- Ant Group is no longer issuing loans.
- Alipay competitors are raising interest rates.
- Alipay rivals lack the economics of scale to take over its position in the market.
Chinese authorities have, in recent months, clamped down on Alibaba Group, which is arguably the biggest e-commerce B2B platform in the country. The move came after founder Jack Ma’s controversial utterances about Chinese regulators stifling growth by implementing unfavorable rules.
Subsequent investigations on the company by regulatory authorities found that it had violated a series of statutes. They included anti-competition rules and financial arbitrage guidelines.
The financial arbitrage breach was reportedly undertaken using its maze of companies that have deep access to credit.
To prevent the company from committing further related violations, Chinese regulators directed that the conglomerate restructure and devolve some of its subsidiaries. Most notable among them is the redoubtable Ant Group division.
Ant Group, through its Alipay service, currently dominates the online payments segment in China. The service, which began as a payment processing platform for Alibaba’s shopping sites, has over the years grown to serve over 700 million monthly users.
Last year, Alipay’s exponential growth put Ant Group on course to launch the world’s largest IPO, set at a staggering $37 billion. The plans were scrapped after a series of antitrust alarms by the authorities.
They recommended that Ant Group revamp into a financial holding company that is subject to Chinese banking rules and regulations. The authorities are looking to rein in the influence the firm and its peers wield in the nation’s financial system, especially since they have been subjected to little regulatory oversight in the past.
Smaller Companies Looking to Fill in the Void
Because Ant Group is currently in a transitional phase, it can no longer provide loans to clients. This has led to a void that rival enterprises are struggling to fill.
Just to get a perspective of its outsized loan operation, Alipay provided loans to over 500 million Chinese citizens in 2020. The lending totaled to about Rmb2.2 trillion ($339 billion) in 2020.
According to a report by FT, rival companies want to take up the company’s place in the loans industry but are having a hard time. This is because they lack liquidity and integrated data needed to identify suitable low-risk clientele.
As such, many of them are charging a premium due to cover these risks. Some are as high as 36 percent per annum.
In comparison, Alipay charged customers less than 20 percent interest annually, and this was one of the main aspects that set it apart from competitors. The effects of the company’s absence from the loans market are more marked now due to the COVID-19 economic devastation.
According to Dan Wang, chief China economist for Hang Seng Bank in Hong Kong, “consumer credit risks have intensified following the [Covid-19] pandemic. The problem is especially pronounced for young and low-income borrowers.”
Economic analysts predict that more Chinese customers are going to default on their loans due to the increased interest being demanded by the smaller Ant Group competitors.