The move is a fallout of the recent regulatory crackdown on fintechs.

On Friday, the Jack Ma-controlled Ant Group’s Alipay platform, which offers an impressive array of financial products to its customers, removed online deposits that it was accepting on behalf of several banks.

Taking a cue from Alipay, JD Digits, the financial arm of e-commerce group JD, and Ping An Insurance Group Co’s wealth management arm Lufax also suspended these deposits over the weekend. The reason for the moves, described as voluntary by the companies: regulations that restrict savings-related business to financial institutions only, excluding online platforms. (CHINA DAILY)

Fintechs such as the Ant Group acted as a deposit pipeline for regional banks

Large online fintechs have been acting as aggregators on behalf of smaller regional banks that otherwise are unable to expand the market for their deposit products. The fintechs earn a fee for collecting these deposits via their platforms.

Typically these banks offer higher interest rates compared to the large, nationwide State-owned banks on time deposits that range in tenure from three- to five years.

Because fintechs such as the Ant Group’s Alipay have billions of users across the country, they offer a vast market to the smaller banks. By accepting deposits in denominations starting as low as 50 yuan, the fintechs have mopped up deposits that might have otherwise gone to the State banks.

However, regulatory strictures are changing the status quo. The Ant Group said in a statement Friday that it “voluntarily removed” the online deposit products from Alipay “in accordance with the recent regulatory requirements for online deposits services.”

By using an all-pervasive online network, the large fintechs are also able to transgress geographical boundaries that otherwise demarcate financial services in China.

Fintechs tip-toeing around regulations?

According to a Reuters report, Sun Tianqi, head of the financial stability bureau at the People’s Bank of China (PBOC), said at a forum this week:

“The proxy sales of bank deposit products on third-party internet financial platforms are illegal financial activities, and are like ‘driving without a license’.”

“China’s regulation on the administration of savings has stipulated only banks and credit cooperatives can handle savings-related business,” Dong Ximiao, chief researcher at Merchants Union Consumer Finance Co Ltd. told China Daily. “Internet platforms, which largely market these products through massive online traffic, are not technically eligible for such services.”

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