Development And Supervision Of Central Bank Payment Mechanism Business

Payment institutions, known as third-party payment institutions as well, arenon-financial institutions which provide payment services with the license issued bythe People’s Bank of China. In recent years, innovations and business expansionfrom the side of payment institutions rocket up. According to EnfoDesk, transactionsinvolved by third-party payment institutions are with an amount of over RMB17.9trillion in2013, increased by43.2%. With the rapid development of third-partypayment business, regulatory practices of the People’s Bank of China are also inconstant exploration. The supervision department are facing up with two questions.One is how to encourage the innovation activities of payment institutions withminimized risks. The other one is how to promote efficiency of the payment marketin an impartial and transparent environment.The two questions is essentially two balance problems of innovation/regulationand risk/efficiency. The answers to these two questions depend on the study of themicro-mechanism and macro-economic impact. At the micro level, this thesisanalyses the operating mechanism of payment institutions and potential risks,applying industrial organization research to the market of payment services. At themacro level, this thesis demonstrates the process of money creation by paymentinstitutions as well as the impact on money supply of Monetary Fund achievingpayment function.The answer to the first question derives from the particularity of the paymentbusiness. In order to defend the bottom line of systematic risks, any payment activityshall not avoid the supervision of the central bank. The answer to the second questionis to construct an impartial and transparent indices system for payment institutions,based on the information disclosure exerted by commercial banks, encouragingpayment institutions to improve their governance structures and managementcapacities.This thesis has marginal contributions on the following four fields. First, itcomplete the logic mechanism and quantitative analysis of money creation broughtby payment institutions. Second, according to the fact that payment services havehigh market concentrations, it is essential to implement asymmetric supervision topayment institutions who are of systematic importance. Third, based on the currentinformation disclosure of payment institutions, this thesis constructs a comprehensive indices system for off-site inspections on payment institutions,which will provide early alerts for potential risks in their daily routines and thus willbe helpful to evaluate the business of payment institutions. And last but not the least,this thesis gives some detailed recommendations on specific regulatory policies,according to the type of business and particular risks related to their processes.