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Chinese Central Bank Whacks Third Party Wallets Over Bad Practices

China’s central bank has punished four payment processors for mishandling bank-card transactions. The processors — ChinaPNR, Fuiou, Yeepay and VBill — will stop doing business in up to 15 provinces by the end of this year until they convince the People’s Bank of China (PBOC) that they have changed their practices, which the PBOC said threatens capital safety and harms the interests of banks and the bank card association.

The processors were caught violating regulations for acquirers, a central-bank source said without elaborating.

But according to Caixin Online, acquirers often violate regulations by helping merchants to get around interchange fees, which are set by government planners and vary by merchant type from 1.25 percent for restaurants and hotels to as little as 0.25 percent for agribusiness owners.

In one form of fraud, a processor might credit a restaurant’s payments to a fictitious agribusiness, so the 80 percent share of interchange paid to the issuing bank and network is much lower. Then the processor splits the rest of the interchange fee with the restaurant.

Violations of payment rules have become more common and serious since 2011, when the central bank began issuing licenses to 84 third-party bank card processors. Before that, card processing was done by banks.

An inspection by the central bank found more than 90 percent of one processors 700,000 new clients in June do not exist, a source close to the bank said.

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