Caixin reports on the inside the illicit business running up China’s credit card debt
An illicit business that has become a lifeline to many of Alipay and WeChat Pay’s smaller rivals has again caught the attention of regulators for contributing to China’s ballooning credit card debt, a problem that has only grown worse amid the economic strain caused by the Covid-19 pandemic.
The business, known in China as “cash-out services,” allows individuals and businesses to tap their credit cards for cash advances at costs far lower than normal.
Some third-party payment companies or their agents make this happen by giving merchants the capability to disguise these transactions as phony credit card purchases, taking advantage of the fact that banks charge lower fees for purchasing merchandise or services than they do for borrowing straight cash. In the past few years, cash-out services contributed 1 trillion yuan ($141.4 billion) to 2 trillion yuan of China’s payment market. That’s equal to 2.5% to 5% of domestic credit card transactions in 2019, according to estimates by multiple sources in the industry.
Source: Caixin Global