China's Central Bank Fines Alipay

Alipay, a payment affiliate of Alibaba, has been hit with a $601,846 fine by the Shanghai head office for the People’s Bank of China.

According to a report in Reuters, citing the central bank, the fine was for payment services regulations violations. The regulator didn’t provide any other details.

The fine comes as worries grow over a new rule about handling customer funds, which could result in Alipay and Alibaba losing as much as $1 billion combined in annual revenue. The Financial Times, citing the People’s Bank of China, reported that under this rule, third-party payment services have to hold customer funds in reserve — previously, these services could invest customer funds, similar to what banks do with deposits.

Unlike banks, digital payment services don’t pay any interest on the money they are holding for customers. The Financial Times noted that, in January 2017, the People’s Bank of China said third-party payment firms would have to keep 20 percent of customer deposits in reserve, and specify that the account won’t pay interest. In April, the People’s Bank of China increased that to 50 percent, and raised it again in June, so that it would reach 100 percent by next January, noted the Financial Times.

The reason behind the increases is to prevent fraud and protect customers — the People’s Bank of China said, last year, that some firms used customer funds for risky investments, while others engaged in embezzlement. Additionally, keeping customer funds at several financial institutions at the same time made monitoring difficult.

While the Financial Times reported that Alipay and Tencent were conservative with customers’ funds, they did make a lot of money by placing the funds in interest-earning accounts at banks. The Times noted that interest accounted for 1.7 percent of Tencent’s revenue last year. Ant Financial, another payment affiliate of Alibaba, doesn’t disclose its financials — but the Times said interest income should be higher than at Tencent, but still account for a small amount of its overall revenue.



The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.