China will require all third party settlement to go through the Netcom platform

PBOC is going to set up a new settlement platform which will handle all third party settlements starting from 2018.

The People’s Bank of China (PBOC) issued a notice on 04 August 2017, announcing the establishment of Netcom Clearance Co. Ltd. (Netcom), and requiring that all third party settlements through non-financial institutional settlement service providers (Settlement Service Providers) must be handled through Netcom from 30 June 2018 onwards.

Netcom, an entity supervised by PBOC, will be invested by 45 shareholders. The PBOC Clearance Center will be largest shareholder, holding 12% equity in Netcom; a subsidiary of the foreign exchange administration will be the second largest shareholder, holding 10% equity in Netcom, and the Settlement Service Provider affiliated to Tencent will tie with that affiliated to Alibaba as the third largest shareholder, each holding 9.61% equity in Netcom. After 30 June 2018, all Settlement Service Providers are required to settle third-party payments through the platform operated by Netcom.  The chart below illustrates the new settlement network will work :

Netcom

 The Notice suggests:

  1. PBOC will gain access to the transactional data settled by Settlement Service Providers so as to better prevent money laundry
  2. The safety of settlement will not merely rely on a number of dominant Settlement Service Provider platforms and the financial risks will likely be under control, and
  3. The Netcom Platform breaks the data barriers between Settlement Service Providers and discourages the dominance of settlement data by private Settlement Service Providers.