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Asia300

Alibaba and Tencent hit by China's new mobile payment rules

Mandate to deposit funds at central bank will slash interest income

Alipay operator Alibaba Group generates income from unused prepaid funds by collecting interest from private banks and offering loans through smartphone apps. (Photo by Koji Uema)

SHANGHAI -- Alibaba Group Holding and other mobile payment providers in China stand to lose significant interest revenue when the government requires that all prepaid funds they receive from users be deposited with the central bank rather than private institutions.

The People's Bank of China has told payment services that 100% of such customer funds must be placed in specified accounts by 2019. Only about half is done so now, but the proportion is set to rise incrementally from this month.

Alipay operator Alibaba and WeChat Pay provider Tencent Holdings, the market's two main players, do not have to pay users interest on their balances. Instead, they collect the gains themselves.

Market estimates put the interest rates earned on this money at around 1.5%. Assuming roughly 500 billion yuan ($75.3 billion) in held customer funds, this translates into 7.5 billion yuan in annual interest income --  revenue that will virtually disappear starting in 2019.

Not only has the PBOC capped daily mobile payments, it is also tightening regulations on financial products that harness user funds. The central bank is expected to keep tightening rules around smartphone-based financial services as it seeks to rein in risks.

Some also believe the move is related to President Xi Jinping's deleveraging campaign, since banks use customer money from mobile payment providers as a source of funds for loans. By inserting the PBOC into the process, Xi aims to tame undisciplined lending.

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