China to Set Protection Fund for Booming Payments Industry
China’s central bank is setting up a fund to deal with risks in the country’s fast-growing third-party payments industry and protect the money customers deposit with platforms including Ant Group Co. Ltd., which operates Alipay, and Tencent Holdings Ltd., which runs WeChat Pay.
The industry fund, similar to those already established for the securities, insurance and trust sectors, will be used to defuse potential risks when payment companies are unable to repay customers’ funds, protect the legal rights and interests of consumers, maintain financial stability, and promote the “sustainable and healthy development of the payment industry,” according to a draft regulation (link in Chinese) issued by the People’s Bank of China (PBOC) on Tuesday.
The decision will help reassure hundreds of millions of Chinese users of domestic online payment services that they may get their money back if a platform goes bankrupt or money is embezzled. The PBOC said the lack of a safeguard for users of payment services could threaten social stability were a payment company to lose its license or be forced to close down and fail to repay the money consumers deposit temporarily with payment platforms when they buy goods and services online.
The PBOC’s proposed fund comes in response to growing concerns about the security of deposits after some platforms were found to have embezzled customers’ funds and served criminal activities.
The central bank started licensing third-party payment providers, who process payments mostly from online shopping for goods and services, in May 2011, and although Alipay and WeChat Pay are the dominant players, the latest data show 237 companies have been granted a license. Other tech giants such as food delivery service Meituan Dianping, ride-hailing company Didi Chuxing Technology Co. Ltd., e-commerce platform and online retailer JD.com Inc., smartphone maker Xiaomi Corp., are also muscling in on the market.
Yang Tao, a researcher of the Institute of Finance and Banking at the Chinese Academy of Social Sciences, said the fund will help stabilize market expectations and resolve the risks stemming from small and midsize payment companies.
The PBOC is aiming to raise 1 billion yuan ($149 million) for the fund by taking a cut of the interest third-party platforms get on the trillions of yuan of customers’ money they are required to deposit into accounts managed by the central bank. By the beginning of 2019, payment services providers had shifted all of the client funds they had previously kept with commercial banks into centrally managed accounts at the PBOC that pay an annual interest rate of 0.35% up until 2022, Caixin has previously reported.
The PBOC awards each company a rating from A, the highest, to E, the lowest, based on criteria including risk management and fund management. They will then be subject to a sliding scale of contributions from 9.5% for the highest rated to 12% for the lowest.
Payment companies’ client deposits at the PBOC amount to 1.5 trillion yuan, according to the central bank. Alipay and WeChat Pay together account for more than 1 trillion yuan of the total, Caixin has learned from people familiar with the issue.
As of June 2020, 805 million people in China had made online payments, a 4.8% increase over March, according to a report (link in Chinese) released by the China Internet Network Information Center in September.
Contact reporter Guo Yingzhe (firstname.lastname@example.org) and editor Nerys Avery (email@example.com)
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