Tencent Holdings Ltd. (OTCMKTS:TCTZF), China’s leading entertainment and internet services provider, is accused of violating the new security policies issued by the Chinese government related to mobile payments services.
China’s Central Bank, People’s Bank of China confirmed on Thursday that it had received a complaint against the Chinese internet giant from Wang Yujia, a lawyer in Shanghai working for Beijing Yingke, a local law firm. Mr. Yujia claimed that Tencent hasn’t been abiding by the new requirements issued by PBOC to ensure that its users are using real names for their payment accounts on its online payment platform, mainly WeChat.
Additionally, he also accused the company of not following the PBOC requirement for account categorization, according to which the companies should categorize accounts based on different authentication methods and payment limits. The complaint was the result of the incentives announced by the Chinese government back in April to reward any tipoffs related to violation of the policies.
Mr. Yujia said that he decided to file an objection against the company as he was surprised that Tencent was not following the rules a despite the rules took into effect from July 1, 2016.
Mr. Yujia was quoted by the Wall Street Jounrnal (WSJ) as saying, “Everybody’s WeChat account is a payment account and if Tencent violates the law like this, we cannot help asking how they could guarantee the security of the users’ money.”
Tencent's WeChat Wallet and QQ messaging applications are amongst the leading payment services providers in China that permit individuals to exchange cash, shop online and pay service and utility charges, all from their smartphones. Around 300 million individuals are utilizing its online payment services, which are also connected to their personal bank accounts. At present, WeChat has about 762 million active customers around the globe, while QQ's mobile messaging application has 658 million worldwide users. Moreover, it is important to note that the vast majority of the app's clients are in China.
During the Lunar holidays in January, China’s New Year customers exchanged about 32 billion hangbao envelopes, representing a 9% increase on a year-over-year (YoY) basis, using Tencent’s WeChat application. Hangbao is a Chinese tradition in which people give cash in red envelopes as gifts.
According to Tencent’s representative, the company had already started giving out notifications over a month before the new rules took into effect. It began sending notices to all clients requesting that they enlist with their genuine names when connecting their bank cards to their WeChat accounts. She further added that Tencent, as per the new guidelines, has introduced additional requirements for its clients with bigger payment limits for carrying out services such as exchanging cash, purchasing trading online and utilizing wealth management services. The organization has blocked clients who haven't enlisted using their real names while making money transfers and online purchases.
Apart from Tencent, other payment services including Alibaba’s Alipay and others have also ensured regulators that they are ready to fully comply with the new policies despite the fact that it will hamper their revenues. Alipay currently has more than 450 million users. On complying with new rules and regulations, Ant financial, Alibaba’s financial arm which also operates Alipay said: “The new requirements are a vital step for creating a safe and transparent environment for payment.”
According to a report published by the People’s Bank of China, the country’s mobile payment sector has improved significantly in the recent past. As per the statistics revealed by the bank, around 4.54 billion transactions took place in the third quarter of fiscal year 2015, nearly a 350% year-over-year (YoY) increase. Similarly, last year in China, according to the data released by iResearch “the value of transactions in China’s third-party online payment market totaled 11.8 trillion yuan ($1.76 trillion), up nearly 47% from the previous year, according to consulting group iResearch.”
The accusation is yet to be proved, however, it is certain that major Chinese internet companies, including Alibaba and Tencent Holding, are going to face trouble after the government announced a reward for any tipoffs. It will be important to see how the Chinese internet giant responds to the accusation. If it turns out to be true, Tencent could face massive fines.