A Big Sock in the Bottom Line Ahead for Chinese Mobile Payments?

It hasn’t exactly been easy to be a Chinese mobile payments firm in the last few months. With signs suggesting that the government is starting to resent their success and their massive war chests, rule changes have been percolating below the surface that could mean big hits to how mobile payments operations like Alipay and WeChat Pay do business. One such rule change is set to hit the leading duo for around $1 billion.

Under previous rules, companies could take depositors’ money and invest it, much in the same way that banks do with customer deposits now. Like in “It’s a Wonderful Life,” your money isn’t in the bank. It’s in Fred’s house, and Bill’s house, and so on for all the places that the bank loaned money to. The new rules would require mobile payments operations to actually hold on to customer deposits, and make it clear said holdings wouldn’t pay interest.

This is a change that’s been a while in coming; back in January 2017, third-party payments firms had to hold 20 percent of customer funds in reserve. April 2017 saw that number jump to 50, and by January 2019, that number is set to hit 100 percent. The People’s Bank’s reasoning behind this move is that some third-party firms were engaging in risky investments that may have cost people their deposits, and some firms were actively embezzling.

This continued hobbling of the mobile payments market in China is likely going to come back to haunt the Chinese government. When these companies are making the kind of money they are, of course it’s going to be seen as a threat by an authoritarian regime. Yet that same regime forgets, it’s taxing those platforms, so getting out of their way and letting them operate helps ensure a steady flow of revenue into the government itself. Why China is working to slit the throat of the golden goose is unclear, and with a trade war brewing between itself and the US, it needs stable revenue.

Only time will tell how the landscape will look with Alipay and WeChat Pay no longer able to derive income from side investments. Early word suggests the outcome won’t be good for the Chinese mobile payments market, though.