JACK MA’S ANT GROUP, the fintech affiliate of e-commerce giant Alibaba, is to be restructured following the regulatory squashing of its would-be blockbuster initial public offering in November. The company says it is working on a timetable to meet the requirement of China’s regulators that it returns to being a payment-services provider at core (ie, go back to being just Alipay).
This will involve overhauling its lending, insurance and wealth management businesses to strip down their complexity, and then putting them under a single financial holding company. People’s Bank of China officials have told the company to do that to ensure both capital adequacy and compliance regarding related transactions while protecting personal data privacy in its credit-scoring services — the velvet glove of prudential regulation over the iron fist of supervision.
By corralling its financial businesses in a separate subsidiary, Ant will be better placed to comply with the new regulations on financial holding companies that took effect in November and mitigate the risk of a forced full-scale break up of the group, if not of having to bend to the regulators’ will.
November’s regulations require non-financial companies that control businesses in at least two different financial sectors to have a central bank-approved financial holding company to control them.
There is an element of bringing Ma to heel in the high-profile application of the new regulations to Ant. It also fits with the reining-in of the large tech companies that grew up outside the orbit of state-owned industries.
However, regulators are intent on tightening their grip on non-financial companies moving into financial services, including innovative fintech-enabled services such as online microcredit, as part of their broader desire to rein in systemic financial risk.
The restructuring will likely crimp Ant’s growth. For one, it will face tighter oversight and higher capital adequacy requirements, especially in highly-leveraged business lines such as online microcredit.
The overhaul of Ant’s financial businesses may also result in some regulator-driven divestment. That could eliminate synergies between Ant’s fast-growing fintechs and its existing businesses. It is in exploiting those synergies that the group’s real value lies.