Central Bank Governor Yi Gang’s latest remarks on “payment supervision”

Mobile Payment Network News, on October 7, the Governor of the People’s Bank of China Yi Gang stated at the “International Conference on the Supervision of Large-scale Technology Companies at the Bank for International Settlements (BIS)” The penetration rate has reached 86%. The universal application of QR code payment methods eliminates the need for merchants to purchase acceptance terminals and other equipment, greatly improving the timeliness of payment and reducing transaction costs. China’s mobile payment and online payment rates do not exceed 0.6%, and users can also enjoy customized financial products when using electronic payment tools to collect payments.

In the past, payment institutions under Chinese platform companies were able to connect to hundreds of commercial banks and open accounts, which caused settlement finality problems and might even lead to systemic risks. Some platform companies violated regulations to invest the deposits deposited by customers in various types of financial assets. Platform companies have also nested credit services such as “huabei” and “borrowing” in the payment link to mislead consumers.

In 2016, the People’s Bank of China required to cut off the “two-two direct connection” between payment institutions and commercial banks in order to improve the transparency of payment transactions. Cross-commercial bank settlement must be completed through the infrastructure of the central bank. Since the end of last year, financial regulators have required that payment instruments be disconnected from other financial products on their platforms improperly, so that the payment business can return to its origins. In the future, we will continue to strengthen supervision in the payment field.

In response to unfair competition behaviors of platform companies in the payment field, large-scale Internet platform companies are encouraged to open and close the scene, giving consumers more choices in payment methods, thereby creating room for development for small and medium-sized enterprises.

The following is the full text of the speech:

Yi Gang: Supervision Practices of China’s Large-scale Technology Companies——Speech at the International Conference of the Bank for International Settlements (BIS) on the Regulation of Large-scale Technology Companies

Thank you Augustin for the invitation. I am very pleased to participate in the BIS International Conference on Supervision of Large-scale Technology Companies, and take this opportunity to share with you China’s regulatory practices on large-scale technology companies.

1. Driven by technological progress, China’s financial technology is booming

In recent years, emerging technologies such as artificial intelligence (A), big data (B), cloud computing (C), distributed accounting (D), and e-commerce (E) have gradually been deeply integrated with financial services, accelerating financial innovation, and New business formats such as mobile payment, online credit, and robo-advisors have been spawned. There are nearly 1 billion Internet users in China, laying the foundation for the use of financial technology. In 2019, 87% of Chinese consumers use fintech. At the end of 2020, Chinese-funded companies have occupied five of the world’s top 20 platform companies.

China’s financial technology continues to develop and innovate, reducing the cost of financial services. Driven by large technology companies, China’s mobile payment has developed rapidly, and the current penetration rate has reached 86%. The universal application of QR code payment methods eliminates the need for merchants to purchase acceptance terminals and other equipment, greatly improving the timeliness of payment and reducing transaction costs. China’s mobile payment and online payment rates do not exceed 0.6%, and users can also enjoy customized financial products when using electronic payment tools to collect payments.

Fintech has also improved the efficiency of China’s financial services. Chinese Internet platform companies creatively provide guarantees in e-commerce transactions to promote the rapid development of online consumption. In 2020, China’s online retail sales will reach 12 trillion yuan, a year-on-year increase of 11%. Internet platform companies are also in the process of developing Internet consumer credit and small business loan business, using big data technology to “portrait” users, and estimate the probability of default more accurately. While improving financing efficiency, the probability of default is maintained at Lower level. 

The development of financial technology has also effectively contributed to inclusive finance. In the process of business expansion, large Chinese technology companies objectively enabled remote areas, small and medium-sized enterprises and ordinary families to obtain more financial services, improved the efficiency of fund allocation, and promoted economic development. With the empowerment of digital technology, the entire process of credit approval and risk control can be digitized and online, reducing reliance on collateral, and better meeting the small, frequent, and urgent financing needs of small and micro enterprises. As of the end of July this year, inclusive small and micro loans have supported more than 38 million small and micro business entities, which has effectively promoted employment. The cumulative grant of microfinance for poverty alleviation nationwide has exceeded 710 billion yuan, which is sustainable as a whole.

2. The continuous development of financial technology has also brought new challenges to the Chinese regulatory authorities

One is to engage in financial business without a license or beyond the scope. When conducting various services such as e-commerce, payment, and search, China’s top platform companies obtain massive amounts of information on users’ identities, accounts, transactions, consumption, and social interactions, and then identify and judge personal credit status. The cooperation of institutions in credit business is equivalent to the development of personal credit investigation business without permission. The top platform companies provide financial services such as wealth management, credit, and insurance under the same platform, which magnifies the possibility of cross-product and cross-market contagion of financial risks. 

Second, there are violations of the payment business. In the past, payment institutions under Chinese platform companies could connect to hundreds of commercial banks and open accounts, causing settlement finality problems and possibly even systemic risks. Some platform companies violated regulations to invest the deposits deposited by customers in various types of financial assets. Platform companies have also nested credit services such as “huabei” and “borrowing” in the payment link to mislead consumers.

The third is to carry out unfair competition through monopoly status. Platform companies naturally have the attribute of “winner takes all”, which may trigger market monopoly and reduce innovation efficiency. Some domestic platform companies seize the market through cross-subsidies and other methods, and after gaining market dominance, they implement exclusive policies, such as excluding competitors from entering the platform and providing services. The QR code payment business only supports the relevant APP scan code payment within the technology group. 

