What’s going on?

China announced plans to separate Alipay (payment app with more than 1 bil users).

What does this mean?

• Alipay is considered the go-to platform for everything, from ordering food to processing payment. Its profitable lending business helped issue 10% of all China’s non-mortgage loans in 2020.
• Meanwhile, the Chinese government has been looking to issue regulations limiting tech companies’ power in China and has then told Alipay to
  • Spin that lending segment off into a completely new app
  • Hand over its customers’ data to a new credit-scoring business that’s part-owned by the government itself.

Why should I care?

The bigger picture: One hurt horse hurts the whole ship,

• Alipay’s owner – Ant Group‘s key reason to have failed to conduct IPO in 2020 was its lending business, and this news sounds to make its second attempt pretty unlikely.
• This is also harsh for Alibaba (ecommerce giant that owns 33% of Ant Group), which saw its shares fall 4% after the announcement, leading to the total drop of 30% so far in 2021.
• A key index tracking biggest tech players in China also fell 2%.

Zooming out: You were warned

China’s central bank did warn the online lending industry that government-approved credit companies would eventually have to approve every lending decision they make. This would mean

• Extra costs, e.g. extra outsourcing
• Less revenue, if the credit-scoring companies approve fewer loan applications.

Content source: Finimize (2021) Crushed. Available at: https://www.finimize.com/wp/news/crushed/ [Accessed on Sep 14, 2021]