Recently, the People’s Bank of China (PBC) has issued Notice on Improving Classified Management of Personal Bank Accounts (the PBC Notice [2018] No. 16, hereinafter referred to as Notice). One PBC official answered relevant questions from the press.
Q: What is the background of releasing the Notice?
A: The transfer of funds within the economy starts and ends with bank accounts, making them indispensable for entities and individuals. Effective and convenient bank account services can facilitate productive activities of companies to meet people’s needs for a better life and at the same time maintain social and economic order. The PBC has always valued bank account services and taken effective measures to deliver better services for entities and individuals in recent years.
The PBC has launched personal bank account system reform since 2015 to adapt to the need of innovative development of bank account business based on the realities in China. Focusing on enforcement of the real-name account system and protection of the legitimate interests and rights of account holders, following the principle of ensuring both safety and efficiency and the philosophy of encouraging innovation while preventing risks, the reform has aimed to establish a bank account fund and information protection mechanism and a new personal bank account system, to establish and implement classified management of personal bank accounts through the release of Notice on Improving Personal Bank Account Service and Account Management (the PBC Notice [2015] No. 392), Notice on Implementing the Rules for the Classified Management of Personal Bank Accounts (the PBC Notice [2016] No. 302), and etc. The classified management system divides bank accounts into three categories, i.e. Category I, II and III, each with different functions based on the degree of real-name requirements and service range definition, for individuals to choose from in view of their payment need and fund risk profile, in order to achieve the goals of separating fund risks and protecting account information security. The account classification system has been well received by the public since its launch. Of all categories, Category II and III accounts are more favored by banking institutions (hereinafter referred to as banks) and clients, and their numbers and business volume are growing rapidly.
To boost client experience, further improve personal bank account services and further tap the classified management function, the PBC has issued the Notice after thorough research and consultation of public opinions. The Notice aims to facilitate the opening and use of Category II and III accounts, promote the use of Category III accounts, in particular, in small-value payments as a priority, and the use of Category II and III accounts as the major channel for small-value internet and mobile payments by consumers.
Q: What convenience can individuals enjoy when opening Category II and III accounts after the Notice takes effect?
A: The first one is multiple channels of account opening. The Notice requires state-owned and joint-stock commercial banks to deliver account opening through OTC and electronic channels including e-banks, mobile phone bank, direct bank, virtual teller machines and smart teller machines before end-June 2018, and the timeframe for other banks is by end-2018. In due time, individual clients may choose from multiple channels based on their preference when opening new Category II/III accounts.
The second convenience is simplified account opening procedures. When a client opens a Category II/III account after logging onto an electronic channel with safe and reliable verification methods such as digital certificate or e-signature, he/she does not need to provide personal information including ID card number as long as the new account is linked to the Category I account or credit card account previously opened by the client with the same bank and the ID and other personal information is confirmed to be unchanged. Thus, the account-opening experience is greatly improved while the real-name account requirement is effectively implemented.
Q: How does the Notice facilitate the opening and use of Category III accounts as a priority?
A: The frequent use of small-value mobile payments points to the need for higher-level convenience in mobile payment. In order to further promote Category III account as the major channel for mobile payment by individuals, and have bank account functions well aligned with the need of mobile payment, the Notice encourages banks to offer innovative businesses to Category III account holders under the precondition that the fund and information security is guaranteed in line with the principle of security and efficiency and the real-name system is implemented.
So long as the real-name policy is properly implemented, a client can open a Category III account by filling in client name, ID number and contact information, and linking it to a Category I account, with no immediate requirement on presenting identity document. Only when the money received and paid via all the Category III accounts of the same client with the same bank totals RMB 50,000 or above, the bank shall ask the individual to provide identity document within seven days, keep the copy of ID card as record keeping, and register basic information including client occupation, home/workplace address and the valid date of the ID.
Limits on the use of Category III accounts are also eased under the precondition that the anti-money laundering and anti-fraud policies are strictly followed. Firstly, a Category III account opened through electronic channels in a non-face-to-face way can receive money transfer from a non-linked account so as to meet demands under various scenarios such as small-value fund transfer, sending red packets, linking to personal payment account, and receiving small-value cash rebates from banks or vendors. Secondly, the upper limit of the account balance is adjusted from RMB 1,000 to RMB 2,000. As per estimation, transactions worth below RMB 2,000 per transaction accounted for 81% of total interbank transactions (excluding payment for properties, cars, wholesales and wealth management products) in 2017. Therefore a higher upper limit can better meet the day-to-day demand in small-value payment. Thirdly, banks are allowed to issue small-value consumer loans to their Category III account holders who can repay the loan directly via the same account. The Notice also encourages banks to explore more diversified product design and functions for Category III accounts holders. Fourthly, the upper limit for the annual withdrawal (for consumer and utility payments, and transfer to non-linked accounts) is lowered from RMB 100,000 to RMB 50,000 to strike a better balance between security and efficiency while meeting the demands for small-value payment, befitting the definition of Category III account.
Q: Now that the Notice has further eased regulations on the opening and using of the Category III account, what are the measures it has proposed to prevent abuse of such accounts for illegal purposes such as fraud and money-laundering?
A: The Notice further eases regulations on the opening and use of the Category III accounts, so that the public can conveniently open Category III accounts through various e-channels without going to banks, and make transfer and payments through such accounts. However, the risks involved are also on the increase. Especially at present with frequent personal information leakage and rampant telecom and internet frauds, the risks of criminals opening Category III accounts under someone else’s name to transfer illegal proceeds from telecom and internet frauds are higher. To enhance the security of Category III accounts, the Notice has taken the following measures:
First, the daily upper limit of outward transfer through a Category III account for consumer and utility payments and transfer to unlinked accounts is lowered from RMB 5,000 to RMB 2,000; and the annual upper limit for outward transfer is reduced from RMB 100,000 to RMB 50,000 to cap payment from Category III accounts and make sure that the risks are relatively controllable.
