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>> An easy way to pay fueling a massive and at times chaotic industry in China. Now, Beijing wants to impose some order. Third party payments, the Chinese equivalents of PayPal have been raking in profits by investing their clients' money. The central bank is putting a stop to that.
New rules will set around half that money off limits. A step towards a final goal of cracking down on the practice all together. Reuter's Kate says, it's an unusual move for unusual industry.>> China has an explosive e-commerce, and mobiles payment market mostly due to the fact that people don't really have traditional banking things that we have in the west.
Lots of these companies kinda came up, these are the 200 license payment companies and how they made money in the early days was that when you made a transaction, that company would hold the money and then later release it to the merchant. They would take this money and invest it and earn money on the interest.
So what the government is doing now is it's saying that these companies can no longer invest his private money.>> It all traces back to a two-year crackdown on shady risks in China's red hot market for online finance.>> There was a few cases in the early days where companies would take the user's money and then, reinvest it in things that were very risky and then obviously the companies would fold.
There'll be big legal cases and uses would obviously be out of pocket as well as the merchants that they were trying to pay money to. The plan is though that eventually, the government and the central bank wants to stop payment companies from investing any of that money at all.
So I believe that with so many companies and so many fraudulent investments in the country, there's no way of showing that they won't invest this money in risky loans and eventually lose user's money.>> The new rules will shave off a huge chunk of income for big names services backed by giants Tencent and Alibaba.
Reuter's estimates it could cost the industry almost $700 million a year. For smaller companies, it could mean consolidate or die.