International

China’s NGO Laws May Signal Tough Terrain for Payments Firms

What happens when the greenfield of all greenfield opportunities suddenly has a fence thrown up around it?

News last week that China’s government has put in place a new law that would restrict non-government organizations (NGOs) – with an eye on western NGOs – has a faint echo of implication for payments companies.  Faint, but there nonetheless.

The focus now is on police surveillance that is now expanded, greatly, in monitoring NGO activity – meetings, positions, papers and the like.  The roster is a huge one – as many as 7,000 firms, many of them tiny, and the majority of them nonprofits, have to get the backing of a Chinese sponsor and also have to register with the police (and that opens the door for surprise visits by officers and searches, and perhaps just about anything else).  No sponsor? No more operating in China.

The government has put forth the idea that this is a way to allow, yet contain, the emergence of new ideas that may pose a threat to civil peace. 

The flip side of the coin is that this signals a chillier climate for firms looking to gain a foothold in China.  That includes for-profit companies, and that includes for-profit companies that are looking to bring real innovation and change to the way things work.  In the payments realm, extending credit, or bringing banking services to the unbanked (via mobile devices, for example) or making inroads to rural areas can get a lot tougher.

The mainstay of the new law, which takes effect in January of next year, is that foreign NGOs cannot operate in a manner that can be seen to damage China’s “national interests” or “ethnic unity.” 

It is the first mandate that should give companies looking to gain entry into China, or looking to expand current activities, pause, beyond the NGO oversight that may be just the beginning of expanding cynicism on the part of the powers that be.  The language is just broad enough that just about anything, on a governmental whim, can be seen as running counter to national interests.

Take PayPal and Ant Financial, for example.  Much has been made about the valuation of Ant Financial, and we here at PYMNTS have noted the backing of government capital – and both companies are striving to bring financial services to a wider audience.  PayPal could conceivably be at a disadvantage assuming that the cross-border transactions could be deemed to be part of a national interest. 

What about card companies?  Visa and MasterCard were objects of excited investor attention roughly a year ago, as an estimated $7 trillion bank card market seemed suddenly ripe for the picking.  No mean feat to break into this market, even after the Chinese central bank stated that it would allow for the establishment of clearing networks (as in, transactions could be completed without having to go through China’s UnionPay).  Could it be deemed averse to national interests to have card transaction fees of any meaningful level headed to Western firms – even below the levels now in place for Chinese transactions (substantially below what has been seen elsewhere on a global basis)? 

And there’s one other shot across the bow, which could have implications for companies beyond the Web, where things now are brewing.  The Wall Street Journal reported that the Chinese government is considering a proposal to take small stakes – at around 1 percent – but it wants to have a seat at the table, literally.  That means taking a seat on the board of directors.  Not necessarily germane to payments companies … but it could be. 

Bad laws make bad policy.  Though the line may not be a straight one from foreign NGOs to foreign payments firms, the terrain may be a rocky one for all involved.   

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