Chinese fintech giant Ant Group must “cut off” the “improper connections” between its payment platform and its financial products, the country’s regulators said, in the first public announcement of Ant’s “rectification programme” since its record-breaking public offering was halted.
The impact could be to strip Ant down into returning to its roots as a mobile payment platform, severely weakening its credit businesses, say analysts and one official. Only 36 per cent of Ant’s revenues at present come from its payment services, with the remainder coming from digital finance.
The announcement by the People’s Bank of China on Monday clarifies some of the uncertainty hanging over Ant group since November last year when Beijing halted Ant’s public offering in Shanghai, days before it was set to raise a record $37bn.
“The aim is to restrict the financial nature of Ant’s activities, and to make it return to its origins as a payments platform. It will have a big impact on suppressing Ant’s consumer credit-lending businesses,” said a senior official at a state-owned bank who regularly deals with Ant.
“The plans will force Ant to completely restructure their business,” said Zhao Xijun, professor of finance at Renmin University of China.
“Under the rectification plan, they will need to put walls among their different businesses, and each business shall be under the regulation of its specific industry. The impact could be huge,” Zhao added.
China’s top financial regulators met the company on Monday to “demand Ant Group face up to the severe problems existing in its financial business activities, and the seriousness of its rectification work”, according to People’s Bank deputy governor Pan Gongsheng, in a summary posted on the bank’s website.
“The need for a second meeting [since the first in December] suggests the PBOC has not been 100 per cent happy with Ant’s progress on its rectification plan so far,” said Chen Long, partner at Beijing-based research company Plenum. “It is likely that what Ant was putting on the table was not deemed harsh enough.”
Since December, the People’s Bank and Ant had conducted “in-depth communications” on the group’s rectification programme, Pan said. The two sides had reached an initial deal earlier this year, according to Financial Times sources.
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Pan emphasised that the regulatory drive to strengthen oversight of fintech was in order to reduce financial risk, improve data protection and anti-monopoly measures, giving the example of recent antitrust regulation and cases in the EU and US.
“Under the guidance of financial regulators, Ant Group will spare no effort in implementing the rectification plan . . . we will put our growth proactively within the national strategic context,” announced Ant on Monday.
Ant must “cut off” the “improper connections” between its financial products — including lending services Huabei and Jiebei — and its mobile payments platform Alipay, one of the country’s most popular, the regulators said.
Ant arranged about one-tenth of China’s total consumer lending in 2020 via Huabei and Jiebei, with the group’s total outstanding loan balance at Rmb2.2tn ($336bn) as of June 30. At present, Alipay links to the two micro-lending services within its Alipay app, and its affiliate Alibaba promotes Huabei at the checkout stage in its ecommerce app.
“It will eliminate a lot of the business that Jiebei and Huabei have at the moment,” said Chen.
The group will also have to “actively” reduce the balances held in its money-market fund, Yu’ebao.
In addition, regulators have demanded Ant apply for a personal credit reporting licence — an unprecedented move in China’s nascent credit-rating sector, where the only two such licences in existence are held by government-backed agencies.
“I don’t think Ant will be able to get a licence to do credit ratings. As a result, they may be forced to share their payments data with government agencies like Baihang in order to continue lending,” said Oliver Rui, professor of finance at China-Europe International Business School. “And if they don’t have their own credit-rating system, they lose their advantage in lending.”
Ant also confirmed that it would “in its entirety” apply to set up a financial holding company, as has been previously reported.
Additional reporting by Nian Liu in Beijing