The fourth is to threaten personal privacy and information security. In order to obtain financial services from platform companies, Chinese consumers often need to provide them with personal information. Large-scale platform companies have excessive collection and even abuse of consumer information, which is not conducive to consumer information security and privacy protection. 

The fifth is to challenge the business model and competitiveness of the traditional banking industry. On the one hand, Chinese commercial banks have enjoyed significant traditional competitive advantages in terms of service scenarios and channels, customer information, and funds. In recent years, the rapid development of various innovative Internet financial products has created challenges for this and has accelerated the diversion of bank deposits. It is not included in the corresponding supervision. On the other hand, China has about 4,000 small and medium-sized banks with limited resources. They can only rely on technology and platforms provided by large technology companies for customer maintenance, credit analysis, and risk control, which may weaken customer acquisition capabilities and product competitiveness.

3. China’s regulatory response to large financial technology companies

In response to the above-mentioned challenges, China has continued to make up for the “shortcomings” of the regulatory system, and has successively introduced measures to promote the healthy and sustainable development of the platform economy. In this process, we have always adhered to the following three concepts: First, we have always adhered to the “two unshakable” and supported the healthy development of the private economy, the Internet economy, and the digital economy. The second is to continuously enhance policy transparency and predictability, protect property rights and intellectual property rights, protect privacy, and promote fair competition. The third is to adhere to the direction of marketization, rule of law, and internationalization, create a good business environment, expand high-level opening to the outside world, and strengthen international cooperation in scientific and technological innovation in the digital field.

Relevant measures are embodied in the following three regulatory practices: First, as a franchise industry, finance must be licensed to operate. The second is to establish an appropriate firewall to avoid the spread of financial risks across departments and industries. The third is to disconnect the improper connection between financial information and commercial information to prevent the closed-loop effect of “data-network effect-financial business” from creating monopoly.

In terms of payment business, in 2016, the People’s Bank of China required to cut off the “two-two direct connection” between payment institutions and commercial banks in order to improve the transparency of payment transactions. Cross-commercial bank settlement must be completed through the infrastructure of the central bank. Since the end of last year, financial regulators have requested that payment instruments be disconnected from other financial products on their platforms improperly, so that the payment business can return to its origins. In the future, we will continue to strengthen supervision in the payment field.

In terms of prudential supervision, in September 2020, we established a financial holding company management system, requiring platform companies that carry out financial business to establish financial holding companies in accordance with the law, and include all institutions engaged in banking, securities, insurance and other financial activities within the group as financial holding companies Supervision. This helps to implement the requirement to separate financial services from technology services. In the next step, we will implement the supervision of financial holding companies, implement consolidated management, regulate connected transactions, and strengthen prudential supervision.

Financial services must be licensed to operate. In carrying out financial services , platform companies should follow the principle of “same business, same supervision”. The People’s Bank of China requires platform companies to fully divest themselves of businesses related to personal credit reporting, and provide credit information services to financial institutions through licensed personal credit reporting agencies, turning information monopoly into information sharing. In the next step, we will continue to improve the relevant systems and implement the licensed operation of financial services such as personal credit investigation.

In terms of strengthening anti-monopoly supervision and maintaining fair competition order, China issued anti-monopoly guidelines in the field of platform economy in 2021 to strengthen anti-monopoly and prevent the disorderly expansion of capital. In response to unfair competition behaviors of platform companies in the payment field, large-scale Internet platform companies are encouraged to open and close the scene, giving consumers more choices in payment methods, thereby creating room for development for small and medium-sized enterprises. In the future, we will give full play to the supervision of anti-monopoly authorities to curb monopolistic behavior that abuses market superiority, and actively respond to new types of monopoly issues such as algorithmic discrimination. 

In terms of strengthening data protection and protecting consumers’ rights and interests, since 2016, China has successively promulgated the “Cyber ​​Security Law”, “Data Security Law” and “Personal Information Protection Law” to regulate information collection and the “Overlord Clause”, and urge financial institutions Collect, use and keep user information in strict accordance with the principles of lawfulness, fairness, and minimum necessity, and fully protect personal privacy and consumers’ rights to know, consent, object, and complaint. The People’s Bank of China has just issued the “Administrative Measures for Credit Investigation Services”, which regulates the protection of personal information and the legitimate rights and interests of information subjects in the field of credit investigation. In the next step, under the premise of ensuring personal privacy and data security, we will explore the realization of more accurate data confirmation, more convenient data transactions, more reasonable data use, and continue to stimulate the vitality of market players and technological innovation capabilities.

The current vigorous development of the digital economy is having a profound impact on economic and social development, production and lifestyles, and global governance systems. In the era of digital economy, the integrated development of finance and technology is a global trend. Technology for Good is an inherent requirement of the community with a shared future for mankind. How to improve the innovation capability of the financial industry while preventing negative effects is a common challenge faced by all countries. . We are willing to actively participate in the formulation of digital international rules, further strengthen cooperation with BIS and other international organizations and countries in anti-monopoly, strengthen financial supervision, strengthen data protection and protect consumer rights and interests, adhere to scientific and technological ethics, truly protect fairness and promote innovation , Reasonably define digital property rights, and achieve inclusive growth.

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