Fintech: Ant, an ant that has become too powerful for Beijing

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Posted Jan 8, 2023, 3:29 PMUpdated Jan 8, 2023, 3:30 PM

For more than a billion Chinese who use it to pay for their meals, make purchases on credit and build up their savings, Alipay, Ant Group’s flagship application, is a portal for essential services in their daily lives. But its influence and size have made it a concern for Beijing, to the point of abruptly halting its IPO in November 2020 and pushing its founder Jack Ma to cede control.

The launches of Alipay in 2009 and its competitor Wechat Pay in 2013 were a resounding success, transforming China from the land of “cash” to the land of mobile payment. As early as 2015, the value of online transactions exceeded that of credit card transactions. Mobile payment represented in 2021 almost three times the amount of card payment, according to the research firm Gavekal.

The rise of mobile payment

In major Chinese cities, almost all residents use Alipay or Wechat Pay for daily transactions. But the operators have not necessarily drawn a lot of income from it. At Alipay, transaction fees are zero or no more than 0.1% of the amount of transactions for individuals and 0.6% for merchants, much lower than those of banks.

In 2019, Ant Group’s revenue from digital payment was limited to 52 billion yuan, less than 0.05% of the 111 trillion yuan in transactions processed by Alipay.

While these low fees have contributed to the rise of mobile payment, they have also prompted Ant Group to look for other ways to make money. “In 2013, Ant used Alipay’s broad market penetration to offer financial products directly to customers, launching Yu’e Bao, an Alipay-linked money market fund,” Gavekal analyst Xiaoxi Zhang said in a note dated 2013. September 2021. Because short-term interest rates in the interbank market at that time were higher than regulated bank deposits, Yu’e Bao offered both higher returns and greater convenience than bank accounts traditional”.

A cumbersome success

This financial product has been one of the biggest successes in Chinese finance, raising fears in Beijing that Yu’e Bao could undermine banks’ deposit base. The fund was not banned, but stricter regulation ended up reducing the returns it could offer.

Ant Group then moved into data-driven financial services, using knowledge of the consumption habits of hundreds of millions of people to offer small loans and other services. Ant launched Huabei, its microfinance platform, in 2015, which reached 1.7 trillion yuan in outstanding loans two years later.

“But the way Ant shifted risk from its own balance sheet to those of the commercial banks it cooperated with raised major red flags for regulators,” Xiaoxi Zhang said.

When Jack Ma publicly expressed his frustrations with financial regulation in October 2020, regulators found the political support from Beijing they needed to stop Ant’s IPO and start putting in place Strict new rules covering all financial services offered by Ant Group and other fintechs. The beginning of two years of work for the ant called to refocus on mobile payment, an activity now separated from consumer credit services placed in a separate subsidiary.

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