Payment agencies told to bank clients' cash

Latest step in third-party platforms' regulation aims to tackle rising cases of embezzlement amid rapid growth

China's central bank, or PBOC, said on Jan 13 that it will eventually ban all non-bank payment agencies, including Alipay, from using clients' money. As a first step, it will require all platforms to deposit 20 percent of clients' funds in appointed bank accounts.

The move is the latest step to be taken by the central bank to tackle the financial risks caused by a rising number of institutions found embezzling money.

Starting from April 17, a total of 267 third-party organizations with central bank licenses in China, including Alibaba-owned Alipay, will have to submit around 20 percent of provisions to a single account opened in a commercial bank, with the central bank's approval.

Customer provisions refer to money held by third-party organizations that is not the property of the organization.

The exact amount handed in by each institution will be calculated based upon the daily average balance of provisions in the previous quarter and will be adjusted quarterly thereafter.

"The 20 percent level aims to leave time for institutions to adapt to new rules," says Xie Zhong, head of the central bank's payment and settlement department. "The final level will be 100 percent", meaning the central bank will then be the only authority governing provisions.

Xie did not provide a specific timeline for adjusting the level.

The move comes after the central bank decided to establish a clearinghouse for online transactions early last year, aiming to trim financial risks by disconnecting the direct clearing business from third-party payment firms and banks.

The clearinghouse, which can be used as an alternative to commercial banks to keep custody of provisions, will be launched in March this year, according to Xie.

Li Aijun, a law professor with the China University of Political Science and Law, says the new rules will not have a major impact on the income level of the companies.

"The new rules will hit small institutions that are more vulnerable to financial risks," she says.

Li says she believes it will not take long for the central bank to increase the level to 100 percent, since risks have emerged quickly in recent years in the ever-expanding market.

The third-party online payment market in China attained a total transaction value of 4.65 trillion yuan ($674 billion; 630 billion euros; 546 billion) in the second quarter of 2016, up 6.5 percent quarter-to-quarter according to the latest data from Analysis International.

A total of 460 billion yuan of customer provisions has been reserved by third-party institutions as of the third quarter of last year, according to the central bank.

By the end of last year, more than 30 third-party institutions were fined for illegally embezzling provisions, data from the Chinese Academy of Social Sciences show.

Contact the writers at wangyanfei@chinadaily.com.cn.

(China Daily European Weekly 01/20/2017 page29)