Navigating China’s New Regulatory Terrain

Navigating China’s New Regulatory Terrain

What happened to the good old days of, like, two years ago? Back then, FinTechs asked for forgiveness instead of permission, rushing headlong into markets, disrupting them and operating in newly invented spheres of finance that regulators barely understood.

The party always ends, however, and governments have caught up to all that wild innovation. Now, they’re laying down the law. Literally. GDPR and PSD2, California’s AB5 and similar legislation popping up around the world finds regulators putting eCommerce and FinTechs on a short leash, as economies wrestle with huge financial changes that happened seemingly overnight.

For instance, in the February 2020 Merchants’ Guide to Navigating Global Payments Regulations, powered by identity firm Ekata, we discover that nearly 90 percent of Americans feel the Feds should be protecting consumer data. The debate around data privacy is getting a new boost as discussions of open banking get real. For a case study in the new privacy rules at scale, people are looking to China and its Multi-Level Protection Scheme 2.0 (MLPS 2.0).

The China government is enforcing strict transparency and reporting laws for all financial institutions (FIs) within the country’s borders, as well as foreign entities wishing to access Chinese markets. It’s ushering in a new era of regulation and compliance – and there will be ramifications.

Machine Learning to the Rescue

As covered in the Merchants’ Guide to Navigating Global Payments Regulations, MLPS 2.0 is seen by some as making China even harder to access. That may be inaccurate, but it’s clear that the Chinese are exerting a higher level of control over digital banking activities than ever before.

“Merchants that are interested in entering the Chinese market must consider two important concepts: open banking and fraud,” noted Dan Jiao, director of Asia-Pacific sales at Ekata.

“Merchants must understand how China’s open banking regulations facilitate the introduction of new financial services and product offerings, [such as] peer-to-peer money transfer, specifically,” Jiao told PYMNTS. “These types of services and products are innovative and loved by consumers, but they also attract fraudsters, which [is why it is] important for merchants to layer solutions to prevent third-party fraud.”

Ekata is one of the firms at the forefront of analyzing identity data, biometrics and behavioral analytics, with automated risk engines running machine learning models. “Merchants can build robust workflows from there to ensure fraud is stymied, while genuine consumers receive frictionless experiences,” Jiao said.

Let China Be China

As Chinese eCommerce sellers have found a vast market here, U.S. sellers can also successfully tap into the Chinese market. What we learn in reading the latest Merchants’ Guide to Navigating Global Payments Regulations is that accessing the Chinese market is not for lightweights.

“The financial sector continues to be one of the most sensitive industries within China, which means it is held to a higher degree of scrutiny,” William Carter, deputy director and fellow for the technology policy program at the Center for Strategic and International Studies, told PYMNTS. “Also, data has been one of the levers by which the Chinese government has continued to try to formalize the financial system within China and put pressure on shadow banking and other nontraditional financial institutions and activity.”



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.