Trying to regain the valuation of tens of billions of dollars, Ant Group tried to “squeeze” domestic banks

According to the Financial Times, Ant Group will be requesting an increase in commission fees with banks on its commonly used payment platform. This move comes in the context of China’s largest fintech group trying to compensate for the damage recently.

The new request to raise commissions will help Ant’s dominant shareholder, billionaire Jack Ma, reset the company’s valuation, after Beijing ordered to postpone a $ 37 billion IPO in November. At that time, Jack Ma rarely appeared in public, while the authorities introduced new regulations to control micro-lending.

Many lenders revealed to the Financial Times that they have agreed to allow Alipay to increase the processing fee from transactions executed on its platform up to 80% since the beginning of the year. Usually, merchants in China pay a fee for each transaction made in Alipay – which is divided between Ant, the customer’s bank and the card service company Unionpay. This fee rate of Alipay is increasing while that of banks is decreasing.

Instead of using cash or credit cards, most Chinese consumers make payments through apps like Alipay for everything from coffee to train tickets to online shopping. This trend has given Alipay the power to “set prices” in charging for its services.

Ant’s fee hike also highlights the challenges Beijing faces in controlling the fintech “giant”. Ant has “dominated” China’s online financial sector and has undermined the ability of the state to control it.

” Ant has the upper hand in negotiations, because we trust Alipay has the card to expand our business, ” said an executive at the bank who worked with Ant . can do it . ”

Currently, Ant is trying to “escape” the Chinese state’s attempt to control its high-margin business. Accordingly, the fintech company must pay a fee to connect borrowers on the online platform with lenders – usually banks.

According to a draft bill enacted in November last year, Ant will have to increase the contingency capital for debts they cooperate with banks. In addition, the conglomerate also faces restrictions in raising capital from the debt market.

To compensate for the risk of declining profits in the lucrative lending business, Ant is making tougher moves with the online payments sector.

” Ant is still seething with its IPO intentions and they want to improve their equity valuations affected by the new rules. Ant’s solution is to develop in areas with little limitation,” a source close to. more processing . ”

Jack Ma’s conglomerate has started to pursue this tough approach in its negotiations with banks over the past few months. The move comes in spite of a warning from the PBOC in January that it will eliminate monopolistic practices in the digital payments industry.

Official data shows that Alipay has over 1 billion active users and processes more than half of China’s non-bank electronic payments. This factor makes Ant a target for antitrust regulations, aimed at preventing the company from taking up about a third of the market.

However, the tightening of regulations by the authorities did not help banks have a stronger say in negotiations with Ant. Some lenders shared they agreed to let Ant increase transaction fees not only this year but also in 2022. A bank official revealed: “We cannot afford to lose a partner like Ant.”

Last year, China’s digital payment platforms processed CNY 295 trillion ($ 45.2 trillion) in transaction value, led by Alipay. Meanwhile, transactions via bank cards were only 117 trillion USD in the same year.

As Alipay’s popularity continues to grow, Chinese banks are rushing to cooperate with the platform to help their credit card services compete with the competition. A Beijing CFO said Chinese lenders entered the ” arms race ” to offer incentives to Alipay for the platform to put their credit cards on the list of priority partners .

” People only use one Alipay, but there are dozens of credit cards that can’t be distinguished. So who do you think has the better bargaining power? ”

A source close to the PBOC said the central bank is considering various measures to circumvent Ant’s monopoly. However, any restructuring attempt is made that will require coordination between a variety of market participants – including Ant and its competitors. This step will be difficult due to the conflicting interests of the parties.

Consult the Financial Times