China clampdown on Ant Group could distract it from overseas expansion

Singapore

ANT Group's latest regulatory woes in China are unlikely to derail its digital bank plans here in Singapore, but the recent clampdown on the Chinese tech giants may hurt the advancement of the digital banking ecosystem in the long run, said analysts.

With this blow, Ant Group will either double down on its expansion plans abroad to make up for the pushback on homeground, or review its digital bank ambitions in Singapore and elsewhere if the challenges prove insurmountable, they added.

Ling Vey-Sern, senior analyst, Bloomberg Intelligence said: "There is currently nothing that suggests Ant's overseas operations will be affected by the Chinese regulator's moves."

"However, the Singapore digital bank benefits from the technologies that are developed and honed to support its China businesses," he explained. "If those businesses are wound down, then over time the competitive edge in Singapore will also be blunted."

Over the weekend, Chinese regulators had directed Ant Group to overhaul its higher-margin lending, insurance and wealth management businesses, potentially paring it down to a payments services provider. This follows the abrupt halt of its much-anticipated US$35 billion initial public offering (IPO) after regulators pulled the plug in November, on the back of new rules that level the playing field between fintech giants and big banks.

In December, Ant Group was awarded one of the two digital wholesale bank (DWB) licences by the Monetary Authority of Singapore (MAS), with a Greenland Financial-led consortium securing the other one. This enables successful applicants to serve corporates and small and medium-sized enterprises (SMEs).

In response to queries by The Business Times, an MAS spokesperson said that it "does not comment on other jurisdictions' regulatory engagements with their regulated entities".

"The DWB will be subject to MAS' existing prudential and regulatory requirements for the activities that it conducts here so as to safeguard the interests of the DWB's depositors and other customers," said the spokesperson. "The nature of the DWB's proposed banking and financial businesses in Singapore is also expected to be different from that of Ant Group's in China."

It will closely monitor events in the financial institution's home jurisdiction or globally that may have an impact on its business here, added MAS.

When asked if there will be any changes in Ant Group's digital bank plans, a spokesperson only referred BT to its earlier statement when it won the licence, without further elaboration.

Zennon Kapron, director of fintech research and consulting firm Kapronasia, said that the shake-up in China will have a "tremendous impact" on Ant Group's overall balance sheet and income.

This comes as payments are a low-margin business in China - merchants are typically charged about 0.6 per cent in transaction fees, while loans and origination fees for wealth management-related products can have margins of 5-6 per cent, he said.

"With everything that is happening in China, it could be a distraction for the company," said Mr Kapron. "The challenge for Ant is to deal with regulatory concerns while effectively building up a digital bank team and getting ready to launch by 2022."

He pointed out that Ant Group will "have its work cut out for it", considering that about 95 per cent of its revenue comes from home.

With the regulatory hit in China, Mr Kapron suggested that Ant Group could focus on other markets to carry out activities like lending and wealth management. However, the growth rate in these foreign markets will not be at the same level found in China, he added.

Most analysts believe that Ant Group's regulatory obstacles in China will not impact its digital bank plans here, given that the regulatory pushback had already come to light when MAS was making its decision.

Andrea Choong, analyst at CGS-CIMB Securities noted: "We believe that the MAS has studied its business plans and compliance to all necessary regulatory requirements prior to the award of the digital banking licence to Ant."

As long as it fulfils all of MAS's requirements, its developments in China are not a hindrance to its business aspirations in Singapore, she added.

Similarly, Angus Mackintosh, analyst at research portal Smartkarma, said: "I don't think it will affect their ventures outside China - they got a digital wholesale banking licence in Singapore, not a retail licence, so it will not have too much of an impact."

Despite the recent chain of events, Su Lian Jye, principal analyst at ABI Research, said that he remains "quite optimistic" on the prospects of Ant Group. "It is likely that Ant will face the same financial and liquidity regulations like all banks," he noted. "This means Ant will see a lower growth rate, but it still carries enormous potential due to its near monopoly position in the market."

Tay Wee Kuang, analyst at Phillip Securities, noted that Ant Group has been "responding positively" and taking a collaborative stance on regulators' directives. "I feel that the clampdown may restrict the growth of Ant Group in the short term, but the long-term growth prospects of Ant Group remain intact," he said. This comes as it is a leading player in fintech, while competitors are "merely playing a game of catch-up", he added.

But not all industry watchers are so sanguine on the implications of China's intensified scrutiny on its tech giants.

Lawrence Loh, associate professor at NUS Business School, cautioned that Singapore will have to watch the Chinese regulatory developments "very carefully".

"The key consideration is whether the change in Ant Group due to the Chinese restrictions will materially affect its ability to carry out its digibank plans in Singapore," he said.

If so, a review will have to be taken by MAS, but he acknowledged that the situation is China is still evolving with no clarity as yet.

"It's not just about Ant Group per se, but the impact will be on the advancement of the whole digital banking ecosystem," he pointed out. "Having Ant and others like Tencent implicated will not only affect the progression of the technological capabilities, but may pose new challenges in their global market involvement."

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