WeChat’s newly announced e-credit card service sparked a flurry of discussion of its impact on the future of e-commerce in China, but all that has come to a halt with the Chinese government’s ban on virtual credit cards.
Both WeChat owner Tencent and Alibaba were diving into mobile payments at full-force last week before the government put a stop to their efforts. Hours apart, the two competitors announced that they had both signed agreements with China CITIC Bank to launch electronic credit cards, which would have been available through Alibaba’s Alipay Wallet app or WeChat’s built in Tenpay payment system.
However, the People’s Bank of China, the country’s central bank, had other plans for the two internet giants. It announced on Friday a ban on payments through QR codes and virtual credit cards, meaning that their plans have been indefinitely put on hold for the time being. The reason provided was that the bank is reportedly asking the companies to submit detailed reports on their procedures, which are seen as more relaxed than those of other credit card companies in the country.
According to an explanation by Caixin, the e-credit cards would have much lower credit limits than typical cards, allowing users to make purchases on credit that would be paid later through a bank account. The companies had not yet released details about interest rates, expiration dates, and the length of payment periods, but with these low limits, the credit card application process would have been virtually instant. The report states:
WeChat will offer different levels of credit based on users’ shopping history. Those who have relatively poor credit ratings will receive cards with limits of 50 yuan or 200 yuan. People who have good credit worthiness will receive anywhere from 1,000 to 5,000 yuan in credit. The minimum on each Alipay card is 200 yuan and the maximum depends on the holder’s purchase and credit records.
Cardholders can use the Alipay e-credit cards to shop on Alibaba Group’s popular shopping websites Tmall and Taobao. Certain offline retailers will also support the virtual cards via bar codes and quick response (QR) codes, those small squares of usually black and white blotches that can be scanned using a phone’s camera, conveying information to an app.
Since information is sparse and neither company has commented on the issue, it’s not clear how long the ban will last. The central bank’s statement could simply mean that the companies need to submit more information to be approved. However, the bank might also be worried about the general risk and lack of regulation involved with this type of payment system. According to an expert interviewed by Bloomberg:
“The PBOC could be worried about payment risks involving QR codes,” said Wang Weidong, an analyst with Shanghai-based consultant IResearch. “As for the credit cards, a lot of the credit risk calculation is based on data provided by Tencent and Alibaba, so the central bank might be worried about their models.”
The central bank could allow such virtual credit cards after it reviews and steps up regulations, Wang said. Li Dongrong, deputy governor of People’s Bank of China, said March 3 the central bank is studying ways to regulate online finance.
For now, Tencent and Alibaba will have focus on their competitions in many other spheres, including social media, payment systems, and even banking.