People's Bank of China (PBoC) issued ‘Notice on centralised custodian of non-banking payment institutions’ customer provisions’. The Notice stipulates that from 17 April 2017, non-banking payment institutions must deposit a portion of total customer provisions to designated bank accounts, and will no longer earn interest on those provisions.
Customer provisions are payments made by customers temporarily, then held by a third-party payment platform until the transaction is settled.
The proportion required to be deposited is based on type of services provided and company grading, further scaled against PBoC's ‘Management measures on grading non-banking payment institutions’, where Grade A firms are least risky and Grade E firms most risky. According to the new policy, for
- online payment service firms, Grade A institutions must deposit 12 percent of their provisions and Grade E institutions must deposit 20 percent
- card acceptance merchant service firms: Grade A institutions must deposit 10 percent of their provisions and Grade E institutions 18 percent
- prepaid card issuance and acceptance service firms: Grade A institutions must deposit 16 percent of their provisions and Grade E institutions 24 percent
Over the next few years, PBoC will work towards centralising custodianship for all payment institutions’ customer provisions, though it did not provide a timetable for the transition.
The new policy on customer provisions
- reduces income from interest for third-party payment service providers. Reliance on interest for income creates the wrong incentives, says PBoC, leading companies to seek expansion and look for ways to keep clients' money in their accounts for as long as possible
- moves towards central custody of funds, which would bring more transparency to the industry and help prevent crime. Currently, every third-party payment company has on average 13 bank accounts where they can store customer provisions, according to PBoC