requiring payment institutions to "refocus" on original payment business and separate payment instruments from other financial products. Second, they have doubled anti-monopoly efforts by publishing the Anti-Monopoly Guidelines for Platform Economy and mandating platform companies to ensure consumers' right to choose payment options. Third, they are asking platform companies to improve corporate governance and implement prudential regulatory requirements in conducting internet lending and deposit, insurance, and fund businesses.
Yi Gang extolled the usefulness of payment fintech in "financial inclusion", that catch-all term that describes the widening circle of people who use financial services, especially in developing countries.
"Greater use of electronic payment, mobile payment in particular, has made basic financial services more accessible. In some underdeveloped regions, we have underserved customers who are not covered by traditional financial institutions. Fintech companies can serve them because the marginal cost is low.
"The compound growth rate of non-bank mobile payment business in China, led by Alipay and WeChat Pay, was 75% between 2015 and 2019, with a mobile payment penetration rate of 86%."
