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PBOC declares to strictly rectify the third-party payment industry or confiscate certain licenses for acquiring business

At the fourth meeting of the first council of the Payment & Clearing Association of China convened on the afternoon of January 21st, the Vice President Liu Shiyu of PBOC claims to strictly rectify the third-party payment industry, and that the solutions to such risk event don’t exclude confiscation of the acquiring business licenses from the third-party payment agencies that are severely involved in the recent credit card cash incidents.

According to the statistics of PBOC, among 250 enterprises that are endowed with the third-party payment license at present, 45 enterprises are granted with acquiring qualifications, among which 28 enterprises operate “nationally” and they will become the owners of the general national acquiring licenses in the near future. However, worries arouse amidst the industry that the credit card incident may slow down the progress of the general national acquiring license grant. This may trigger the reshuffle of the third-party payment industry ahead of schedule.

In the month at the turn of the year, some card holders in Zhejiang, Fujian and other provinces colluded with some merchants who supported pre-authorized transactions and conspired for extra credit limits of card-issuing banks by means of depositing large overpayments into the credit card and utilizing the business characteristics that the payment by acceptance is required in the pre-authorization completion transactions within 115% of the pre-authorized amount. ICBC and CUP have reported the case to the public security departments.

An overrun of 15% will be allowed if the POS machines permit pre-authorization, for example of the credit card with a 20,000 limit, if the user deposits one million, the credit limit will increase to 1.15 million. Some cardholders may utilize this rule to make cash advance, the amount of which is proportional to the credit limit of the bank-issued credit card. The authoritative statistics of the amount involved is not available currently. In this regard, the agencies under the supervision of PBOC and CBRC are required by PBOC and CBRC to report the data involved in the case.

The executive of a third-party payment company said to the Economic Observer that: “The core of this risk lies in the managements of credit card and pre-authorized POS machines, which needs banks’ attentions and the supervision of CBRC. CUP rules is one thing, but the most important is the omission of the card-issuing bank, whose verification of credit card issuer’s identity and due diligence of the POS machine risks are worth questioning.””

It is understood that the phenomena of long-term outsourcing of credit card market development and business transaction by some commercial banks, as well as blind pursuit of business scale while ignoring the risks may exist to some extent. If you search “credit card agency” on Baidu.com, the advertisements of various intermediaries, such as “credit card with high limit, 30 seconds online application”, “Free from complicated eligibility requirements”, “Beijing credit card agency”, “Zhuhai credit card agent + QQ number”, will pop up. The story that “someone once took a sack of identity cards of migrant workers to apply for credit cards” often spreads in this industry.

The executive believes that the third-party payment industry is “wronged as Dou E”, and “we are required to be treated for the bank’s omission”. He argues that this risk event is “like a small sorcerer in the presence of a great one” if compared to bad loans of the hundreds of billions in steel trades. But the bankers of the commercial bank express to the Economic Observer that, the credit card risk exposure is insignificant if compared to that arising from the overall quality of bank loan assets, but some involved in the credit card cash advance this time are steel trade owners, and the credit card incident is the tiny trigger point of China’s credit risk and economic risk.

The issue of the fourth meeting of the first council of the Payment & Clearing Association of China is to review the work report and 2014 work plans, financial budgets and final account reports of the first council of the Payment & Clearing Association of China, and to authorize the secretariat to review and approve new members and conduct general elections of the council. During the meeting, the president Yi Huiman of ICBC is elected as the second Chairman of the Payment & Clearing Association of China, and the president Jiang Chaoliang of ABC will not be at the post of Chairman.

According to the data obtained from Hubei Province by the journalist of Economic Observer obtained from data and other incomplete statistical data, ChinaPNR and ICBC stand out because of largest amounts involved in the credit card incident respectively amidst the third-party acquirers and card-issuing banks. At the meeting, Yi Huiman believes that the main reason for this risk event is the loopholes of CUP pre-authorization rules are utilized by the criminals.