As the regulatory policies for third-party payments continue to tighten, outsourcing institutions for payment collection are experiencing industry reshuffling. Recently, the China Payment and Clearing Association (hereinafter referred to as "Clearing Association") officially released the 2023 annual rating levels for payment collection outsourcing service institutions (hereinafter referred to as "outsourcing institutions"). Reporters from the "Economic Reference Daily" learned that the rating results have a significant impact on the development of low-rated institutions, and the business of outsourcing institutions rated E will be halted. At the same time, this year, several institutions, including Card Friend Payment, Shanghai Huifu Tianxia, and Shanghai Shenxin Payment, have successively exited the bank card payment collection market.

Industry experts have stated that in the future, payment collection institutions will need to make comprehensive decisions based on their own advantages in resource endowment and the sustainability of their business models. For some small merchants who are not profitable and have high compliance risks, it has become a consensus to abandon this part of the business.

Rating Release: Low-rated Outsourcing Business Halted

The so-called "payment collection outsourcing service institutions" refer to legally established institutions such as enterprises that are approved by market regulatory authorities or relevant state organs, accept the entrustment of payment collection institutions, undertake non-core payment collection business, and provide corresponding services. Their business types include recommending designated merchants, posting acceptance signs, maintaining designated merchants, and providing aggregated payment technical services.

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Information on the Clearing Association's official website shows that the rating levels of filed outsourcing institutions can be searched through "Association Home Page - Quick Channel - Public List Inquiry of Payment Collection Outsourcing Service Institutions"; payment collection institutions can log in to "Association Home Page - Quick Channel - Payment Clearing Comprehensive Service Platform - Payment Collection Outsourcing Service Institution Rating System" to inquire about the rating levels of outsourcing institutions.

Reporters learned that in this rating work, a total of 124 payment collection institutions, including banks and non-bank payment institutions, rated 31,081 outsourcing institutions. The number of participating outsourcing institutions has greatly increased compared to the previous year, with a growth of 139.08%. The Clearing Association pointed out that the next step will be to continue to monitor the termination of cooperation between payment collection institutions and E-rated institutions, and to urge payment collection institutions to orderly terminate cooperation with E-rated outsourcing institutions, giving full play to the survival of the fittest effect of the rating work.

According to regulatory systems and self-discipline norms of the Clearing Association, for outsourcing institutions rated D, payment collection institutions should be cautious in conducting business cooperation and take corresponding risk control measures; for outsourcing institutions rated E, payment collection institutions are not allowed to conduct business cooperation, and for those that have already started business cooperation, they should orderly terminate cooperation on the premise of ensuring business continuity.

In response, Su Xiaoli, a senior researcher at Su Xi Zhi Yan, said that the association's announcement of the rating levels of payment collection outsourcing institutions, on the one hand, can promote the continuous self-examination of the service level of payment collection outsourcing institutions, and continuously improve and perfect in the future development process. On the other hand, it can also help banks, payment and other licensed financial institutions to efficiently select partners, and eliminate institutions with low compliance and insufficient capabilities from the source. Based on this, low-rated outsourcing institutions need to find ways to improve their capabilities. However, based on the continuous strengthening of the trend of survival of the fittest in the payment collection market, those with large later investments and no fixed business cooperation can consider actively exiting the market.

The announcement of the new rating levels of outsourcing institutions has also attracted attention in the industry. The person in charge of Lakala and related enterprises said that since the association introduced a combination of registration, rating, filing, and risk information sharing for outsourcing service institutions, the service quality and capabilities of outsourcing service institutions have been significantly improved. Through the guidance of various indicators such as rating and filing, it is conducive to outsourcing service institutions continuously optimizing internal control systems, standardizing business processes, and improving their own risk awareness, making the outsourcing service market continuously optimize with the development of the payment industry.

