Third-party payments impact on commercial banks' non-interest income: evidence from China

Abstract

This study aims to explore the effects of Chinese third-party payment on commercial banks' non-interest income over the period 2008-2017. In China, third-party payment is a digital payment provided by private non-bank firms that consist of desktop payment and mobile payment. More Chinese people prefer to use third-party payment, especially mobile payment, instead of cash and bank card as the payment can be transacted easily and safely on the mobile phone by scanning QR code. To find whether this new digital payment trend impacts on non-interest income or not, this paper first employs random effects panel data technique. The regression results show that for overall banks, higher desktop payment yields higher non-interest income, while the mobile payment deters the non-interest income. Then in order to check whether third-party payment exerts the effects differently across bank types, we include interaction terms and dummy variables in the regression. Findings show that from the perspective of bank types, small-medium commercial banks reap the positive spillover effects. But for large state-owned commercial banks, the non-interest income suffers a loss when desktop payment and mobile payment are growing. Based on the findings, the insightful policy implications are put forth for commercial banks' non-interest income expansion and profitability enhancement.

Keywords: digital payment, mobile payment, non-interest income, interaction terms, random effects model