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在线翻译:
szdaily -> Business
Payment restrictions to hit profits
    2018-January-9  08:53    Shenzhen Daily

A DECISION by China’s central bank to rein in reserve funds held by payment firms could cost the industry upwards of US$689 million a year, spur consolidation and alter the way Asia’s biggest tech firms move money.

Mobile payments using in-app QR or bar-codes have become ubiquitous for everything from taxis to grocery shopping and bike rental in China in recent years, with customers making 19 trillion yuan (US$2.9 trillion) in transactions in 2016, according to iResearch.

The rapid uptake has spurred fears that mobile payment firms, without oversight, could misuse funds held while transactions between users and merchants clear.

Recent regulations unveiled by the People’s Bank of China require firms to allocate 42 to 50 percent of their total client funds in regulated interest-free reserve accounts by April, up from a current rate of 12 to 20 percent.

The move will hit services backed by Tencent Group Holdings and Alibaba Group Holding affiliate Ant Financial, which together make up over 93 percent of China’s online payments market, according to research firm Analysys International.

It’s part of a two-year government crackdown on financial risks in the country’s fast growing and loosely regulated online finance sector, aimed at limiting the activities of third-party payment services, online asset managers, micro-lenders and others.

The central bank has said it will eventually raise the ratio to 100 percent but hasn’t given a timeline.

The moves will impact a major source of profit for online payment firms, particularly those that relied on the interest income for fast growth during the early boom years.

“From an industry perspective, these changes will alter the economics underlying certain revenue streams,” said James Lloyd, Asia-Pacific Fintech lead at EY.

“Clearly the central bank is increasingly considering the potential financial stability risks associated with large-scale mass-market non-traditional players.”

China’s e-commerce and mobile payments market has enjoyed explosive growth in recent years with Alipay and Tencent’s Tenpay each accumulating over 500 million users.

Client reserve funds are prepaid sums from buyers that are held temporarily by payment companies before they are transferred to merchants. Payment firms typically deposit them into bank accounts where they earn interest.

Interest income earned on those reserve funds accounted for 11 percent of total income for internet-based payment companies, data from Zhongtai Securities shows.

The latest hike in reserves will slash more than 4.48 billion yuan in annual interest earnings from the industry, according to media calculations, under the assumption that payment companies could have earned 3-percent annualized interest rate on those funds.

Analysts say large, diversified firms such as Ant Financial and Tencent will be able to absorb the costs, and seek to replace revenue with income from other products, including wealth management tools and micro-loans.

Smaller payment firms could face consolidation as their margins slide. There are currently more than 200 companies licensed to provide such services.

Shanghai-based All In Pay Network Service, which has 1.7 million merchants, said it would adjust its business to comply with the central bank’s new policy. “In terms of the actual impact it will have on our company, that still remains to be seen,” it said.

The move will allow China’s central bank to gain more insight into capital flows within the industry as it seeks to quell financial risks associated with the massive funds now kept by third-party payment companies.

The rules on reserve funds also pave the way for the establishment of a new government-directed clearing house for third-party payment companies, which is expected to launch in June. The new entity will enable the central bank to track all online financial transaction data and the flow of funds in the industry, analysts say.(SD-Agencies)

SD-Agencies

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Shenzhen Daily E-mail:szdaily@szszd.com.cn