On July 6, 2013, the Chinese subsidiaries of two France-based multinational companies, Shanghai Sodexo and Edenred China, became the first foreign-invested entities (FIEs) to obtain third-party payment licenses (Payment Licenses) from the People’s Bank of China (PBOC). Both Shanghai Sodexo and Edenred China may now issue prepaid cards as two of the 250 applicants that received similar licenses since May 2011.

Legal Background

The PBOC promulgated the Measures for the Administration of Payment Services of Non-Financial Institutions and its implementing rules (Payment Regulations) in 2010 to regulate the previously unregulated electronic payment service (EPS) providers. Under the Payment Regulations, non-financial institutions became required to obtain Payment Licenses before they may provide payment services such as online payments, issuance and management of prepaid cards, and payment acceptance through bank cards.

While the Payment Regulations did not technically restrict foreign investors from the EPS market, the Payment Regulations did state that the business scope of FIEs, the qualification and shareholding percentage of their investors will be separately determined by PBOC and submitted to the State Council for approval. The market understood such language to mean that foreign investors were effectively restricted from obtaining the Payment Licenses. In fact, the PBOC has not promulgated any specific rule to date.

Licenses Granted to FIEs

Despite the significant growth in China’s payment industry over the past few years, the PBOC had not issued a Payment License to any FIE until this month. Shanghai Sodexo and Edenred China were established in 1999 and 2000, respectively, and both applied for a Payment License in August 2011. Shanghai Sodexo only applied for a Shanghai license, but Edenred China applied for a national license. Shanghai Sodexo was granted a Shanghai license and Edenred China was only granted licenses in Beijing, Shanghai, and Jiangsu and Sichuan provinces.

Observation

The timing echoes China’s commitment to implement the recommendations set out in a 2012 WTO panel report by July 31, 2013. The panel recommended that China (i) adopt rules regarding access to its domestic EPS market that provide equal treatment to foreign EPS providers, and (ii) allow foreign EPS providers to provide their services in China.

Accordingly, we view the issuance of Payment Licenses to FIEs as a positive sign for foreign investors who wish to enter the EPS industry in China. We expect the PBOC to grant additional licenses to foreign payment service providers in the near future. However, it remains to be seen whether the PBOC will issue Payment Licenses that allow FIEs to provide the full range of EPS services, such as online payment service.

George Chen