China bans virtual credit cards, hitting Tencent and Alibaba

China bans virtual credit cards, hitting Tencent and Alibaba

Summary: The central bank also halted Quick Response (QR) codes transactions and other face-to-face cashless mobile payment services, leading stocks slump among Tencent and China Citic Bank on Friday.

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The People's Bank of China on Friday issued a statement which halts virtual credit card issuance and face-to-face cashless mobile payment services such as QR codes, according to 21st Century Business Herald

The issuance of virtual credit cards, unlike the existing credit card business model, will require further studies on "customer identification" and "information protection", it said. To maintain the stability of the payment system and protect the legitimate rights and interests of customers, the central bank will conduct overall assessment on compliance and security upon its issuance, an official central bank statement said, according to a NetEase report.

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Regulators also described QR codes payments as "unconventional" to the traditional terminal-business model, which will risk customers information security as well as financial security.

The central bank;s decision will hit Chinese Internet giants Tencent and an affiliate of Alibaba Group.

On March 12, both announced plans to further step into the country's financial services industry by launching a new a virtual credit card that will be embedded in their mobile wallet apps.

Both Tencent and Alibaba chose China Citic Bank to operate the innovative financial product. Alibaba planned to offer 1 million cards and Tencent was due to issue even more. Share prices of the bank then surged by its 10 percent daily limit the following day.

However, the immediate ban from the central bank has now caused a huge dip in the stock prices of Citic Bank and Tencent. Citic Bank slumped as much as 8 percent on Friday while Tencent decreased by 5 percent in the intraday closing. Alibaba is privately owned.

Topics: Banking, E-Commerce, China

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