In Chen Hao's view, the president of Shouqianba, the Clearing Association has organized the rating of payment collection outsourcing service institutions for seven consecutive years, which has played an important role in the development of the payment collection outsourcing market, mainly reflected in the following three aspects: First, through objective, fair, and comprehensive rating, it encourages and guides payment collection outsourcing service institutions to standardize operations, improve risk control levels and service levels, and promote the healthy development of the industry; second, the rating allows merchants, payment collection institutions, clearing institutions, commercial banks, regulatory institutions and other participating entities to accurately understand the credit situation of payment collection outsourcing service institutions, improving information transparency and indirectly promoting the market to choose more cooperation with high-quality and compliant institutions; third, for payment collection outsourcing service institutions with lower rating levels, they will not be able to carry out payment collection outsourcing services with payment collection institutions, and the payment collection outsourcing service market will be further purified, reducing industry risk hazards.In fact, in recent years, the Clearing Association has taken disciplinary measures such as downgrading/penalizing over a thousand outsourcing agencies through the illegal and irregular situation provided by the People's Bank of China's branch institutions, forming a normalized mechanism of self-discipline and supervision. In addition, by implementing downgrading/penalizing measures for agencies found to be illegal and irregular in the association's reporting work, and for risk agencies found in the industry risk sharing mechanism, the self-discipline mechanism has been organically integrated into the outsourcing market.

"The value of the rating lies in better managing the payment industry, making outsourcing service agencies themselves have a sense of crisis, and the ultimate goal is to form a normalized mechanism of self-discipline and supervision." An insider in the industry revealed to the reporter that, looking at the characteristics of the rating, there are not many agencies that have obtained B+ and above, basically they are agencies with larger transaction volumes and relatively more compliant. In his view, while rating, it can also give the acquiring agency a cooperation standard, guiding the acquiring agency to manage compliance in the next step, such as terminating cooperation with E-level agencies.

New regulations have been implemented, and business supervision continues to tighten.

In recent years, under the guidance of policies and driven by market demand, the domestic acquiring outsourcing market has been growing continuously. The association previously pointed out that due to the rapid development of the market, the large number of outsourcing agencies, and the mixed quality of qualifications, some agencies' management has not kept up, and there are still some problems and risks in the outsourcing market, mainly including: some acquiring agencies do not strictly review the access of cooperative outsourcing agencies, and do not register all cooperative outsourcing agency information in the association; some payment agencies have a high proportion of cooperative outsourcing agencies that have not been filed, and the proportion of low-level outsourcing agencies is too high; some outsourcing agencies are suspected of recommending false merchants or illegal and irregular merchants, and some outsourcing agencies are suspected of providing settlement account setup and modification services and even cash withdrawal services for merchants; some outsourcing agencies have insufficient information security protection and personal information protection, violating regulations, policies, and self-discipline management requirements, hindering the effective role of the outsourcing market, and affecting the healthy and standardized development of the outsourcing market.

The reporter noticed that this year, several licensed acquiring agencies have been required to self-examine and improve, and to suspend the addition of new merchants. On May 27 this year, the China Payment Clearing Association issued the "Notice on Further Strengthening the Record Management of Acquiring Outsourcing Service Agencies" (hereinafter referred to as the "Notice"), requiring outsourcing agencies that have started acquiring outsourcing services to apply for record through the acquiring outsourcing service agency record system to the association before July 31, 2024, and to register the cooperative relationship with commercial banks and non-bank payment institutions (hereinafter referred to as "licensed institutions") completely and accurately, and obtain a record certificate. The clearing association data shows that as of the reporter's writing, the number of acquiring outsourcing service agencies that have successfully completed the record has reached 32,126, including 661 aggregated payment agencies; the number of acquiring outsourcing agencies that have canceled the record is 316, and another 15 agencies are shown as intending to cancel the record.

On September 13, the China Payment Clearing Association issued the "Self-Discipline Management Measures for Acquiring Outsourcing Services" (hereinafter referred to as the "Measures"), the services of outsourcing agencies must not exceed the service scope agreed with licensed institutions, and must not exceed the business types and coverage scope approved by the regulatory authorities for cooperative licensed institutions. Outsourcing agencies must not provide outsourcing services in the name of licensed institutions; they must not implement, participate in, or assist in money laundering, fraud, gambling, code stacking, cashing, and other illegal and irregular behaviors.

