The Chinese government recently ordered a structural reform of Jack Ma’s Ant Group. Under the direction of China’s central bank, regulation authorities have set up stricter requirements for Ant Group and demand the Fintech company cut ties with its popular payment app Alipay. Ant Group will thus turn into a financial holding firm, which will significantly impact its valuation and profitability prospects.
The People’s Bank of China vowed to go through a “thorough and practical restructuring plan.” By cutting connections with Alipay, Ant Group will also be separated from Alipay’s consumer loan business Huabei, and its virtual credit card business Jiebei. Those businesses will also become separate entities and apply for required licenses, respectively.
Reuters reported that the Hangzhou-based company was estimated to be worth $315 billion before its planned IPO last November. From the company’s 2020 performance, its estimated value dropped to $200 billion due to the forced structural changes.
Ant Group relies on consumer data collected via applications like Alipay to succeed. In addition to facilitating e-commerce and cashless payments, Alipay also offers online investment loans and other financial services via smartphone devices. The popular application has more than 730 million monthly active users in China alone and boasts more annual transactions than Mastercard or Visa.
In a statement released to the public, Ant Group says the company will fully comply with the five requests listed by regulatory authorities, adding they have completed specific plans to fulfill those requirements in recent days. The fintech business will create separate financial holding entities, personal credit, consumer finance and ensure fair competitions and risk controls. The company also pledged to enhance consumer data protection and expanded efforts on corporate social responsibilities.
“Ant Group will take this structural change as an innovative opportunity to serve the economy and uphold corporate principles of technology-driven, innovative, open, and creating win-win situations. Ant Group will voluntarily integrate corporate growth into the country’s strategic development plans by consistently increasing spendings on innovation, compliance assurance, international competitiveness, and work hard to create value to the society and contribute to the country’s ‘double cycles’ new development plans,” said the company.
SEE ALSO: Chinese Regulators Issue a $2.8 Billion Fine Against Alibaba for Violating Anti-Monopoly laws
Measures against Ant Group came after a $2.8 billion fine was imposed on Alibaba by Chinese anti-monopoly authorities. The payment solution company was scheduled to start its initial public offering in November 2020. But the IPO was halted by the authorities following remarks made by Jack Ma, the founder of Ant Financial and Alibaba group, criticizing financial institutions and bank regulators in a press conference in October 2020.
Jack Ma subsequently stopped making public appearances for nearly three months until January 2021, when he attended an online event with 100 teachers from rural areas.
Despite facing multiple changes from government regulatory bodies, Alibaba remains confident in its future business prospects. The company’s CEO Daniel Yong Zhang said to the public that the anti-trust penalties would not have a significant impact on Alibaba’s business. Zhang also said that the company would turn many mature business models into free services, set aside billions in funding to support new projects, and boost investments to help e-commerce business owners.