Waiting for a signal
The crackdown on the market has raised questions on the future of third-party transactions in China as well as the nature of UnionPay itself.
At the end August, Alipay shutdown its point-of-sales payment processor, an offline service, for “obvious reasons,” the company said on its microblog. While it said it would eventually resume the service, the move has been interpreted as resistance against UnionPay’s encroachment on the market.
It’s yet to be seen how Alibaba will react to the deadline for incorporating online payments, a much larger segment of the market, into UnionPay. The company did not respond to questions regarding future regulation in the country.
Landing UnionPay in the center of the market has big implications for payment processing in China. If it succeeds in bring all third-party processors under its wing, prices for end-customers will climb. For companies such as Alibaba and Tencent, this will come amid other rising costs. Rottenberg at Maverick China noted that individual banks are also looking to increase the profits earned off the top of the burgeoning e-commerce market, squeezing the already small margins at the third-party processors.
The officials at UnionPay, who have now thoroughly wiped the sleep out of their eyes, are likely watching the regulatory environment develop just as closely as Alibaba. UnionPay operates similar to a private company and isn’t vested with policy-writing power. However, its attempt to close in on the market last month would give the company the appearance of a policymaker as well as a monopoly.
PBoC will have the final word on this – hopefully sooner rather than later.
The chances of the central bank standing up for third-party processors would be an acknowledgment of the market-making value of companies such as Alibaba. Given the cla
mpdown on MasterCard a few months ago, however, this seems unlikely.
Condoning UnionPay’s August ultimatum meanwhile would show what most industry watchers expect: That the state is determined to enrich itself on the backs of entrepreneurs no matter what the cost to the private sector.
Perhaps the most dangerous signal from the central bank is none at all, deferring de facto decision-making authority on UnionPay. If the state-run firm can stay alert, that would translate into room to swallow up other emerging segments of the financial market the moment they prove profitable.