Chinese Central Bank Adds New Rules for Mobile Payments

January 5, 2018         By: Steven Anderson

We all like to think that, when we deposit money with anyone—a bank or a mobile payment provider—that our money, or at least a close facsimile, would be available when we wanted to use it. That’s seldom the case any more, but in China, the central bank is putting a little more onus on mobile payments providers to keep customers’ money on hand thanks to a new slate of rules recently installed.

The new rules, reports note, call for a gradual hike in the reserve funds ratio from a current rate of 20 percent to a total of 50 percent by April of this year. That’s just a start, though, as the rate will eventually reach 100 percent by default as non-bank payment firms will be forbidden from making any kind of private investment with user deposits. The firms in question are required to deposit that reserve in a “state-approved commercial bank.”

Given that around 460 billion yuan—roughly $70.8 billion US of this writing—was deposited as a reserve by third-party payment providers just in the third quarter, it’s clear that there’s plenty of cash flooding into these platforms. It’s also a safe bet that the Chinese government isn’t exactly happy about the notion of private corporations with that kind of cash on hand, and is making moves accordingly to not only neuter their cash flow, but their potential political power as well.

The immediate response would likely be for Ant Financial et al to start looking into becoming banks, but that might prove an even harder row to hoe. Perhaps they’ll pull up stakes and move to one of the various countries in the area where they won’t be so thoroughly beset upon, but even this will likely limit their access to the massive Chinese marketplace they’re essentially depending on for their success. While Alipay—and to a lesser extent WeChat Pay—has been frantically setting up operations worldwide, those operations are largely geared toward Chinese tourists. Alipay’s hoped-for departure by acquiring MoneyGram in the United States has fallen apart, which kind of puts Alipay back at Square One.

How Alipay, and its contemporaries, will respond to this Chinese move is as yet unclear, but we could be looking at some big changes to come in the field.