After the ant is ordered to end the monopoly on information, it will behave more like a bank, and with it, Huabei users will become more and more like bank users.
On September 22, 2021, Huabei announced that it is "orderly promoting access to the central bank's credit reporting system", which means that Ant Financial will share credit data with the central bank. The data shared includes the user's credit limit, the amount of credit used, the status of repayments, and the date the account was created, while information such as personal purchases and transactions will remain private.
Picture 1: Ant Flowers
According to Ant's 2020 prospectus data, Alipay has more than 1 billion annual active users, and about half of them use Huabei. If you are a user of this national-level application and do not authorize the consent to access, then "the normal use of Huabei may be affected in the future."
In other words, it cannot be done by ants or by yourself. Huabei said that the inclusion of Huabei credit information in the credit reporting system will help the comprehensiveness of users' credit information. Of course, the resulting regulation will also be more comprehensive. After the user is included in the central bank's credit reporting system, if there is a default, overdue and other behaviors, it will have an impact on future mortgages, car loans, etc., and even affect normal travel, not just as before, but affect the sesame points and generate corresponding overdue fees. "Huabei", which originally meant "flowers if you want to flower", is probably not so painful now.
Figure 2: Bank credit reporting system
It can be seen from Huabei's user group that its service population is mainly young people, including many students in school. According to the "Young People's Consumption Life Report" released by Alipay in 2020, the proportion of Huabei users after 90, 80 and 70s was 33%, 48.5% and 14.3% respectively. This is obviously because, compared to credit cards, Huabei has a lower threshold for use (convenient online shopping, no credit check required).
Therefore, it can be expected that the result of Huabei's credit reporting is that, first, the credit ability of young people will be affected; second, the lending of banks to Huabei users will also be affected. After the ant is ordered to end the monopoly on information, it will behave more like a bank, and with it, Huabei users will become more and more like bank users. Whether Huabei's user base will decline as a result is worth further attention.
Figure 3: Young people affected by Huabei and other staged consumption
On the other hand, the central bank is certainly happy to see this move, because it has incorporated hundreds of millions of "credit white households" into the country's credit reporting system. China's big banks are also winners, having been competing with Ant Financial for customers and losing their edge. Ant Financial's customer database has long been seen as an important advantage for the company, enabling it to design financial products that are appropriate for users. Now, the database has been forced to open up, showing that the regulation of the fintech industry is increasing.
Years of lax regulation in China have helped Ant Financial become the world's most valuable fintech giant, with operations spanning payments, banking, wealth management and insurance. However, once the regulatory climate changes, it is ants that bear the brunt of it. On November 3, 2020, the Shanghai Stock Exchange suspended Ant Financial's listing two days before its scheduled listing, citing regulatory changes. Ant Financial subsequently withdrew its plans to list in Hong Kong.
Figure 4: The listing of Ant Huabei was stopped
Since then, Ant Group, which failed to go public, has worked hard to embrace supervision, establish a dedicated team, and actively carry out rectification. If Ant Financial's IPO gets back on track, analysts predict its valuation will be much lower and its price-to-earnings ratio will be close to that of banks, as regulatory risks suggest it is more like "finance" than "technology."
Regulators make such decisions with their own big picture considerations. The fintech industry has a large user base and plays an increasing role in China's capital flows and financial pipelines. While they make financial services easier and easier for hundreds of millions of users, at a time when China's household leverage has climbed to record heights, the industry has pushed more credit to college students and others who lack income — or no credit history. The bigger concern is that online lenders are not meeting the same capital and leverage requirements imposed on banks when providing other banking services. If a problem occurs, it may undermine the overall financial stability and even social stability.
Figure 5: Dynamic equilibrium in financial markets
It must be borne in mind that maintaining stability is one of China's current and iconic goals, so any force perceived as a threat to stability may find itself at a crossroads. However, greater regulation should be accompanied by ensuring the viability of Hong Kong and Shanghai as prime financial centres and the commitment to transparency required for modern open capital markets.