China to break up Ant’s Alipay and force creation of separate loans app

Beijing: China wants to break Alipay, the 1 billion super-user superapp owned by Jack Ma’s Ant Group, and create a separate app for the company’s lucrative lending business, in the most visible restructuring yet of the fintech giant.

Chinese regulators have already ordered Ant separate the back bringing in end of its two lending companies, Huabei, which is similar to a traditional credit card, and Jiebei, which makes small unsecured loans, from the rest of its financial offerings and outside shareholders. Now the officials want the two businesses to be split into an independent app as well.

According to the plan, Ant will pass on the user data that it lends its decisions on loans to a new joint venture for credit purposes, which will be partly state-owned, according to two people familiar with the process.

“The government believes that the monopoly power of big technology stems from their control over data,” said a person close to financial regulators in Beijing. “It wants to put an end to it.” The move could slow Ant’s lending business, with the huge growth of Huabei and Jiebei partially strengthening its planned IPO last year. The CreditTech unit, which includes the two units, surpassed Ant’s major payment processing business in the first half of 2020, accounting for 39 percent of the group’s revenue.

The size of the unit, which last year helped issue about a tenth of the country’s non-mortgage lending, surprised regulators of predatory lending and financial risk. Ant is struggling to take control of the new joint venture with regulators, but in June a compromise was reached that would give state-owned enterprises a majority stake in its home province, including the Zhejiang Tourism Investment Group.

The provincial government has done Ant a favor by urging local government groups to become their new partners, the people said. “Given the mutual trust between Ant and Zhejiang, the fintech group will have a big say in how the new JV works,” a former People’s Bank of China official said. “But the new setup will also ensure that Ant listens to the party when it comes to critical decision-making.”

A person close to Ant said that Ma’s team will be in charge of the new business for the time being. “What does the Zhejiang Tourism Investment Group know about credit ratings – nothing,” the person said, noting that Ant executives are still worried that they may lose control in the future.

Reuters first revealed the composition of the joint venture which reports that Ant and Zhejiang Tourism Group will each take a 35 percent stake with other state-owned and private partners allocating smaller shares.

The new business will apply for a consumer credit license, which Ant has long coveted. The central bank of China has issued only three licenses — all for state operations — preventing Ant fully monetize the vast amount of data it collected on Chinese citizens.

But under the plan under consideration, Ant will lose its ability to independently assess the creditworthiness of borrowers. For example, a future Alipay user in need of credit would see that their request is first sent to the new joint credit rating company where their credit profile is kept, and then to the new Huabei and Jiebei lending program to issue the credit. .

Currently, the process is fully integrated into Alipay and Ant said it made ‘credit decisions’ within seconds in its prospectus for its suspended exchange. The company did not respond to a request for comment via email.

Ant will not be the only online lender from China affected by the new rules. This summer, the central bank told industry players that decisions about loans should be made based on data from an approved credit company rather than own data, one of the people said. A senior executive at another online lender said it could mean a ‘moderate’ reduction in their margin as the company could no longer use its own data to make lending decisions.