PBOC reins in funds of pay­ment plat­forms

Cen­tral bank’s mea­sures set to en­sure safety of re­served cus­tomer fi­nances

China Daily - - BUSINESS - By CHEN JIA in Bei­jing and HE WEI in Shang­hai Con­tact the writ­ers at chen­[email protected]­nadaily.com.cn

China’s cen­tral bank be­came the new cus­to­dian of all cus­tomer funds de­posited by third-party pay­ment groups start­ing from Mon­day, tight­en­ing con­trol of mo­bile pay­ment trans­ac­tions and clear­ing.

The cen­tral bank will pay no in­ter­est on the re­served money, the amount of which reached 1.24 tril­lion yuan ($183 bil­lion) in Novem­ber 2018. This marks the end of the era in which pay­ment plat­forms in­vest cus­tomers’ funds freely to earn in­ter­est re­turns, and the new pol­icy could squeeze a large part of the profit of the pay­ment groups, said an­a­lysts.

The reg­u­la­tion on third-party pay­ment groups’ cus­tomer funds is now un­der fur­ther re­vi­sion, as le­gal guid­ance for the plat­forms to ex­plore new mon­ey­mak­ing mod­els, ac­cord­ing to some ad­vis­ers who par­tic­i­pated in the re­vi­sion pro­ce­dure.

“The re­freshed reg­u­la­tion should en­cour­age pay­ment groups to cre­ate new busi­ness mod­els and up­grade pay­ment tech­nol­ogy, but not con­strain in­no­va­tion at the ex­cuse of prevent­ing risks,” Yang Dong, direc­tor of the Fin­tech and In­ter­net Se­cu­rity Re­search Cen­ter at Ren­min Univer­sity of China, told China Daily.

Fan Yifei, deputy gover­nor of the Peo­ple’s Bank of China, the cen­tral bank, has con­firmed that the man­age­ment rules on pay­ment com­pa­nies’ re­served cus­tomer funds is be­ing re­vised.

The PBOC’s bal­ance sheet showed that “de­posits of non­fi­nan­cial in­sti­tu­tions”, which refers to the de­posits at the PBOC by pay­ment in­sti­tu­tions, in­creased to 1.24 tril­lion yuan by the end of Novem­ber 2018. It was only 123.8 bil­lion yuan in Jan­uary and rose 10 times within 11 months.

Be­fore the new re­quire­ment, third-party pay­ment groups were able to earn sig­nif­i­cant rev­enue through in­vest­ing cus­tomer funds in mu­tual funds, peer-to-peer loans and other wealth man­age­ment prod­ucts, after de­posit­ing funds in com­mer­cial banks’ ac­counts.

Users usu­ally store some money on pay­ment plat­forms for a cer­tain pe­riod after re­ceiv­ing it but be­fore trans­fer­ring into bank ac­counts, which ac­cu­mu­lates a “cap­i­tal pool” for fur­ther in­vest­ment.

Ali­pay, the coun­try’s top third­party pay­ment tool by mar­ket share, said it has im­ple­mented the re­quire­ments of the cen­tral bank on 100 per­cent de­posit of its to­tal client funds, cut di­rect ties with banks and can­celed the bank ac­count for re­serve funds by Mon­day.

“Ali­pay will con­tinue to main­tain the healthy, steady and sus­tain­able de­vel­op­ment of the in­dus­try un­der the guid­ance of the Peo­ple’s Bank of China, and pro­vide more in­clu­sive, se­cure and con­ve­nient ser­vices to con­sumers and mi­cro and small en­ter­prises,” the com­pany said in a state­ment to China Daily.

Ten­pay, the pay­ment af­fil­i­ate of Ten­cent Hold­ings Ltd, also said it has “ba­si­cally com­pleted all set­tle- ments via the cen­tral cus­to­dian by the end of De­cem­ber”.

The PBOC said that, by the end of last year, 99 per­cent of the third­party com­pa­nies’ pay­ments that pre­vi­ously pro­cessed bi­lat­er­ally with com­mer­cial banks, have been trans­ferred into a cen­tral­ized clear­ing sys­tem. The func­tion will be per­formed by two State-owned clear­ing houses — Net­sUnion Clear­ing and China UnionPay, with the lat­ter mainly fo­cus­ing on bank card pay­ments.

Ac­cord­ing to Wen Xinx­i­ang, direc­tor of the PBOC’s pay­ment and set­tle­ment de­part­ment, the new pol­icy is a sig­nif­i­cant re­form, part of the on­go­ing cam­paign to crack down on in­ter­net fi­nance risks, as some il­le­gal ac­tiv­i­ties of us­ing re­served cus­tomer funds threat­ened mar­ket sta­bil­ity.

“Uni­fy­ing su­per­vi­sion will im­prove the ef­fi­ciency of clear­ing, lower pay­ment costs, and en­sure the safety of re­served cus­tomer funds,” said Wen.

The move is in­evitably a drag on rev­enue to most third-party pay­ment firms, as in­ter­est gen­er­ated from re­serve funds nor­mally con­trib­ute to a siz­able por­tion of in­come for small and medi­um­sized play­ers, said Neil Wang, pres­i­dent of con­sul­tancy Frost & Sul­li­van in China.

“By putting the funds into spe­cial ac­counts des­ig­nated by the cen­tral bank, the pay­ment firms can no longer earn in­ter­est on the re­served funds. Mean­while their bar­gain­ing power with banks will be greatly af­fected,” he said.

But by crowd­ing out smaller play­ers, big­ger com­pa­nies can weather the storm by in­tro­duc­ing more tech­nol­ogy-driven and value-added fi­nan­cial ser­vices, Wang said.

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