Why is China targeting Alipay and what will Ant Group do next?
- Chinese regulators have already ordered Ant to separate the company’s two lending units – Huabei and Jiebei – from its core business into a new entity and bring in outside shareholders.
- The authorities now want these lending companies to also have their own independent applications.
As part of the latest crackdown on China’s tech industry by state authorities, Beijing is considering dismantling Alipay from the Ant Group and creating a separate app for the fintech giant’s lending business.
Apparently, concerns about increasing financial risks in the economy and the dominance of Alipay’s lending business are at the root of Chinese regulators’ concerns.
After bringing together over a billion users, Alipay’s credit activity helped issue about 10% of the nation’s non-mortgage consumer loans last year.
That said, regulators have ordered Ant Group to separate the background of its two lending businesses, Huabei, which is similar to a traditional credit card, and Jiebei, which makes small unsecured loans – into a new one. entity and attract external shareholders.
Why and what becomes of Alipay afterwards?
Unit size surprised regulators worried about predatory lending and financial risk.
The authorities now want these lending companies to also have their own independent applications. The plan would also require Ant to turn over the user data that underpins its lending decisions to a new, separate credit-rating joint venture that would be partially owned by the state, the newspaper reported, citing two people familiar with the process.
However, under the envisaged plan, Ant will lose its ability to independently assess the creditworthiness of borrowers. For example, a future Alipay user in need of credit would have their application routed first to the new joint venture credit rating company where their credit profile is held, and then to the new Huabei and Jiebei loan app to issue. credit.
Experts believe move could slow Ant’s lending business, with huge growth in Huabei and Jiebei partly fueling its IPO scheduled for last year. The CreditTech branch, which comprises the two units, for the first time overtook Ant’s main payment processing business in the first half of 2020, to account for 39% of the group’s revenue.
As expected, Ant will not be the only Chinese online lender affected by the new rules. This summer, the central bank told industry players that lending decisions should be made based on data from an approved credit rating company rather than proprietary data, one of the people said.
To remember, Ant has struggled with regulators for control of the new joint venture, but a compromise was reached whereby state-owned enterprises in his home province, including the Zhejiang Tourism Investment Group, would hold a controlling stake for the first time, three people recently told Reuters.
The partners plan to set up a personal credit rating company in which Ant and Zhejiang Tourism Investment Group Co Ltd will each own 35% of the business, while other state-backed partners Hangzhou Finance and Investment Group and Zhejiang Electronic Port, will each hold a little more than 5% ”, a Reuters report indicated.