In his first calculated move since his fall from grace, Ant is now demanding a larger slice of transaction fees from its payments platform at the expense of local banks, as China’s largest financial technology group tries to offset losses from a government crackdown on its lending business.
The move is aimed squarely at rebuilding the group’s valuation after the company’s planned $37 billion initial public offering, which would have been the world’s biggest ever, was canned.
Multiple lenders have agreed to allow Alipay to increase its share of the processing fee from transactions conducted on its platform by up to 80% since the beginning of this year.
Instead of using cash or cards, most Chinese consumers make payments through mobile apps, such as Alipay, for everything ranging from Starbucks coffees to train tickets or online shopping. This has given Alipay significant pricing power in what it charges for its services.
Merchants in China pay transaction fees on each transaction made using Alipay, which is split between the FinTech, the customer’s bank and Unionpay, the country’s payment card network. Alipay’s share of this fee has been increasing while that of the banks has been shrinking.
Ant’s fee rise also underscored the challenges faced by Beijing in taming the FinTech champion, whose dominance of online finance in China has weakened the state’s grip on the sector.
“Ant has the upper hand in price negotiations because we count on Alipay to expand our business,” said an executive at a bank that works with the FinTech company. “There is little the government can do.”
Ant is smarting from the crackdown on its high-margin lending business, under which the FinTech takes a fee for connecting borrowers on its online platform with lenders, usually banks.
According to a draft law issued last November, the FinTech will need to contribute much more capital for loans it offers in partnership with banks while facing limits in raising funds from the debt market.
To make up for the fall in profitability from the changes to its lending business, Ant has become more aggressive with its online payments division. “Ant is still looking for an IPO and it wants to improve its valuation that has taken a hit from the regulatory overhaul,” said a person close to the company. “The solution is to grow in areas that come with fewer restrictions.”
Official data show the nation’s mobile payment platforms, led by Alipay, reported Rmb295 trillion ($45.2 trillion) in transactions last year. That compared with Rmb117 trillion for bank card purchases in the same year.
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