Deposit Centralisation to Crimp Profits of China’s Mobile Payments Giants


The Chinese government’s centralised processing of all deposits held by third party payments providers on behalf of clients is expected to put a dent in the profits of mobile payments giants such as Ant Financial and Tencent.

As 14 January all of China’s non-bank third party payments providers are required to place 100% of their customer deposits at interest-free accounts with a centralised platform, as well as cancel their reserve deposit accounts at commercial banks.

Regulators hope that the long-awaited move will help to combat risk in the Chinese financial system by increasing information transparency as well as the ability of authorities to regulate funds.

In an article written for Securities Daily Dong Ximiao (董希淼 ), vice-head of the Chongyang Institute for Financial Studies, Renmin University, says that “from a macro-economic perspective, central bank management of deposits is of benefit to preventing and dissolving financial risk.

“Over the past several years regulation of deposits has been loose, leading to some payments organisations misappropriating customer funds.

“For example, in 2014 Shanghai Changgou (上海畅购公司) misappropriated deposits and created a fund risk gap of 780 billion yuan involving 50,000 card holders.

“Some payments organisations have even used these funds to engage in high-risk investment, severely harming the lawful rights and interests of financial consumers.”

Dong further points out that some payments organisations have used the deposit accounts opened with commercial banks to engage in operations beyond their designated business scope in breach of regulations.

At the same time the flourishing growth of payments organisations has “exacerbated the hidden hazard of systemic transmission of financial risk,” as well as provided channels for illegal activities including money laundering and terrorist financing.

The move is expected by other observers to put a sizeable dent in the revenues of payments giants such as Ant Financial and Tencent, by forestalling their ability to reap interest from deposits at commercial banks.

Data from the Chinese central bank indicates that customer funds deposited by non-bank payments providers with the central custodian reached 1.24 trillion yuan by November, with another 260 billion yuan expected to be included within the system, for the removal of a huge volume of interest-bearing money.