Almost 8 years after its promulgation of the Measures for the Administration of Payment Services by Non-Financial Institutions (NFI Payment Service Measures), the People's Bank of China (PBOC) nnounced on 21 March 2018 that foreign institutions intending to provide electronic payment services to parties in the territory of the People's Republic of China (PRC) in respect of their domestic transactions and cross-border transactions can set up locally-incorporated subsidiaries in the PRC and apply to PBOC for the Payment Service Permit in accordance with the NFI Payment Service Measures.

Prior to this announcement, only two foreign-invested enterprises in China were licensed by PBOC, and their payment services are limited to prepaid card issuance and acceptance business. Hence, this brief announcement issued by PBOC (Announcement No. 7) signifies its formal opening up of foreign investment in electronic payment market in China.

What forms of electronic payment services are opened up to foreign investment?

Under the NFI Payment Service Measures, (a) Internet payment, (b) issuance and acceptance of prepaid cards, (c) bankcard acquiring, and (d) other types of payment services as determined by PBOC may be provided by non-financial institutions that are licensed by PBOC. "Electronic payment" is not a defined term used in the NFI Payment Service Measures or the Measures for the Administration of Internet Payment Services of Non-Banking Institutions issued by PBOC in 2015 (Internet Payment Measures). Although electronic payment is defined in the Electronic Payment Directive issued by PBOC in 2005, only commercial banks licensed in China, as opposed to non-banking payment institutions regulated under the NFI Payment Service Measures, were intended to comply with this directive.

Hence, it is not entirely clear if foreign institutions will be permitted to establish subsidiaries in China to conduct all forms of Internet payment services (which are defined under the Internet Payment Measures to broadly include payment services provided involving use of computers, mobile terminals or other electronic devices such as Internet payment, mobile payment, landline payment, digital television payment and other network-based payment services). Notwithstanding the lack of clarity, it is highly likely that foreign-invested payment service providers approved by PBOC will be =able to offer payment services through websites and mobile devices.

What are the general principles concerning establishment of foreign-invested electronic payment service providers in China?

Three general principles are stipulated in Announcement No. 7 concerning foreign-invested electronic payment service providers that operate electronic payment services in China:

  1. they must deploy business operating systems and disaster recovery (1)systems that are secured, compliant and capable of processing payment services independently;
  2. they must store, process and analyse personal information and financial (2)information collected and generated within the territory of the PRC domestically; transfer of such local personal information and financial information to overseas for the purpose of conducting cross-border payment services must be consented by data subjects and comply with laws, regulations, rules and stipulations of the relevant regulatory authorities, and overseas entities (receiving or processing such information) must be required to undertake corresponding confidentiality obligations; and
  3. they must abide by the regulatory requirements imposed by PBOC on (3)non-banking institutions in terms of corporate governance, daily operations, risk management, handling of funds, centralized deposit and emergency arrangement.

The first two principles concerning business infrastructure and information storage generally mirror the same stringent requirements stipulated by PBOC for foreign-invested bankcard clearing and settlement institutions and reflect the data localization and cross-border data transfer rules of the PRC Cybersecurity Law concerning operators of critical information infrastructure.

The third principle is reflective of the principle of "national treatment" that PBOC purported to be applicable to foreign-invested electronic payment service providers in the official Q&A released on the same day when Announcement No. 7 was promulgated.

What are the qualifications for foreign institutions intending to set up electronic payment service subsidiaries in China?

According to the NFI Payment Service Measures, an investor who will exert actual control over a license payment service provider or own 10% of the shares or equity interests of a licensed payment service provider will be considered a "major investor" and shall satisfy the following qualifications:

  1. it is a duly-established limited liability company or joint stock company;
  2. as of the date of application to PBOC, it has been continuously providing (2)information processing support services to financial institutions or information processing support services for e-commerce activities for more than two years;
  3. as of the date of application to PBOC, it has been profitable for two (3)consecutive years; and
  4. it has not been subject to punishment due to conducting law-breaking or (4)criminal activities by use of payment business or provide payment business for law-braking or criminal activities in the last three years.

By applying the national treatment principle, these qualifications concerning a major investor of a payment service provider shall be equally applicable to foreign institutions planning to apply to PBOC for the establishment of an electronic payment service subsidiary.

Aside from these statutory qualifications on the major investor, foreign institutions would also need to demonstrate to PBOC that the general requirements on business infrastructure and information storage as stipulated under Announcement No. 7 as well as other regulatory requirements such as adoption of anti-money laundering policies and measures would be satisfied.

What is the foreign shareholding permitted by PBOC?

On the face of Announcement No. 7, it seems that PBOC intends to allow qualified foreign institutions to establish wholly foreign-owned subsidiaries to conduct electronic payment services in China. However, as provision of electronic payment services would inevitably involve operation of an online portal or platform as well as relevant connected infrastructure in China, the regulatory licensing requirement concerning provision of value-added telecommunications services and the corresponding restriction on foreign ownership would also have impact on the foreign ownership in electronic payment service providers they invest.

Currently, the majority of the Internet payment service providers licensed by PBOC hold the operating license for value-added telecommunications services concerning "online data processing and transaction processing services" (ODPTP License) and/or "internet information services" (ICP License). Although qualified foreign investors are permitted to set up wholly-owned subsidiaries in China and apply for the ODPTP License for the operation of a marketplace platform for e-commerce activities involving physical goods, it remains unsettled if the ODPTP License available to wholly foreign-owned enterprises would also extend to operation of a platform or portal for provision of electronic payment services . If the ODPTP License does not cover operation of a platform or portal for provision of electronic payment services, then due to the current rules that foreign ownership in entities holding the ODPTP License or the ICP License is capped at 50%, it would effectively prevent foreign institutions from setting up wholly-owned subsidiaries to legally operate electronic payment services.

Additional authorization for provision of electronic payment services in respect of cross-border e-commerce transactions?

Currently, only a few Chinese domestic payment service providers holding the Internet payment permit issued by PBOC are allowed by the State Administration of Foreign Exchange (SAFE) to provide payment services in respect of cross-border e-commerce transactions under the relevant pilot program. Fewer Chinese domestic payment service providers have obtained special blessing from the local offices of PBOC to provide RMB-denominated payment services in respect of cross-border e-commerce transactions.

Although Announcement No. 7 generally provides that foreign-invested electronic payment service providers may provide relevant services in respect of cross-border transactions, it remains to be tested if foreign-invested electronic payment service providers established pursuant to Announcement No. 7 will be able to receive a free pass to participate in such "special" program for cross-border e-commerce transactions or will have to seek another special approval from SAFE and/or PBOC before they can actually provide electronic payment services for cross-border e-commerce transactions.


PBOC's announcement is certainly a positive movement toward opening up of foreign investment in the payment service sector where foreign investment had been almost impossible. However, the online payment market in China is already saturated with a number of very powerful domestic service providers who also operate their own or invested online platforms, portals and channels. Even if PBOC is willing to "create a fair environment for competition" as stated in its official news release, it may still be quite challenging for new market entrants with foreign investment to compete with these domestic service providers.

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