A Look at China's Payment and Settlement System

The payment and settlement system is an essential part of a nation's financial infrastructure,and it can ensure the smooth operation of a wide range of financial transactions. The Decision on Some Major Issues of Fully Deepening Reforms by the Central Committee of the Communist Party of China,a key document reached at the Third Plenary Session of the 18th Central Committee of the Chinese Communist Party,states the need to strengthen financial infrastructure,ensure safe and efficient operation of financial markets and maintain overall stability.

At present,China's payment and settlement system is developing rapidly,and the opportunities and challenges are becoming increasingly prominent,and the payment and settlement system has come to the forefront of theoretical research.

China's payment and settlement architecture consists of the People's Bank of China payment and settlement system,the third party payment and settlement system and securities clearing and settlement.

New Technological Challenges

The payment and settlement system not only needs to meet the requirements of security and stability,but also must continuously improve its efficiency and level of service for a wide range of customers. For instance,the retail payment segment,the most representative type,needs to strike a balance between risk and efficiency. At the same time,the construction of China's payment and settlement system should pay close attention to improving cross-border service capabilities and qualities in order to provide more efficient service to enterprises and local residents. Additionally,current network information technologies present huge challenges to the payment system,most critically as far as accounts are concerned.

Competition

Competition has intensified in the internet payment and mobile payment businesses as more participants enter field. The decline in business and profit growth and stricter supervision from the regulators have all made third-party payment institutions look for new business areas. They have tried to integrate traditional financial management with marketing,financial services and other business,in order to deliver comprehensive service to their clients. In particular,the leading payment institutions are expected to explore,process and utilize accumulated client data over the coming years to expand their businesses.

They make use of transaction information,enterprise data,as well as upstream and downstream industrial information to develop financial services,wealth management services,financial consulting,e-commerce solutions,online marketing and other services.

The main concern to the public is whether new problems will emerge with third-party payment services based on the internet's public network system. For example,some payment enterprises have already become involved in the settlement link.

Problems to be Solved

The construction of the securities clearing and settlement system has already made substantial institutional breakthroughs. The central government has made major strides with its Central Counter Party Settlement System,for example. This mechanism has effectively eliminated counterparty and systemic risks while promoting market activity.

For future developments,netting could help improve capital efficiency,and lower the costs of market participants. At the same time,there is a need for strengthened communication with other national and global organizations. China's own arrangements and legal environment regarding securities clearing and settlement are not entirely in line with international practice. There is a need for the promotion of rules and regulations regarding domestic dealings,clearing and settlement to ensure they comply with international practice. China needs to actively apply the Principles for Financial Market Infrastructure (PFMI) which were promulgated by the Committee on Payments and Settlement Systems (later renamed as the Committee on Payments and Market Infrastructure) and the International Organization on Securities Commissions.

Theory and Policy Research

Technological developments are driving academic studies in the area of economics,focusing on the swap mechanism during the payment process,including the payment tools used and the roles of financial agencies in this process. For example,the Payment Economics Network established by the European Central Bank aims to combine research on payment and clear