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China’s P2P lending crisis: second major bank pulls support for payment to P2P lending sites

By C.Custer for TechinAsia.com

On Monday, I wrote that the high-profile Ezubao Ponzi scheme case was likely to have a negative impact on China’s entire P2P lending industry. It looks like that’s already happening. On Wednesday, Sina Tech reported China Merchants Bank has notified third-party e-payment platforms that starting Friday, it will no longer support payments to P2P lending services.

China Merchants Bank, which is one of the country’s largest, is following in the wake of Agricultural Bank of China, another major bank that pulled P2P support from its third-party payment integrations late last month. (The Ezubao Ponzi scheme story didn’t break until after Agricultural Bank of China had pulled its P2P support on January 22, but by that time there were already numerous reports of fraud investigation at the company, as well as broader concerns about the P2P market as a whole).

Why are banks doing this? They don’t want to be associated with a high-risk industry.

To be clear, you can still use popular third-party payment platforms like Alipay and Tenpay to make investments on P2P lending sites. But you might have trouble using your China Merchants Bank or Agricultural Bank of China card or account information to pay for a P2P lending product through a third-party payment service. Instead of making the payment directly from your card or account, you’d likely need to shift it into a virtual wallet or into another account and then make the payment from there, so that the bank isn’t directly associated with the transaction.

Why are banks doing this? Exactly the reason you’d expect: they don’t want to be associated with what is increasingly seen as a high-risk industry. Fraud like the Ezubao case is one reason, but it isn’t the only one. There are also concerns, for example, about the lack of a reliable credit system potentially leading to lots of bad loans. In its release on the subject last month, Agricultural Bank of China wrote:

Some third-party payment providers have given P2P platforms a channel to payments from Agricultural Bank of China cards, which extends the risk to our bank and has an extreme negative influence on our bank’s reputation.

In other words: China’s banks are increasingly not down with P2P.

Photo by Txopi,

The article first appeared in TechinAsia.com

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