- By Lingling Wei
China’s regulators are trying to get Jack Ma to do something the beleaguered billionaire has long resisted: share the troves of consumer-credit data collected by his financial-technology behemoth.
Mr Ma has little room to bargain after the business empire he has built over decades has landed in the crosshairs of regulators and even President Xi Jinping, partly reflecting Beijing’s concern that the flamboyant entrepreneur has been too focused on his business fortunes rather than the state’s goal of controlling financial risks.
Central to the crackdown on Ant Group, in which Mr Ma is the controlling shareholder, is what regulators view as the unfair competitive advantage the company has over small lenders or even big banks through swathes of personal data harnessed from its payment and lifestyle app Alipay.
The app, used by more than a billion people, has voluminous data on consumers’ spending habits, borrowing behaviours and bill- and loan-payment histories.
Equipped with that information, Ant has originated loans to half a billion people and has gotten about 100 commercial banks to supply the majority of the funding. In those arrangements, banks take on most of the risk of borrowers’ defaulting, while Ant pockets profits as the middleman.
Now, authorities are seeking to overturn that business model, which has proved lucrative for the company but which comes with potential dangers for the country’s financial system.
Not only are authorities set to regulate Ant’s lending business like a bank, which would cause it to supply more of its own funds when making loans; they are also planning to break what they see as the company’s monopoly over data, according to officials and government advisers with knowledge of the regulatory matter.
Ant declined to comment.
One plan being considered would require Ant to feed its data into a nationwide credit-reporting system run by the central bank, the People’s Bank of China, the people familiar with the matter say. Another option would be for Ant to share such information with a credit-rating company that is effectively controlled by the central bank.
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Despite Ant being a shareholder in the credit-rating company, along with seven other big data-driven Chinese firms, it hasn’t handed over its data, the people say.
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“How to regulate data monopolies is at the heart of the issue here,” said an Adviser to the antitrust committee of China’s State Council, the top government body.
In the US, lawmakers have also stepped up efforts to crack down on Big Tech, arguing that companies such as Facebook and Google have used vast amounts of data to muscle out rivals. The tech giants have all denied wrongdoing.
Some analysts of China’s financial-technology sector agree that it is in the public interest to have companies like Ant share consumer-credit data. It is unclear, though, whether regulators would demand access to its entire database, including proprietary information that Ant uses to analyse its customers’ creditworthiness.
“Making credit histories and scores more public is a good thing,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics who is writing a book about the fintech sector in China. “It can help make lending more competitive and prevent overborrowing.”
For years, China’s financial regulators, led by the central bank, have striven to build a credit-scoring system similar to FICO scores in the US, created by Fair Isaac Corp, as a way to make it easier for lenders throughout China to assess credit risks and expand access to financing for companies and individuals alike. The effort is part of a broader “digital governance” initiative aimed at harnessing data and technology in asserting greater social and economic control.
Mr Ma, perhaps the Chinese entrepreneur most identified with innovation in recent decades, has assisted the government in various ways over the years. Alibaba Group Holding, the e-commerce giant he co-founded in 1999, has used its data sources to help authorities hunt down criminal suspects and silence dissent. Ant’s Alipay payment app contains contact-tracing functions to help the government contain the coronavirus pandemic.
But in the past couple of years, Mr Ma has resisted regulatory attempts to make more available the personal credit data owned by Ant, according to the officials and government advisers familiar with the issue.
In 2015, Ant started its own credit-scoring system, called Zhima Credit, which assigned ratings to many individuals and small businesses that didn’t have established credit histories elsewhere.
Three years later, the People’s Bank of China launched a personal-credit reporting company, called Baihang Credit, and invited Mr Ma’s Ant, Tencent Holdings, which owns the popular WeChat messaging app and its associated mobile-payments network, and six other firms to be Baihang Credit’s minority shareholders. The controlling owner is the National internet Finance Association overseen by the central bank. The idea was to get Ant and others to share their customer-credit data, which then would be accessible by financial institutions across the country.
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However, the plan all but failed. Ant refused to contribute what it views as its proprietary data to maintain its competitiveness, the officials and advisers say. Zhima Credit’s ambitions, meanwhile, were scaled back, and the Ant unit now is essentially a loyalty program, giving individuals with high credit scores perks like deposit waivers on rentals of cellphone chargers, bicycles and cars.
Mr Ma himself has become engulfed in a regulatory storm in recent months. A public speech he made in late October, in which he lashed out at President Xi’s signature campaign to combat financial risks as well as at financial regulators, infuriated the leadership and prompted Mr Xi to personally call off a much-anticipated share sale by Ant, according to Chinese officials with knowledge of the matter, and order regulators to investigate risks posed by his business.
Since then, regulators have used the clampdown on Mr Ma and his empire as part of a bigger effort to strengthen supervision of the country’s increasingly influential tech sphere.
In a private meeting with regulators in early November, Mr Ma himself also offered to have the government “take any parts Ant has, as long as the country needs it,” according to people with knowledge of the matter. In late December, the central bank laid out a road map for Ant to restructure its business, requiring, among other things, that the company be fully licensed to operate its personal credit business.
In a statement issued by the People’s Bank of China, Deputy Governor Pan Gongsheng also criticised the company broadly for its “defiance of regulatory demands.”
Mr Ma hasn’t appeared publicly since his October speech. Ant in recent weeks has scaled back parts of its operations, reducing credit limits for some individual borrowers and removing online-deposit products that financial regulators have frowned upon.
Wall Street Journal