The third-party payments industry in China has reason to cheer after authorities reversed a policy to allow them to earn interest on existing funds.
This follows a two-year campaign to cut fraud and financial risk in the sector which included a «no interest» policy imposed in 2017 that pushed funds out of accounts from commercial banks that paid interest.
The industry took a significant hit as it was then dependent on income from funds lent through overnight money markets or other short-term contracts. This was especially the case for smaller payment firms that relied on as much as 80 percent of profits from such sources, according to a «Caixin» report (behind paywall).
But the compromise under the current form is unlikely to revive the previous business model. Payment firms’ funds will earn interest from the People’s Bank of China which will pay 0.35 percent, the report adds. As a point of reference, China’s 1-year government bond is currently yielding 3.16 percent.
