China's central bank to require 50% reserve ratio for payment firms

China's central bank doubles down on financial security, will require 50 percent reserve ratio for payment firms

The People's Bank of China will gradually increase the reserve ratio of third-party payment companies, such as Alipay and Tenpay, from the current 20 percent to 50 percent in the months leading up to April 2018, as the financial regulator aims to bridle risks in the nation's burgeoning mobile payment sector.

In instructions distributed to commercial banks and third-party payment firms, the central bank will require payment companies put aside an additional 10 percent of reserves each month starting February, so that the reserve ratio reaches approximately 50 percent by April, said a report published by Financial News, the official publication of China's central bank Friday evening.

This will mean that third-party payment providers will go from setting aside zero reserves before April this year, to depositing 50 percent of client's funds into specially designated commercial bank accounts.

Administrators stated that the further increase of reserve ratio has been widely expected within the industry, and is a crucial step in managing and clamping down on risks in internet finance.

The central bank plans to neutralize the threat of the reserve ratio hike on liquidity levels by actively responding with open market operations, the Financial News said, quoting a central bank official.

Central bank figures show that roughly 460 billion yuan (71 billion U.S. dollars) were deposited in reserve accounts by third-party payment platforms in the third quarter of 2016, which puts the combined daily average balance of these firms at approximately 2,300 billion yuan each day.

The massive market ? 90 percent of which is comprised of Alibaba's payment affiliate Alipay and Tencent's Tenpay ? continues to grow at a steep pace, reaching nearly 30 trillion yuan in the third quarter this year, according to figures from consultancy Analysys, representing 28 percent year-on-year growth.

Clamping down on risks in the payment systems and ensuring the safe and healthy expansion of the industry will remain a priority for the central bank, said a statement on the regulator's website on Friday.