* ICBC restricts trade with Alipay to one branch
* Could hit Alipay's revenues from interest
* Latest in Chinese crackdown on online payments
By Paul Carsten and Heng Xie
BEIJING, March 25 Industrial and Commercial Bank
of China Ltd (ICBC) will restrict trade with Alibaba's online
payment arm to one branch, the bank said on Tuesday, in the
country's latest crackdown on a nascent online finance industry.
Alibaba Group Holding Ltd's payment arm,
Alipay, previously had contracts with numerous branches of ICBC
for negotiated corporate deposits, and could place
deposits with the branch offering the highest yield.
Tuesday's move means ICBC branches will no longer compete to
offer high yields on Alipay's deposits, hitting the online
payment business's revenues from interest, and potentially
setting a precedent for other banks to follow.
The clash between entrenched interests in China's
traditional finance sector and its internet companies has
escalated in recent weeks, with banks imposing limits on how
much their customers can transfer to online finance services and
the authorities looking into potentially heavy regulation.
Though small, online and mobile payment transactions in
China have been growing rapidly. The online payment market last
year grew 47 percent to 5.37 trillion yuan ($869.20 billion) in
transactions, according to Beijing-based consultancy iResearch.
Most of the concern about online finance, according to
regulators such as the People's Bank of China (PBOC) and
commercial banks, revolves around the security of payments made
by virtual credit cards and smartphones and risks relating to
money laundering and customer information security, as well as
the wider financial system.
Other services have drawn the ire of banks, particularly the
internet companies' wealth management products that have taken
the Chinese public by storm and analysts say are contributing to
interest rate liberalisation in China.
The payment systems of Alibaba and rival Tencent Holdings
Ltd's could also hit state-owned China UnionPay, the
country's monopolistic credit card provider.
"The market doesn't fear competition, it fears injustice,"
Alibaba founder Jack Ma wrote online on Sunday after banks set
harsh new limits on how much their customers could transfer from
their accounts into Alipay.
"It's not the monopolies and powers that determine success
in the market, it's the consumer," wrote Ma.
Banks, including ICBC, Bank of China Ltd,
Agricultural Bank of China Ltd and China
Construction Bank Corp, have restricted how much
their customers can spend on Alibaba's and Tencent's online
Wealth management products, offered by Alipay, Tencent and
Baidu Inc, can offer almost double the interest rate
that China's traditional banks give depositors.
Regulators including the PBOC, China's central bank, are now
discussing draft regulations to govern the Internet banking
industry in China, including their own limits on how much people
can spend on individual purchases and transactions between bank
accounts and online finance services.
Alipay and Tencent declined to comment but last week said
they would work with regulators to help draw up new rules for
internet banking. Baidu also declined to comment. Earlier this
month Chief Executive Robin Li said online finance required
The current PBOC draft regulations would impose draconian
limits on how much money can be transferred to wealth management
products like Alibaba's Yu'e Bao, China's 21st Century Business
Herald reported this month.
These restrictions could prove fatal to online wealth
management services, and a heavy blow to Internet firms'
financial ambitions, the report said.
In August, Chinese media reported that Alipay halted its
offline point of sales service for small companies. The move
came after UnionPay put pressure on Alipay to route the service
through UnionPay's system so it could increase its commission
earnings on transactions.
Tencent and Alibaba said this month they were also applying
for licences from the bank regulator to participate in a trial
plan for privately-owned banks.
(Additional reporting by Bi Xiaowen in HONG KONG and Gabriel
Wildau in SHANGHAI; Editing by Mark Potter)