Dec 05, 2018 (China Knowledge) - China's central bank, the People's Bank of China (PBOC) has issued a reminder to third-party payment platforms to clear out their commercial bank accounts which were used to hold reserves when executing their transactions, with the PBOC taking over the management of these accounts starting from Jan 14th next year.
Currently, third-party payment platforms such as AliPay and WeChat Pay use escrow arrangement when executing transactions. This means that merchants do not receive their payment immediately but has to await until confirmation of goods, or services, received by the customer.
While waiting for this confirmation, the money is temporarily held in a commercial bank account where the third-party payment provider is able to earn interest of up to 4%, making them a significant revenue contributor.
With the PBOC taking over, these payment companies will no longer by able to earn interest from these funds. The funds have also been previously used as a leverage over banks to obtain preferential policies and cooperation in other business sectors.
The decision by the PBOC comes after a probe into the sector discovered that some companies had misappropriated the reserves and some banks overlooked certain monitoring obligations on these accounts to retain these operators as clients. The probe also noticed that some operators would choose to focus on accumulating these reserves as profits instead of their payment services.
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