After the Dramatic Fall, Jack Ma’s Ant Group Might Have a Blurred Future
By: Ashwathy Nair
After a dramatic fall from grace, the future of Ant Group remains problematic. It seems like, regulators have had enough of destroying it and a transition to a financial holding company is being considered, which is willing to be regulated like a bank.
The bank-like companies do not command tech-like valuations. Unless, it is one of the booming consumer finance markets of China, expecting to hit 3 trillion of Yuan ($464 billion) in volumes over the next four years. That is where the reach of Ant is and that is where the demand is. More importantly, keeping with the so-called dual circulation strategy, state planners are all set to generate domestic demand and supply. Credit will have to flow to households effectively for that to operate.
It is known by Beijing as well. The growing of disposable income has driven consumption growth for the better portion of the last decade but have been reducing. Which means that the authorities are required for another way to keep its economy humming along. In the year 2019, the number of consumer finance customer augmented to almost 130 million and increased to over 50 per cent from the year before.
The state is also aware that it is good for the economy. There is an increasing correlation that is shown by the data between the growth of consumer loans and retail sales in the country. The Ant Group could have potentially played a larger role than it is already been doing, with more recapitalization.
Over the last year, the growth of consumer finance companies has been encouraged by the government as well as bank’s existing unit that deals Ping An Insurance (Group) Co. of China, it has received approval for a new consumer finance company. The restrictions on these lenders have been loosened by the banking regulators and have expanded funding channels by letting them raise different types of capital which, includes tier-2 capital compliant bonds.
Ant was hitched to the trend itself. In August last year, Nanyang Commercial Bank Ltd., battery manufacturer Contemporary Amperex Technology Co. and others took a 50 per cent stake in a new consumer finance company set up. It was sanctioned the following month by the banking regulator.
Ant was able to convince the authorities that it would support and not impede their agenda to get back in the good deeds of the government. For instance, the Zhima credit scoring system of the company could dilute concerns about banks, taking on risky loans and dovetail with the government’s objective of protecting household wallets in the larger scheme.
Trying to transform back into a much more distinctly established player in financial services and away from the fuzzy giant fintech operations will not be too challenging for Ant. Capital dedication is the hard part. However, as a consumer finance firm, Ant was able to collect capital from its domestic shareholders through deposits. Borrowing from banks or issuing financial bonds will be permitted as well. Many licensed consumer finance companies in China have commercial banks as backers.
This is not likely to bring Ant back to its super-unicorn scores. Nevertheless, alongside Ant’s more developed payments company, a stronger business model that is less dependent on low acquisition costs and tack-on companies could actually survive.
