Ant Group was ready for the biggest share offering in history last week, having attracted US$37 billion from investors, before Chinese regulators halted the fintech company’s dual listing in Hong Kong and Shanghai in a major shock.
While there are still signs that Ant might eventually get its name on the boards, the stop order in the final hour could not have been more dramatic. Questions that have arisen could not have been clearer, either.
The most important is how much of a risk such fintech firms will bring to the global financial system, especially after the unprecedented meltdown of 2008.
Do these new kids on the block, promising the ease of use and market access that technology provides, have the foundation, or plainly, the capital, to back up their ambitions?
Ant’s market access is not to be trifled with. Its Alipay app is used by 730 million people every month, particularly in China, where the cashless payment is indispensable.
In going public, it is also hoping to expand its lending business, which helps connect banks with borrowers who may not have been available to these banks without Ant’s vast reach.
What’s the problem, then, if Ant isn’t the bank itself? Well, regulators may be worried these borrowers whom it is introducing into the system may not be as reliable when it comes to repaying their loans.
Now the Chinese regulators have demanded that Internet platforms such as Ant have their skin in the game as well, by funding some of these loans coming through them.
This means Ant might have to provide at least 30 per cent of the funding of their loans and to cap them at RMB300,000 (US$44,483) or a third of a borrower’s annual salary, whichever is lower, reported the Financial Times.
Currently, it added, Ant only funds two per cent of its total loans with the rest coming from other sources such as banks.
This means that Ant will be forced to be more like a bank, being dragged back by the need to keep money in its coffers. It can’t grow as fast as an unbridled technology outfit.
As many old bankers will remind these fintech upstarts, lending money is a simple game that almost always makes you money but you often have to follow the rules that are built for stability, less for rapid growth.
Why the last-minute halt, though? Many commentators have focused on Jack Ma’s comments at a Shanghai conference last month that may have forced regulators to act.
There, the founder of Alibaba, from which Ant was spun out of, had criticised industry bigwigs for being too risk-averse, according to the New York Times.
Accusing banks of being “pawnshops” that only lend to those who could put up collateral, he lectured them that there was “no innovation in this world without risk.”
Days later, Ma would be called up by the Chinese regulators for a meeting. Soon after, the initial public offering (IPO) was called off, at least temporarily.
It may be that Ma has antogonised the powers that be, and in China, the political elite clearly do not take kindly to being called fools by tech firm billionaires who appear to have more power than is comfortable for them. It won’t be the first time this has happened.
It’s also possible that the authorities were spooked by the massive amounts that came in for the Ant listing. What happens to a company that is too big to fail? The poorly regulated American banks, ironically, gave everyone a good lesson from 2008.
If banks that are associated with Ant accept too many bad loans, they could quickly take on water, since they bear most of the risk. How badly this may go is anyone’s guess but the bigger that Ant grew, the more the worry grew as well.
The same uneasiness around fintech companies has been evident in some other markets outside China. They are great when they are just improving user interfaces or lubricating the processes, like cross-border payments, for example.
But adding more risky loans to the system? A regulator is likely to weigh the risks of this particular disruption.
In Singapore, too, the impending introduction of virtual banks in the years ahead has also drawn questions on how solid a foundation these fintech companies, promising greater market access and easier transactions, are based on.
Financial stability is one thing. There’s also the data that is the lifeblood of any company that is a digital native.
After Razer and Grab, both technology firms hoping to land a Singapore digital bank licence, suffered data breaches this year, there were calls for them to do more to manage their digital accounts.
Now, regulators must weigh the benefits of moving fast with disruptive technologies and players in the field while ensuring that they do not add risks to a system that people are not aware of or ready for.
