Regulators in China could force Tencent to spin WeChat Pay into its newly-created payments subsidiary, which could cause the need for the mobile payments service to obtain a new license, Bloomberg reported on Friday (March 18), citing sources with insider information.
The possible decision is part of China’s crackdown on tech companies last year, mandating that corporate divisions offering financial services had to be separated from the main business and regulated like a traditional bank.
Similar to Ant Group, regulators could force Tencent to spin off its banking, securities, insurance, and credit-scoring services into its separate financial holding company and operate separately from the firm’s social media company, the sources said.
See also: China’s Regulator Orders Tech Companies to Open ‘Walled Gardens’
WeChat Pay handles billions of dollars every day but is a transactional platform only and doesn’t extend loans. Removing its payments services would reduce its super app capabilities and overall convenience. The app has over one billion users and is among China’s most valuable firms.
Tencent’s payments license is owned by TenPay division, which is the back-end provider of wallet services on WeChat and QQ. Chinese regulators concluded this was inadequate to encompass the services included in WeChat Pay, the sources said.
The details of how WeChat Pay’s move would affect interoperability between different platforms is still being considered, the sources told Bloomberg. There will likely be additional capital requirements and more oversight by regulators. WeChat also could be compelled to offer easy access to Alibaba’s Alipay.
The People’s Bank of China didn’t immediately respond to a request for comment and Tencent representatives declined, Bloomberg reported.
Read more: Tencent’s WeChat Pay Envisions Future Where Payment Options are the Norm
Over the past decade, mobile payments became the primary payment method in mainland China, and WeChat Pay and Alipay became the most popular ways to buy goods and services. At the end of last year, WeChat announced that users now had the capability to share links from external sites, even Alibaba’s Taobao.
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