Ant Financial Is Turning Chinese Banking On Its Head

Ant Financial Services, the Chinese payment affiliate of Alibaba, has created a massive FinTech company that is turning Chinese banking on its head as the sector contends with the disruptive nature of FinTechs.

According to a report in the Wall Street Journal, last year Ant Financial handled more payments than Mastercard, operated the biggest money market funds around the world and counted tens of millions of people as customers. Last year its digital payments platform completed more than $8 trillion in transactions, which the Wall Street Journal noted is equal to more than twice the gross domestic product in Germany.  As a result of its success, traditional banks in China have been complaining that Ant steals away depositors, which prompted them to pay higher interest rates, which is one of the reasons banks have been closing branches and shutting down ATMs.

With Ant continuing to grow, authorities in China have been moving to limit the markets it can go after. For example, earlier in 2018 the Central Bank in China hurt an effort by Ant to create a national credit scoring system by preventing it from being used by financial firms that were making loans. Regulators in the country have also instated rules that require big money market funds to reduce holdings of assets that enable them to pay high-interest rates and pressured Ant to slow down inflows into its money fund, reported the Wall Street Journal. Regulators are also looking to see if Ant should be designated as a financial holding company, people familiar with the matter told the WSJ. If that happened, it would have to meet the capital requirements of traditional banks — which would likely impact profits. Last year pretax profits were $2 billion and Ant had revenue of about $10 billion, noted the report.

Despite the pushback from regulators, investors are still smitten with Ant — the company boasts a valuation of $150 billion, which is twice its valuation in 2016 when it was raising money and is higher than the value of Goldman Sachs. Leiming Chen, Ant’s general counsel, told the WSJ that criticism that Ant is acting like a bank without oversight isn’t true. The company, he said, is bringing financial services to the unbanked — and the company doesn’t fund most of its loans from its own balance sheet, rather acting as a platform for banks and others to extend loans to borrowers. “I don’t think banks see us as a disrupter,” he said.”We complement them and are helping them reach more customers.”