NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, January 5, 2018

China is quickly hurtling towards a cashless society, thanks largely to digital payment services operated by web giant Tencent and Alibaba affiliate Ant Financial. But going into 2018, the companies’ days of easy growth might be coming to an end.

Chinese regulators, increasingly concerned about the way e-payment platforms manage user deposits and introduce fresh payment methods, recently imposed a series of curbs that will hurt the companies’ revenue streams and curtail their rapid pace of expansion. This marks a sharp reversal from several years ago, when authorities took a back seat and let Tencent and Ant Financial disrupt the country’s entire payment industry, so their better services and higher interest rates could serve hundreds of millions of underbanked people and help push for reforms in China’s static traditional banking system.

Now that digital wallets like Ant Financial’s Alipay and Tencent’s Ten Pay have become near ubiquitous in the country, where the market for mobile payment reached $5.5 trillion as people use them to pay for clothes, groceries, taxi fares and utility bills, the government wants to bring oversight up to speed by regulating them exactly like banks, said Oliver Rui, a professor of finance at the China Europe International Business School in Shanghai (CEIBS).

Photo courtesy of Kārlis Dambrāns.