• 4 hours Vigilante Offers $100,000 Bounty To Hack Banks
  • 22 hours The Dairy Industry Is Dying
  • 1 day The Most Impressive Electric Vehicle Of The Year
  • 2 days Gold Miners Are Having A Stellar Second Half
  • 3 days How 3D Printing Is Turning Each And Every Industry On Its Head
  • 3 days Is The $3.5 Trillion Healthcare Industry About To Get Much More Transparent?
  • 4 days Gamblers Are Betting Big On Trump’s Impeachment
  • 4 days Even Banks Can't Answer Aramco's Trillion Dollar Question
  • 5 days Will Bezos Buy The Seattle Seahawks?
  • 5 days 6 Tech Trends Transforming The Travel Industry
  • 6 days Ousted Uber CEO Cashes Out $500 Million In Stock
  • 6 days Trump Prepares For Another Key Tariff Decision
  • 6 days The Free Money Bubble Is About To Burst
  • 7 days The Crushing Reality Of Poverty In America
  • 7 days Should You Buy Into The World’s Largest IPO?
  • 7 days The Infinite Possibilities Of Cosmic Energy
  • 8 days Analysts Link Walking To Economic Growth
  • 9 days Will Japan Turn Its Back On The Aramco IPO?
  • 10 days Global Debt Soars To $188 Trillion
  • 10 days The World's Largest Gold Miners Are Getting Creative
Human Energy: Debunking The Matrix

Human Energy: Debunking The Matrix

Hollywood has always been a…

Why Silicon Valley Is Moving To Toronto

Why Silicon Valley Is Moving To Toronto

Some of Silicon Valley’s biggest…

  1. Home
  2. Tech
  3. Other

Fintech Startup Gives China’s Banking Industry A Run For Its Money

Beijing

There's a fintech revolution happening in China’s payments space, and one mobile startup is giving the banking industry endless nightmares.

Its sheer size is mind-boggling—the company handled more payments than Mastercard last year, completing more than $8 trillion of transactions, more than twice Germany’s GDP. The fintech startup now controls the world’s largest money-market fund and makes loans to tens of millions of people every year.

Founded by Chinese billionaire and Alibaba Group chairman Jack Ma, Ant Financial Services Group has developed into the world’s biggest fintech firm, making products that let people to do things like pay for their insurance or buy groceries on their mobile phones.

Jack Ma created Alipay, a subsidiary of Ant Financial, in 2004 to give Chinese customers who lacked credit and debit cards an easy way to shop in the vast online marketplace. The platform has grown from strength to strength and now boasts 620 million users.

Vampire Startup

As Alipay grew, Jack Ma discovered that banks were not doing nearly enough to support small businesses and begun advancing them small loans. In 2010, Alipay was carved out of Alibaba after the authorities said the platform would need a new license to operate.

By 2013, Alipay was holding customer funds worth billions of dollars in escrow. It was around that time that the company came up with the idea of investing idle customer funds in money-market funds to earn an income. The  money market fund, known as Yu'e Bao for "leftover treasure," allows customers to invest as little as 0.01 yuan ($0.0015). The fund pays interest rates several points higher than what banks pay on short-term deposits, something it’s able to do because its status allows it to invest in riskier products than what banks are allowed to tap. Related: How Will A Global Economic Crisis Impact Bitcoin?

A boom in asset-backed securities issued by micro-lenders that package consumer loans into securities has been fueling the company’s growth.

China’s banks, including the country’s largest, are not happy with the turn of events, and are now grumbling that Ant is siphoning away their deposits, forcing them to pay higher interest rates to attract deposits and even leading to the closure of branches and ATMs.

One state-owned TV channel has described Ant’s massive money market fund as a “vampire sucking blood from banks”.

And they are trying to put the clamps on Ant.

Earlier this year, China’s central bank scuttled Ant’s year-long efforts to build a national credit-scoring system by barring banks and institutions making loans from using it. Unlike the U.S., China lacks a national credit scoring system.

Meanwhile, regulators have issued a slew or rules requiring money-market funds to sharply lower high-yield assets that allow them to pay high interest rates to customers. This move has put pressure on Ant’s money market inflows.

Related: Gold Prices Are Soaring In Venezuela

The authorities are also considering whether to designate Ant as a financial holding company and thus require it to meet bank-style capital requirements.

Ant Financial Repackaging Itself

Increasing oversight by regulators could hold back a golden age of fintech growth in the country. Ant Financial is, however, trying to repackage itself to make sure it does not make the authorities feel uncomfortable.

Fintech startups backed by Chinese tech heavyweights such as Baidu and JD.com have in recent months been moving away from directly offering financial services towards providing platforms that traditional banks and money lenders can use to reach their customers. Ant is doing the same, noting that the company does not fund most of its loans from its own balance sheet but rather makes it easier for banks to extend their loans and lower risks.

"I don't think banks see us as a disrupter," Ant's general counsel Leiming Chen has declared.  "We complement them and are helping them reach more customers."

By Alex Kimani for Safehaven.com

More Top Reads From Safehaven.com

Back to homepage

Leave a comment

Leave a comment