Jun 30, 2018 10:32 AM

PBOC to Raise Reserve-Funds Ratio for Third-Party Payment Firms to 100%

China’s central bank will require payment firms to deposit 100% of their reserves of client funds with a centralized custodian by Jan. 14 — part of a broader effort to crack down on financial risk.

The People’s Bank of China said in a statement Friday that payment firms are required to gradually increase their reserve rate each month starting July 9.

The requirement means payment firms such as Alibaba Group Holding Ltd. backed Alipay and Tencent Holdings Ltd.’s Tenpay can no longer invest money deposited by their respective clients.

The central bank initially required payment companies to put at least 20% of such funds under central management amid concerns about potential for misappropriation. But late last year, the central bank ordered the reserve ratio to increase to 50% by April 2018.

Reserve funds are prepayments from online shoppers held temporarily by payment companies that can then earn income on the cash by depositing it in banks or even buying government bonds. By putting the funds into special accounts designated by the central bank, the payment firms can no longer earn interest on the cash.

The two largest third-party payment firms, Alipay and Tenpay, combined hold nearly 1 trillion yuan ($151 billion) of customers’ funds, about 90% of the total reserve funds.

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