Second, a Category III account opened through an e-channel can accept transfer from an un-linked account only after receiving transfer from the linked account to ensure that the actual controller of the linked account and the opener of the Category III account are the same person, and to prevent criminals from opening accounts after stealing others’ personal and bank account information .
Third, it is required that, for the same client, a bank can open only one Category III account online that is suitable for accepting transfer from un-linked accounts, in order to prevent criminals from opening multiple Category III accounts to circumvent transfer limit, and prevent abuse of such accounts for transferring illegal proceeds from telecom and internet frauds. Meanwhile, a bank as a legal person, in principle, shall open no more than five Category II and III accounts for a client. These requirements not only strengthen risk control, but also give banks the flexibility to decide in the light of actual conditions.
Q: Why does the Notice have explicit regulations on the direction of fund transfer between Category II and III accounts and payment accounts?
A: The classified management system of personal bank accounts has set strict regulations on the direction of money transfer among Category II and III accounts on the one hand, and payment accounts on the other. Specifically, Category II and III accounts opened online in a non-face-to-face way can transfer money to payment accounts and receive the unused balance from the payment account, but not the other way around. The main reason is that the real-name registration requirements are not thoroughly implemented among payment accounts, and there is no restriction on the range of accounts that can transfer fund to payment accounts. If money transfer could move freely between payment accounts and Category II and III accounts opened online, it will be detrimental to the implementation of real-name personal account system requirement, and to the fund security of the linked Category I accounts and Category II and III accounts. To enforce the real-name personal account system and to forestall risks, the Notice further reiterates the management of payment accounts as un-linked accounts, i.e. such accounts must not transfer money directly to Category II and III accounts opened online, except to the Category III account that allows transfer from un-linked accounts.
Q: What can individuals do to manage personal funds based on the classified management system of personal bank accounts?
A: With the establishment of classified management of personal bank account system, the PBC intends to build a firewall for personal finance through account classification to effectively protect fund and information security of personal bank accounts. Put it in another way, the three categories of bank accounts are three purses with different sizes.
Category I account is like a “cash box” with a higher level of security for storage of salary and major revenue that supports cash deposit and withdrawal, large-value transfer, large-item consumption, wealth-management product purchase, and utility bill payment, and etc.
Category Ⅱ account is like a “wallet” that supports account holders’ credit card usage, online shopping and utility payment, and wealth management product purchase.
The Category III account is a “coin purse” for frequent small-value transactions, especially mobile payments based on such innovative technologies as Host Card Emulation (HCE), Secure Element (SE) of mobile phones, and tokenization, including password-free transactions.
In general, Category I accounts are characterized by a high level of security and large amount of fund, thus suitable for large-value payments, while Category II and III accounts feature a higher degree of convenience and a smaller amount of capital, thus suitable for small-value payments. Category III accounts are especially appropriate for mobile payments and other emerging payment methods. The account holders could manage accounts based on their personal need, setting the account with a larger amount of fund as a Category I account, and those used more for internet and mobile payments as Category II or III accounts, or opening new Category II and III accounts for these payments. In this way, while the money is kept safe, the holders can experience various convenient and innovative payment methods.
Q: How do individuals make mobile payments with Category II and III accounts?
A: With the rapid development of mobile internet and intelligent mobile devices, and thanks to technical innovation, the mobile payment has penetrated deeply into daily consumption. Through connection with many scenarios, convenient payment processes, and good client experience, the mobile payment is attracting more and more consumers in using, trusting and accepting it. Based on such innovative technologies as HCE, SE of mobile phones and payment tokenization, consumers can use Category II and III accounts for mobile payments. It is also feasible for them to link their Category II and III accounts to payment accounts to replenish payment accounts, enable quick payment, satisfy demands for frequent small-value payments, and safeguard their personal financial security.
Q: What does the Notice require banks to do to optimize personal bank account services?
A: In order to facilitate money transfer, consumer payment, and fee payment through personal bank accounts, the Notice requires banks to take the initiative in optimizing services for the opening and use of personal bank accounts.
First, expand account opening channels. The Notice requires that, in addition to OTC, banks should offer Category II and III account opening services on all the channels that enable them to reach clients, such as e-banks, mobile banking APPs, and automatic machines.
Second, improve account opening procedures. The Notice requires that, on conditions that a client has logged onto his/here-bank or mobile banking APP after identity authentication, the bank shall explore the service mode of “opening a Category II or III account with one click”, without requiring the client to fill in identity information once again. After filling in the essential information including full name, ID number, and linked account information, the client shall be authorized to open a Category III account. Other information can be supplemented when payments made through this account reach a certain level.
Third, promote business innovation based on Category II and III accounts. According to the Notice, banks should promote business innovation based on the classified management of personal bank accounts, diversify non-cash payment methods, and improve the convenience of payments. Furthermore, banks should also actively guide their clients to choose Category II and III accounts, rather than Category I accounts, for daily consumer payment, utility fee payments, payment account replenishment, as well as internet and mobile payments.
Four, strengthen public awareness of Category II and III accounts. The Notice stipulates that, banks should guide their clients to open and use Category II and III accounts through online and offline channels, and promotion activities, enhance awareness of Category II and III account holders in protecting fund and information security, guide them to develop habits of using such accounts, and improve public understanding and acceptance of such accounts.
