History will figure out whether the Chinese government is too heavy handed in its payment focus, but the recent actions to reengineer indicates that free trade is not a consideration. Was Ant Group too aggressive in its lending? Was Ant Group thinking so far ahead that no other firm could catch up? Or should the Chinese Central Bank be the prime beneficiary?
The Financial Times reports:
- Beijing wants to break up Alipay, the super-app owned by Jack Ma’s Ant Group that has more than 1bn users, and create a separate app for the company’s highly profitable loans business, in the most visible restructuring yet of the fintech giant.
- Chinese regulators have already ordered Ant to separate from its main business the company’s two lending units — Huabei, which is similar to a traditional credit card, and Jiebei, which makes small unsecured loans — into a new entity and bring in outside shareholders.
- Now officials want these lending businesses to have their own independent app as well. The plan would also require Ant to turn over the user data that underpins its lending decisions to a new and separate credit scoring joint venture that would be partly state-owned, according to two people familiar with the process.
This is not Alipay’s first tango with regulators. Remember the world’s biggest IPS, scheduled during 2020? The NY Times noted:
- The money Ant raises would surpass the $29.4 billion that Saudi Arabia’s state-run oil company, Saudi Aramco, raised when it went public last year. Ant’s listing would also be larger than that of its sister company, the Chinese e-commerce giant Alibaba, which raised $25 billion when its shares started trading on the New York Stock Exchange in 2014.
But regulators stopped that. NPR noted:
- What was supposed to be the world’s largest initial public stock offering has been halted at the last minute. The Chinese financial company, Ant Group, was set to go public on Thursday. The IPO was expected raise an estimated $37 billion and boost Ant’s market value to in excess of $300 billion.
- But regulators for the Shanghai Stock Exchange, where Ant was planning to list, abruptly suspended the offering on Tuesday, citing “major issues” with the group that “may fail to meet information disclosure requirements.” Hong Kong’s bourse, where Ant was planning a dual listing, soon followed in halting the IPO.
It is certainly hard to say “poor Jack Ma”, whose net worth is $52 billion and actually grew $2 billion after regulators stopped the IPO.
The playing field does become a little unruly; the lending business (without Jack) will likely receive a banking license.
The new venture will apply for a consumer credit scoring license, which Ant has long coveted. China’s central bank has issued only three licenses — all to state-run operations — preventing Ant from fully monetizing the vast reams of data it has collected on Chinese citizens.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group