Caixin
Aug 29, 2019 08:48 PM
FINANCE

Exclusive: Regulators Target P2P Lenders’ Payment Service Providers

Tightening payment channels may exacerbate the already serious problem of borrower defaults. Photo: VCG
Tightening payment channels may exacerbate the already serious problem of borrower defaults. Photo: VCG

Financial regulators are tightening their grip on companies that provide payment and settlement services to peer-to-peer (P2P) lending platforms as the country’s ongoing crackdown on the industry continues.

Several local regulators, including in Beijing and Shanghai, have told some third-party payment companies to be more prudent about offering payment and settlement services to P2P lending companies, and in some cases to cease doing so, people familiar with the matter told Caixin.

The first batch of lending platforms to be cut off from such services is likely to be the handful without custodian banks, Caixin understands. Regulators ordered every lending platform to appoint one bank as a custodian of investors’ funds back in 2015. Without payment channels and custodian banks, the platforms’ funds won’t be able to flow in and out, effectively shutting them down.

For platforms that have custodian banks, funds can still enter and exit through them even where all third-party payment channels are stopped. But this is less convenient as only a small amount of the funds in the P2P lending industry are channeled through banks, one person working for a P2P custodian bank told Caixin.

Tightening payment channels may exacerbate the already serious problem of borrower defaults, several people working in the P2P lending industry, custodian banks and payment services companies told Caixin.

Cutting off payment channels is not the only way regulators are putting pressure on P2P lending platforms. On Monday, China’s financial regulators released draft restrictions on marketing of financial products which would include banning spam text messages and other predatory marketing techniques, according to a joint statement (link in Chinese) released by China’s central bank, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission and the State Administration of Foreign Exchange.

Contact reporter Liu Jiefei (jiefeiliu@caixin.com)

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