In this regard, Su Xiaoli said that under the background of a series of policy introductions, strong supervision can help acquiring outsourcing service agencies to correct the source, guide the industry's agencies to operate compliantly, and continuously improve service levels, creating a positive and sustainable competitive order for the industry. But at the same time, it also indicates that the Matthew effect in the acquiring market may be further enhanced, and agencies with compliance, technology, and service levels at the forefront of the industry will rely on their own capabilities and excellent rating levels to gain more favor from licensed financial institutions.

In the view of Pan Helin, an economist and a member of the Expert Committee on Information and Communication Economics of the Ministry of Industry and Information Technology, with the implementation of new regulations, the industry development will be more standardized and orderly, the reputation of enterprises in the industry will be higher, and consumers' confidence in using payment tools will be greatly increased. "In addition, the centralization of acquiring institutions also makes the competition at the top more intense, the characteristics of the industry's centralization are becoming more and more obvious, and the concentration is significantly increased, but I think the reduction in the acquiring market is not due to supervision, but due to the change in consumers' payment habits." Pan Helin said.

Many leave the field, and the payment industry accelerates the reshuffling.

Recently, the old payment company Card Friend Payment issued an announcement stating that due to adjustments in the company's management decisions, in order to protect the interests of merchants and partners, it has decided to operate the existing business until September 30, 2024, and during this period, conduct a risk assessment of the existing business, and orderly exit and clean up businesses with potential risks.Coincidentally, at the end of August this year, the POS machines of Pay天下 prompted merchants: "Due to business adjustments, the equipment will be upgraded. After the upgrade, all transactions and related data and information will be transferred to Kunpeng Payment. Please authorize." Reporters learned from informed sources that Pay天下 is gradually reducing its domestic bank card acquiring business, seeking to shift its business focus to digital services and other areas.

Additionally, on May 20th this year, another third-party payment institution, Shenxin Payment, issued an announcement on its official website stating, "Due to company operation issues, to protect the interests of merchants, it is decided to stop payment transaction services. Transactions will end at 11 PM on May 20, 2024, and settlement will end after completing the settlement of funds for the previous day on May 21, 2024."

"Some institutions are gradually withdrawing from bank card acquiring services. On one hand, the compliance threshold in the payment industry has been raised; on the other hand, bank card acquiring has entered a saturated market, with both profit margins and growth rates decreasing. Additionally, factors such as digital transformation, reduction in acquiring regions, and involvement in equity disputes are also reasons for institutions to exit," a senior payment industry insider stated. The main reasons for the accelerated reshuffling in the payment industry are the continuous strengthening of regulation, intensified market competition, lack of innovation in technology and services, increasing cost pressures due to non-compliance and technology upgrades, which have affected the survival and development of some payment institutions in the bank card acquiring business.

When discussing whether the exit of multiple institutions has an impact on industry development, Pan Helin believes that the substitution of bank card payments by online payments is underway. Many payment institutions are limited to offline, and with the popularization of online payments, the market share of many payment institutions is bound to continue to shrink.

In Su Xiaorui's view, the gradual exit of multiple institutions from acquiring services is driven by strict regulation and measures such as "suspending new" for institutions with low compliance, as well as based on expectations and judgments of business prospects. For third-party payment institutions engaged in acquiring services, it is necessary to make comprehensive decisions based on their own advantages, resource endowments, and the sustainability of their business models. For some small merchants who are not profitable and even have high compliance risks, it is indeed a consensus among some institutions to abandon this part of the business.

For institutions engaged in acquiring services, Su Xiaorui suggests considering the following three development paths: First, by creating "payment+" industry solutions, provide more valuable comprehensive operational services for small and micro merchants; second, seek cooperation with banks, which requires operating bank merchants on the basis of adhering to compliance standards, improving service levels, and reducing customer complaints while increasing merchant activity; third, seek cooperation with leading payment institutions and SaaS service providers, and provide service support for partners' business implementation and product iteration through widely distributed ground promotion teams and merchant resources.