ANT GROUP HAS applied to become a financial holding company. That will put Jack Ma’s fintech group spun out of Alibaba under central bank oversight. Thus authorities tighten their grip a significant notch over the sprawling fintech sector.
The somewhat imposed decision on Ant will require it to restructure itself as a payments services company. That was what regulators told the company to do after forcing the pulling of Ant’s proposed blockbuster initial public offering (IPO) last November. However, the first go-round did not pass muster. The central bank and the three other top financial regulators hauled in Ant executives on Monday for further talks.
Following those, the People’s Bank of China announced the company will now adopt its new structure as part of a ‘comprehensive and feasible rectification plan’ following its coming under strict regulatory oversight last year.
Critically, Ant has agreed to decouple its Alipay mobile payments app from other financial services it offers, such as unsecured online lending via its Huabei virtual credit card and Jiebei consumer loans. The company says its focus will be on enabling micro-payments for consumers and small-and-medium-sized enterprises, which is how it started. As part of this, it will set up a personal credit reporting company and improve consumer data protection. A separate (regulated) Ant consumer finance company will run Huabei and Jiebei.
The company also says it will improve its consumer data protection, rectify monopolistic behaviour and shrink the assets under management of Yu’e Bao, its giant money-market mutual fund. These changes all toe the new party lines for reining in the internet giants and scaling back highly leveraged lending.
Ant also contritely says it will plan its growth ‘within the national strategic context’ and ‘contribute to the new development paradigm of domestic and international circulations’. This reinforces the view this Bystander expressed previously about the platform companies being marshalled into becoming a ‘strategic height’ of the economy and a competitive advantage for China internationally.
The freewheeling days for fintech are now over. Ant’s affiliate Alibaba’s record 18.2 billion yuan ($2.8 billion) antitrust fine was further warning that Ant and all the other fintech companies will have to behave like traditional financial institutions and do as their regulators tell them in line with national policy objectives.
Where this leaves Ant’s IPO is uncertain. The restructuring will make the group less valuable than the $34 billion it was initially hoping to raise. Alipay has more than one billion users in China and holds approaching three-fifths of the $17 trillion mobile payments market, well ahead of its closest rival Tencent’s WeChat Pay’s two-fifths. That dominant market share tied together a vast and detailed trove of consumer data collected across Alibaba and Ant.
Weakening the ability to use Alipay across all its services will reduce those market shares, which is also the intent of new draft measures announced in January to curb market concentration in online payments.
Update: The State Administration for Market Regulation has told 34 internet platform companies, including Tencent, ByteDance, Pinduoduo, Baidu and JD.com, to get any anti-competitive practices sorted out within the next month — confirmation, as if it was needed, that the crackdown on Ant Group and Alibaba is neither all about Jack Ma nor over.