Chinese Mobile Payments Leader Alipay Socked With Fine

August 9, 2018         By: Steven Anderson

Increasingly, the Chinese mobile payments market is a tough field to figure out. On one hand, it seems like the Chinese government is eager to keep payment processors going and derive taxes from same accordingly. On the other, meanwhile, it seems like the Chinese government considers payment processors some kind of existential threat that must be kept down at every opportunity. To that end, the People’s Bank of China recently socked Alibaba affiliate Alipay with a $601,846 fine for “payment services regulations violations.”

That’s it. That’s all. No other details were provided, just the legal equivalent “You did something wrong, somewhere, and we know about it.” The fine comes at a terrible time for Alipay, and indeed for all payments processors, as new rules about handling customer funds are poised to come into play that restrict how those funds can be handled. It could represent as much as a $1 billion loss in total annual revenue in the field, and that means quite a hit on that front as well.

With the new rules, processors are required to hold all of customers’ funds in reserve, instead of being allowed to invest these funds elsewhere. Originally, processors needed to keep just 20 percent of deposits on hand, which went to 50 percent back in April and will hit 100 percent by January. The People’s Bank of China instituted the regulations in a bid to both protect customers and prevent fraud and embezzlement at the processor level.

A country like China, one that maintains internet censorship so pervasive it’s collectively referred to as “the Great Firewall of China” and that has a social scoring system in place, might well be trying to restrict payment processors with these fines, fees and regulations. Conversely, this might not be a direct ploy for control, but rather an indirect ploy to just remind the processors who’s “really in charge.”

Regardless of the potential explanation or ramifications therein, it’s clear that the People’s Bank of China is on the hunt for regulatory infractions lately. Whether it’s trying to raise cash in the face of an ongoing US / China trade war, asserting its dominance over the economy, or has just actually spotted a problem, it’s getting more expensive to be a Chinese mobile payments processor.