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Chinese regulators break up Alipay, split off loan business

Written by Jiaxing Li Published on     2 mins read

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Online lending is being curbed while Beijing aims to build a stake-backed credit scoring system.

China seeks to break up Ant Group’s Alipay and build a separate app for the fintech giant’s highly profitable loan business. Regulators ordered Ant Group to separate its consumer lending businesses, credit card-like Huabei and micro-loan provider Jiebei, from Alipay’s other financial offerings. The latest development essentially dismantles Ant Group’s super app.

Under the plan, Ant will also turn over its data trove of more than 1 billion users to a credit-scoring joint venture, which will be partially state-owned, according to two people familiar with the development cited by Financial Times.

State-backed firms are set to take a substantial stake in the proposed credit-scoring joint venture, Reuters reported earlier this month. Ant and the Zhejiang Tourism Investment Group will each hold a 35% stake in the venture, while other state-backed firms will each hold around 5%.

In the future, Alipay users who seek loans will be directed to the credit-scoring joint venture to generate a credit profile, which will then be applied in apps like Huabei or Jiebei, the Financial Times reported. This marks a shift from the current arrangement, where Ant handles the entire process.

Chinese e-commerce and fintech firms have amassed huge troves of user data that form the backbone of their financial services. Regulators have been pressuring the companies to share the users’ data, citing concerns for “systemic financial risks.”

The authorities say that fintech firms allow people to borrow excessively, possibly leading low-income individuals into debt traps.

Some commentary in state-backed media even carries tinges of “common prosperity,” a concept that now carries weight with endorsement from the highest echelons within the Chinese Communist Party. “A personal credit profile can provide users with more precise and lower-risk financial products so that people living in small towns and rural areas can get consumer loans,” Guang Ming Daily, an affiliate newspaper of China’s ruling party, said in an article published last week.

Ant will not be the only online lender affected by the new rule, according to the Financial Times. Other companies in the sector expect diminished profits as they can no longer mobilize user data to make lending decisions.

Alibaba’s share price slipped by 4.23% on the Hong Kong Stock Exchange as of 4:00 p.m. local time. Shares of other Chinese tech giants like Tencent and Meituan also took a beating.

Check this out: China Cracks Down on Big Tech

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