Online Payment Fundamentals: Background, Payment Types, Reserve Funds, Direct vs Indirect Connections, and Settlement

In the article "Tampering with WeChat Balance Technical Study 2.0" a senior funding architect from Tencent dissected a popular idea, sparking extensive discussion. The author emphasizes that, despite the humor, the technology behind third‑party payment deserves serious study.

The online payment industry originated with PayPal, founded in 1998, merged with Elon Musk's X.com in 2000, listed in 2002, and was later acquired by eBay before being spun off again in 2015. Eric Jackson’s book *Payment War* recounts this rapid evolution, and Peter Thiel’s famous quote describes online payment as the future operating system for world finance, highlighting the need for a more convenient, network‑connected form of money.

In everyday life, direct face‑to‑face transactions are risk‑free because money and goods exchange simultaneously. As online commerce grew, the parties often do not know or trust each other, creating a need for a neutral credit intermediary. Third‑party payment platforms hold the buyer’s funds temporarily (escrow) and release them only after both sides confirm, thus reducing risk.

Two main digital‑wallet models are described:

Staged digital wallet (e.g., WeChat Pay, Alipay) splits a transaction into a funding stage (money moves to a reserve account) and a payment stage (money moves from the reserve to the merchant). The reserve account can retain user balances for services like red packets.

Pass‑through digital wallet (e.g., NFC‑based mobile payments) completes the transfer in a single step; the platform acts merely as a channel and does not hold a balance.

Aggregated payment platforms combine multiple channels (WeChat Pay, Alipay, UnionPay, etc.) and offer value‑added services such as multi‑level merchant onboarding and account reconciliation, but they are prohibited from holding user funds.

Reserve funds (备付金) are defined by the People’s Bank of China as funds pre‑deposited by customers or held on their behalf by payment institutions. They include: Funds entrusted to the payment institution for safekeeping. Funds received by the institution but not yet disbursed. Funds the institution has received from a payer but not yet paid out. Unused prepaid value in prepaid cards.

Historically, reserve‑fund management required a custodial bank (存管银行) for centralized custody and a cooperative bank (合作银行) for intra‑bank operations. Since 2017, the PBOC mandated full centralization: all reserve funds must be deposited into a designated account managed by a custodial bank and ultimately settled in the ACS (Accounting Data Centralized System) of the central bank. The NetUnion (网联) platform provides a front‑end (RCMP) that aggregates transactions before forwarding them to the central bank.

Regarding connectivity, the "direct" model (直联) allowed payment platforms to connect straight to banks, but a 2017 notice required migration to the "indirect" model (间联), where all bank‑related transactions pass through the NetUnion and UnionPay layers, enabling unified supervision.

NetUnion supports two categories of services:

Information services (e.g., transaction notifications).

Fund services , including protocol payment, refunds, payments, gateway payments, entrusted deductions, and authentication payments.

Clearing (清算), settlement (结算), and clearing‑accounting (清分) are often confused. In the narrow banking view, clearing is the central‑bank‑driven settlement of inter‑bank obligations, while settlement is the bank‑level transfer to merchants or individuals. Broadly, clearing = 清分 + 结算: 清分 is the accounting phase where transaction data are aggregated and netted without actual fund movement; 结算 is the subsequent transfer of funds based on the netted results.

For example, a consumer pays 100 CNY at a merchant. The consumer’s bank debits the amount and notifies the merchant’s bank (payment). The central bank then clears the inter‑bank obligation (清算). Finally, the merchant’s bank settles the funds to the merchant’s account (结算).

Below is a concise reference of the three Chinese bank‑account classes used in reserve‑fund management:

[银行Ⅰ、Ⅱ、Ⅲ类账户] 全功能账户就是Ⅰ类账户，我们生活中常见的借记卡就是Ⅰ类账户，银行卡新规中规定同一个在全国范围内的一家银行只能开立一个Ⅰ类账户，若已经开立Ⅰ类账户的，准备再开新户的应当开立Ⅱ类账户或者Ⅲ类账户。Ⅱ类和Ⅲ类是虚拟的电子账户，不存在实体，也是在Ⅰ类账户的基础上增设的两类功能逐渐级递减，资金风险也逐级递减的账户。Ⅰ类账户的使用限额无限制，Ⅱ类账户的使用限额日累计限额：1万元，年累计限额：20万元; Ⅲ类账户年累计限额为5万元。这三类只有Ⅲ类账户的要求账户余额限制在2000元以下。参考：http://www.mpaypass.com.cn/news/201801/20133607.html

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