Regulatory Crackdown Prompts Ant Financial to Shift Focus Away from Fintech

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China’s leading fintech company Ant Financial plans to shift its primary focus away from payments operations and consumer finance towards technology services according to sources speaking to Reuters.

The sources said that the move has been prompted by Beijing’s ongoing crackdown on the Chinese financial sector, which has hit Ant’s core fintech operations of payments, micro lending, credit ratings and wealth management.

Ant Financial is one of China’s leading fintech players, with its Alipay app commanding a 29.2% market share of the Chinese online payments market in 2017 according to a recent report from the National Institution of Financial Development.

The company is an affiliate enterprise of Jack Ma’s Alibaba Group, and was the world’s most valuable fintech company in early 2017, worth approximately USD$150 billion.

While Ant Financial has risen to prominence on the back of its fintech and payments operations, technology services are expected to comprise a rapidly increasing share of future revenues.

According to Reuters the company’s confidential forecasts see technology services accounting for 65% of revenue in five years, as compared to around 34% last year.

These services will include helping financial institutions with online risk management and fraud prevention.

In sharp contrast revenue from payments will drop from around 54% in 2017 to just 28% across the same period, while financial services will contract to 6% from 11%.

Overall revenue is expected to grow at a rate of 40% annually during the period from 2017 to 2021.

Ant has already unveiled agreements to provide technology solutions to mid-tier national lenders in just the past few weeks, with partners including China Everbright Bank, Hua Xia Bank and Shanghai Pudong Development Bank.

The shift comes amidst intensifying pressure from financial authorities, with Fan Shuangwen, deputy director general of the People’s Bank of China (PBOC), stating last week that tighter regulation of the payments sector is set to continue as “it’s unrealistic to pin our hopes on market entities to prioritise social responsibility.”

China’s financial regulators have already set their sights specifically on Ant Financial given its immense scale, its non-state status, and the potential for it to pose a systemic risk to the economy.

According to sources the Chinese central bank singled out Ant Financial for a trial run of stricter regulations on financial holding conglomerates, in order to prevent it from becoming “too big to manage.”

PBOC has compelled Ant Financial subsidiary Sesame Credit to suspend the issuance of individual credit ratings, while its decision to lift the reserve funds ratio of third-party payment firms to 50% has heavily hampered Alipay, with a further increase to 100% also anticipated.

Heavier regulatory pressure on micro-lending has also hit Ant’s operations in this area, prompting the company to seek loan-issuing arrangements with conventional banks.

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