Ant Financial, China’s largest FinTech company, began as an online payment branch of Jack Ma’s ecommerce company Alibaba. It has since then evolved into an affiliate company that manages the world’s largest online payments platform. Ant Financial also has the largest money market fund in the world and it also provides insurance, consumer loans and securitization. But, how will potential regulation in China’s fintech sector affect Ant Financial considering that it has invested so much in financial technology?
Ant Financial’s Projects
Ant Financial is regarded as the world’s largest fintech firm. The company owns Alipay, a major third-party mobile and online payments platform with 870 million active users. Ant Financial also owns Yu’e Bao, a money market fund and plans to add two more money market funds under its belt.
Threat of expected Regulation
As Ant Financial’s Yu’e Bao is rated much lower than its closest U.S. competitor due to lower credit quality and liquidity, the implementation of additional regulations may potentially slow it down and also the growth of China’s money market funds as a whole. Due to this, Ant Financial has lowered the amount of money investors can withdraw each day out of their money market fund. Currently investors may transfer up to 10,000 RMB to their bank accounts every day.
Additionally there are reports of the central government introducing regulations on financial holdings companies including Ant Financial. Such companies are deemed too big to fail, as collapse would lead to a huge risk to the financial system. Companies that work in two or more financial industries may eventually be required to get licenses from the central bank and fulfill capital requirements. The government may also restrict ownership structure and inter-group transactions for larger firms.
The introduction of new regulations will probably decrease Ant Financial’s business scale and profitability. Customers may feel the burden of regulations on money market transfers and opt for a different kind of outlet or platform for their funds. Additional capital requirements in certain business areas of the company may also reduce the available funds for lending and investment, limiting potential profits. In short, regulations would threaten Ant Financial’s ambitious expansion.
But, it should be noted that Ant Financial has already faced regulation before. Government regulations, which were introduced in 2017, for instance, stated that money market fund managers had to put 0.5% of net assets aside to control bad debt. Additional regulations also reduced sales of debt-backed consumer loans. This affected two of Ant Financial’s online microloan services Huabei and Jiebei, since the company had to discontinue making loans and moving them off balance sheet into asset-backed securities.
Regulations have certainly decreased the profitability of microlenders, as the number of asset-backed securities that Ant Financial sold dropped from 31 billion RMB in the first quarter of 2107, to 10.7 billion RMB by March 2018. However, it is possible for the much-anticipated regulation on financial holding firms to have a bigger impact than the previous rules. Ant Financial is likely to face bigger challenges to growth. The new regulations were created for the benefit of the financial economy, but will greatly impact China’s largest fintech firm, Ant Financial.