Goal is to prevent fraud, increase transparency and guarantee funds

China's central bank is building a clearinghouse for online transactions to tame online finance risks and better regulate the expanding industry.

The People's Bank of China has approved preliminary plans for the establishment of the platform and the management plan submitted by the Payment and Clearing Association of China, the nation's regulatory body for the industry, the central bank said.

The platform is expected to be launched early next year, said Cheng Shigang, a senior official with the payment and settlement department of the central bank.

The clearinghouse for online payments would reduce settlement risks by disconnecting the direct clearing business made between third-party payment firms and banks, and by regulating a guarantee fund that can be used to cover losses, the central bank said.

All third-party online payment providers will be under regulation of the clearinghouse, according to the central bank, including Alipay, the largest mobile payments provider of Alibaba Group Holding Ltd, and foreign payment providers, if they intend to step into the Chinese online payment sector.

The move comes after the central bank issued a regulatory guideline in July for internet finance, including online payment services, peer-to-peer lending and crowdfunded equity finance.

Officials and analysts said it is a timely and necessary step, taken at the time when the online payment industry, while expanding, is not mature and faces rising risks.

IRsearch Consulting Group, a Beijing-based research firm, estimated that the size of third-party online payments in 2015 reached 11.8 trillion yuan ($1.8 trillion) in 2015, up by nearly 70 percent compared with the previous year.

In the meantime, about 326,000 new payment viruses emerged and more than 25 million users were affected in China, almost equivalent to the population of Australia, the group said.

Zhao Ying, a senior official with the central bank's Chengdu branch, said that the move would help improve information transparency and security.

"A unified platform would do a better job and will verify the identity of clients," she said, citing concerns about rising risks of fraud and money laundering made by online transactions.

Echoing her statement, Zhao Yao, a research fellow of Hengfeng Bank Co Ltd, a joint-equity commercial bank based in Shandong province, said that such a platform would help develop a standardized payment market and restore market order.

"Currently, the use of money deposited in the third-party payment institutions lacks standardization and transparency. How the money flows remains unknown to commercial banks and regulators, thus leading to risks of embezzlement and capital chain ruptures.

"Establishing a centralized depository system will fundamentally prevent payment institutions from misappropriating the money and using it for loans, investment or wealth management," said Zhao who has been doing research on this subject since 2012.