The days of easy interest are over.
A Chinese financial regulatory shift is set to wipe billions of renminbi in revenue off the balance sheets of popular mobile payment services like Alibaba-owned Alipay and Tencent-owned WeChat Pay that consumers commonly use to pay for groceries, transportation and other mundane aspects of their daily routines.
As Chinese consumers eschew cold, hard cash for the convenience of mobile payment apps, it’s not uncommon for them to leave their funds inside these applications, which providers previously were allowed to invest—and to earn interest from. Consumers never saw a penny of this interest, however.
But thanks to a new rule adopted by the People’s Bank of China in January 2017, that’s all coming to a close, the Financial Times reported. The central bank first stipulated that third-party payment providers must hold 20 percent of funds deposited by customers in a non-interest-bearing account with a commercial bank. That jumped to 20 percent in April, and as of January 2019 third-party firms like Alipay will be required to hold all customer funds in a dedicated, interest-free account. The decision is thought to be an effort to prevent fraud and to protect consumer holdings.
Though China is far ahead of the U.S. and Western countries in general on the volume and value of mobile payments processed annually, estimates vary over just how much money is exchanged via smartphones and apps. China’s Ministry of Industry and Information Technology puts the figure at 81 trillion yuan ($12.8 trillion), while the Financial Times cites a larger amount, based on data from Analysys Mason: $16 trillion. Regardless, those trillions translate to significant interest for the likes of Alipay, WeChat Pay and others. Last year 1.7 percent of Tencent’s revenue was derived from customer interest
