China Suspends Two Forms of Smartphone Payments; Central Bank Halts Use of QR Codes and Virtual Credit Cards

March 18, 2014 Leave a comment

China Suspends Two Forms of Smartphone Payments

Central Bank Halts Use of QR Codes and Virtual Credit Cards

PAUL MOZUR

Updated March 14, 2014 1:27 a.m. ET

BEIJING—China’s central bank is temporarily suspending the use of two forms of smartphone payments in a setback for China’s two largest Internet companies as they try to gain a larger share of the online finance market.

State-owned People’s Daily, in its online edition, cited a People’s Bank of China official Friday as saying that the central bank would halt the use of QR codes and virtual credit cards in smartphone payment systems. The official said the bank was examining potential security risks to users of those two payment platforms.

The People’s Bank of China didn’t respond to a request for comment.

Tencent Holdings Ltd. 0700.HK -5.02% and Alibaba Group Holding have been aggressively expanding their smartphone payment operations in a bid to get consumers to use their services to directly pay for goods and services. The two companies have wielded increasing power as China’s more than 500 million smartphone users take to their phones to do everything from ordering and paying for a taxi to shopping online.

A spokeswoman for Alibaba didn’t respond to a request for comment.

A Tencent spokesman said the company continually reviews its service and would take action if necessary.

“We continually review and take measures on suspicious cases of spam, violent, pornographic and illegal content. We also welcome users to report to us online or through our 24-hour hotline,” the spokesman said.

Earlier this week, both Tencent and Alibaba announced virtual credit card programs in cooperation with China Citic Bank, 0998.HK -6.86% extending credit lines directly to users over their smartphones. The credit lines could then be used to purchase goods through e-commerce sites that supported Citic’s credit cards.

QR Codes have also emerged as a popular way to facilitate direct payments between two people with smartphones. The code, a complex pattern that can be scanned by smartphones, has been increasingly used by Internet companies as one step in the transfer of funds via smartphones.

The People’s Daily report said the halt was designed to give the central bank time to assess the risks of the new technology. Still, it is a worrying sign for the two Internet giants, which have spent hundreds of millions of dollars buying up smaller businesses to facilitate transactions between smartphone users and businesses.

The news sent Tencent’s shares down 5% in early morning trading on the Hong Kong Stock Exchange to 558.50 Hong Kong dollars (US$71.9). The benchmark Hang Seng Index was down 1%.

 

Filed under Macro Trends

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