Prepaid card regulations in China expected to tighten over the next two years; likely to boost consumer confidence

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Shanghai has launched in-depth investigation this year against beauty salons and gyms who issue prepaid cards. Shanghai Consumer Rights Protection Commission had registered over 7,000 complaints regarding prepaid cards in 2015 in comparison to 5,800 in 2012. Majority of complaints were related to money loss due to sudden closure of prepaid cards. Initial investigation has revealed that most complaints have been registered against beauty salons and gyms. Shanghai Commission of Commerce has stated that it will increase supervision and regulations on prepaid card issuers.

Issues related to prepaid cards are not new in the Chinese market. Earlier this year, China banned Shanghai Chang Gou Enterprise Services from issuing prepaid cards and warned non-banking financial institutions due to breach in legal framework, impacting customer interests and disrupting the market. In Shanghai there are around 24,000 beauty salons out of which nearly 38% issue prepaid cards. Previously attempts were made to register prepaid card issuers back in 2014. However, only negligible issuers registered with the system. Existing legislation mandates a deposit of around USD 60,000 in banks as reserves by the issuers but it can be withdrawn any time. As a result, this rule is not very effective.

Under current scenario it can be expected that the commission will come up with strict regulations in order to minimize fraudulent cases in this segment. This is likely to impact new players entering into the market.

To know more and gain deeper understanding of prepaid card industry in China, click here.