China’s two leading mobile payments companies are expected to collectively lose approximately USD$1 billion in annual revenue following the launch of new customer deposit requirements by the Chinese central bank.
In January 2017 the People’s Bank of China (PBOC) said that it would require third party payment companies to keep 20% of their customer deposits at commercial banks in single custodial accounts that bear no interest.
PBOC has since announced that this reserve requirement will rise to 100% by January next year, after first lifting the ratio to 50% in April.
China’s third party payments providers had previously been given free rein to invest funds collected from customers, effectively functioning in a manner akin to depository institutions without the obligation to make interest payments for funds.
This gave China’s two leading mobile payments vehicles – Ant Financial’s Alipay and Tencent’s WeChat Pay, access to hundreds of billions in renminbi funds via their platforms.
AliPay and WeChat Pay occupy a dominant role in China’s mobile payments sector, with market shares of 54% and 39% respectively.
The breakneck growth of China’s cashless economy has transformed this into a vast market, with research firm Analysys Mason estimating that mobile payments transactions hit 109 trillion yuan in 2017.
From January 2019 onwards, however, third party payments providers will receive zero interest on related customer funds.
According to a new report from The Financial Times this means that Ant Financial and Tencent stand to lose around $1 billion in combined annual revenue.