SHANGHAI — Chinese internet behemoths, Alibaba and Tencent, were caught off guard Friday by orders from the country’s central bank to halt payments via QR codes and virtual credit cards.
Both companies had been preparing to roll out virtual credit cards next week.
These products had claimed to involve a more relaxed credit approval process than conventional financial institutions.
Alibaba, for example, planned to impose credit limits based on the applicant’s online shopping behavior, using information from their Alipay payment system.
QR codes, meanwhile, have already proven popular in China. Tencent-owned messaging service WeChat has been using QR codes as part of its push into m-commerce, while Alipay has been working with Sina Weibo to integrate QR code systems for a seamless online shopping experience.
A spokesperson from the People’s Bank of China (PBOC) said the bank is asking the companies to submit detailed reports on their procedures. Alibaba and Tencent both declined to comment.
According to Zennon Kapron, managing director of Shanghai-based financial research firm Kapronasia, the rate at which these tech companies have expanded into the financial sphere has made it tough for regulators to keep pace.
“In terms of payments, China is one of the most innovative markets in the world. It’s a very dynamic marketplace, but you have to draw the line somewhere and control the growth. Otherwise it will spiral out of control,” Kapron said.
He believes the ban is a short-term move designed to allow the PBOC to play catch up.
“It may have been a combination of things happening too quickly, so regulators are saying, lets hold off right now and get some sensible regulations in place.”