China’s central bank and three other financial regulators summoned Ant Group on Monday, demanding the company to correct “serious problems” in its business and improve its competitiveness, months after its USD 34.4 billion IPO was suspended in November.
“The regulators are determined to force Ant to rectify its businesses all around and have come up with very detailed requirements,” Tian Xuan, vice dean of Tsinghua University’s PBC School of Finance, told KrASIA on Tuesday.
Ant has been asked to end practices in its payments business that lead to unfair competition. The fintech group will start by giving consumers more options beyond Alipay, and then disconnect its micro-loan services like Huabei and Jiebei from its payments channel, said Pan Gongsheng, vice governor of the People’s Bank of China, according to a post on the central bank’s website.
Ant has made Alipay the only payment option on Alibaba’s e-commerce marketplaces, including Tmall and Taobao. It has been promoting the “buy now, pay later” service Huabei when users are close to completing a transaction. Alibaba holds a 33% stake in Ant.
“The move is aimed at breaking the absolute monopoly of Alipay,” Tsinghua’s Tian said, predicting that the scale and growth momentum of Huabei and Jiebei, which account for about 40% of Ant’s revenue, will inevitably be affected.
Ant will also need to apply for a license to run a personal credit business. It is only allowed to collect information on a “legal, minimum, necessary” basis defined by regulators seeking to break its “information monopoly.” Ant will have to integrate its own Sesame Credit into the national credit system to ensure information security for individuals and companies, according to Tian. Ant has been using the credit scoring system to evaluate borrowers.
The authorities also asked Ant to set up a financial holding company that will allow it to grant loans as well as provide insurance and asset management services legally. It also needs to cut the size of its fund product Yu’ebao. “This shows that fintech companies are defined as finance companies, not technology firms in China,” Tian said.
Ant Group has been managed and valued as a tech company in the past, and has witnessed rapid growth for a long time and planned to go public, Tian added. “But the company has brought a lot of risk to the finance sector due to problems such as high leverage ratios and unfair competition against traditional financial service providers.”
Mending the ant colony
About 98% of Ant Group’s funding comes from asset-backed securities, resulting in concentration of risk and negative effects on the profitability of micro-companies in China, said Tian, who expects that Ant will have to meet the requirements of the Basel Accords, just like conventional banks.
“Ant will have to adjust its strategies to make sure all its businesses are in line with regulations and norms in the finance sector,” he said.
“This is like putting a tangled fishnet in order,” Ke Yan, lead analyst at DTZ Research, told KrASIA. He added that Ant, as a financial holding company, will have to apply for various permits for its businesses. Alibaba disclosed in a voluntary filing with the Hong Kong Stock Exchange on Tuesday that Huabei and Jiebei will be operated by Ant’s new consumer finance company. The China Banking and Insurance Regulatory Commission is in charge of granting licenses. Ke predicts the rectification for Ant could take six months as the situation is much more complicated than anticipated.
Both Tian and Ke expect fintech units of other tech companies such as JD.com, Meituan, and Tencent to assess their operations internally and adjust accordingly. “Their businesses are less complicated than Ant’s, and it should take less time,” said Ke.