China's central bank blocks virtual credit cards plans by Tencent and Alibaba Group affiliate

China's central bank blocked plans by Tencent Holdings Ltd, as also by an Alibaba Group Holding Ltd affiliate for virtual credit cards as the government moved to tighten restrictions on online financial products.

According to the Xinhua News Agency, the suspension of virtual credit cards and so-called Quick Response codes was meant to regulate the internet finance industry and protect consumers, the company said, citing Zhou Jinhuang, deputy head of the People's Bank of China's (PBOC) payment and settlement department. Consumers would have been able to buy goods from online retail websites, with the virtual credit cards.

Tencent, which was down by 6.8 per cent in Hong Kong, is competing with Alibaba and Baidu Inc to sell online financial products to China's 618 million web users. Alibaba's affiliate and China Citic Bank Corp planned to offer 1 million cards with a minimum credit of 200 yuan ($33) next week, and the lender had lined up additional cards with Tencent and Zhongan Online Property & Casualty Insurance Co.

Bloomberg quoted Wang Weidong, an analyst with Shanghai-based consultant IResearch as saying, the PBOC could be worried about payment risks involving QR codes. He added, ae for the credit cards, a lot of the credit risk calculation was based on data provided by Tencent and Alibaba, so the central bank might be worried about their models.

In a further blow, the central bank suspended mobile phone payments that are based on users swiping barcode-like QR symbols, which can be used for buying everything from cinema tickets to beer.

The Chinese financial sector, had long enjoyed a protected existence thanks to regulation. The sector had been shaken up over the past year by increasingly aggressive internet companies.

Alibaba and Tencent had been most aggressively launched online savings funds that effectively functioned like bank accounts and with mobile payment systems that had started displacing debit cards.

Chinese officials had thus far allowed the companies play in the banking sector turf, viewing online finance as beneficial to ordinary consumers, but banks had mounted opposition and called for stricter regulations.

The People's Bank of China had ordered the temporary halt of virtual credit cards and QR payment systems, a statement posted on multiple websites, including the government-run Securities Times said.

According to the bank, both forms of mobile finance went beyond the traditional business models of point-of-sale machines and credit cards, posing potential dangers to users.