Two weeks, Ant Group, the parent of the hugely successful Alipay wallet, announced plans for an IPO expected to be around $200 billion. This week, the Chinese press reported unconfirmed news that the Chinese central bank was investigating delinquency rates for loans made by Chinese banks jointly with others, particularly with Ant Borrowing and Ant Huabei.
We wondered about the timing given Ant’s recent IPO announcement but wrote it off as a COVID related issue. Then today there’s an unverified Reuters report that the State Council’s Antitrust committee is considering a competition investigation into Alipay and its competitor WeChat Pay which together process more than 90% of mobile payments.
Both investigations may not be hard to justify. It’s the timing that’s so curious, if these are more than just rumors.
In terms of the loans, allegedly Ant is responsible for customer sourcing and risk control, but the banks bear most of the risk. There’s a concern that to expand aggressively, the degree of risk being assumed may be too high. And the People’s Bank of China wants to be sure this doesn’t create systemic financial risks.
The central bank is also progressing its digital yuan (DCEP) program, which is currently classed as at the “internal testing” phase although numerous private organizations are involved. One of the drivers behind the central bank digital currency (CBDC) is precisely the overly high reliance on private payment platforms. It’s expected that the digital currency will be available on both Alipay and WeChat Pay. Alipay has also patented some of the CBDC processes.
However, Hong Kong and Chinese commentators have noted that there may be little incentive for consumers or merchants to use the new government payment solution. That’s because consumer needs are already satisfied by Alipay and WeChat Pay, and merchants have to invest in additional hardware, although yet to be announced incentives are expected.
What’s rarely mentioned in the Chinese press is that consumers may also prefer private solutions as they are perceived as having a little less government oversight. However, since 2018 the government has required QR code payments to be processed via Unionpay for which the central bank has strong oversight.