Beijing to require Ant’s Alipay to spin off separate loan app

Business & Technology

Ant Group knows how its customers spend their money, and can target them for loans if they are profligate spenders. That practice may be about to end, according to a new report on upcoming regulator actions.

alipay broken apart
Illustration by Derek Zheng

Since last December, Beijing has called for the break up of Alipay, the now ubiquitous Chinese payment app created by Jack Ma’s Ant Group.

In April, regulators ordered Ant Group to separate two of its credit and lending businesses, Huabei and Jiebei from the rest of its financial services in an effort to “cut off improper connections” between payments and financing services.

Now officials have reportedly asked Ant’s loan business to be spun off into a new app, according to the Financial Times. The plan will also require Ant to hand over the consumer data that once allowed it to determine credit scores to a joint venture that is partially state-owned.

Last week, three sources told Reuters that state-backed firms are set to take a sizable stake in Ant’s credit-scoring joint venture.

The news is the latest in a line of regulatory barricades erected in the past year against fintech companies, which have come under fire for utilizing consumer payment data to make lending decisions to millions of previously unbanked Chinese citizens.

That business, exemplified by Huabei, which operates like a credit card, and Jiebei, which makes unsecured loans, overtook the rest of Ant Group’s units in value, making up 39% of revenues in the first half of 2020. The unit issued one-tenth of the country’s non-mortgage consumer loans last year.

The result of Ant dragging its feet?

A finance expert told SupChina that the latest development is nothing new: since Ant’s IPO suspension last year, regulators have made clear that the fintech company must revise its integration of lending and payment services. In December, and then again in April, they have said that payment apps should only do payment; financial service apps should only do finance. The recent development is not an escalation, but the result of Ant’s persistent feet dragging.

By cutting payment services from loans, regulators are trying to prohibit Ant’s earlier basis for determining credit scores: a consumer’s expenditure history, which commentators alleged prioritized wanton spending over fiscal prudence.

“Imagine if the dominant payment processor also scored your credit (based on your payments through them) and gave you loans based on that score / history…Obviously there are some conflicts of interest,” wrote Techbuzz China’s host Rui Ma on Twitter.

This summer, the central bank reportedly told fintech players that lending decisions must be made based on ratings from approved credit scoring companies — those that evaluate trustworthiness based on standard factors like consumer’s debt ratio or income — rather than proprietary data.

“The government believes big tech’s monopoly power comes from their control of data,” said one person to FT. “It wants to end that.”

In April, regulators also demanded Ant restructure as a financial holding company so its financial services can be subject to appropriate financial regulation such as capital requirements to manage leverage.

In recent months, amid heightened geopolitical uncertainty and health risks related to COVID-19, Beijing regulators have become more vigilant to financial markets and their propensity to introduce systemic risk. As part of its wide-ranging crackdown on anti-competitive practices, data privacy, gaming, and cryptocurrencies, Beijing has also gone after speculative investments in real estate and has tightened its purse strings in prospective bailouts to indebted lending giants.

According to the Financial Times, Ant will not be the only online lender that will be subject to the new rules.