Earlier this year the Central Bank of China issued regulations for the financial services industry that it appended last week for mobile payment platforms. The appended regulations include the following:
- New ceilings on mobile payments per transaction: Based on customer credit profiles, each transaction is limited to 500 yuan ($77), 1000 yuan ($154), or 5,000 yuan ($769).
- A significant boost in reserves held at the People’s Bank of China (PBOC): The reserves held at the PBOC against outstanding payments platform balances will jump dramatically from 20% to 100% this week.
Following the news, investors in Tencent and Alibaba’s ANT Financial were concerned about their loss of interest income from the float, roughly 7.5 billion yuan, or, in Tencent’s case, 2.5% of profits. While not inconsequential, the interest income these platforms derive is dwarfed by the value they create in lowering the cost of customer acquisition for their advertisers and other service providers. Indeed, by eliminating interest income from the payments platform model, the PBOC will deter marginal players from entering the market, which actually will play to the benefit of both Tencent and Alibaba.
The PBOC seems to be taking aim at capital flows into the shadow banking system. While they could slow economic growth in the short term, these regulations should weed nefarious agents from the financial services industry, adding to confidence and stability in the banking system.
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