China's central bank said on Sunday it had asked the country's payments giant Ant Group Co Ltd to shake up its lending and other consumer finance operations, the latest blow to its billionaire founder and controlling shareholder Jack Ma.  

The People's Bank of China (PBOC) summoned Ant executives on Saturday and ordered them to formulate a rectification plan and an implementation timetable of its business, including its credit, insurance and wealth management services, the regulators said in a statement Sunday.

The statement said that Ant Group lacked a sound governance mechanism, defied regulatory compliance requirements and engaged in regulatory arbitrage. It also said that the company used its market position to exclude rivals and hurt the rights and interests of consumers.

The meeting came after Chinese regulators last month halted Ant's record-breaking $37 billion (€30.3 billion) initial public offering in Shanghai and Hong Kong over regulatory changes, and comes just days after China announced an anti-monopoly investigation of e-commerce giant Alibaba Group, which owns a 33% stake in Ant Group.

Significant restructuring

The statement stopped short of calling for a breakup of Ant, yet pointed to a significant operational restructuring. Ant should set up a separate holding company to ensure capital adequacy and regulatory compliance, People's Bank of China (PBOC) Vice Governor Pan Gongsheng said.

Ant should also be fully licensed to operate its personal credit business and be more transparent about its third-party payment transactions and not engage in unfair competition, Pan added.

Ant said in a statement it would establish a "rectification" working group and fully implement regulatory requirements.

Chinese regulators and Communist Party officials appear to have set about reining in Ma's sprawling financial empire after he publicly criticized the country's regulatory system in October for stifling innovation. Ma was advised by the Chinese government to stay in the country, Bloomberg News has reported, citing a person familiar with the matter.

A sprawling financial empire

Ant owns Alipay, one of the most popular payment apps in China, and also offers online financial services such as loans, investments and credit scoring systems.

Over a billion users use Alipay to pay for purchases both online and in stores, to send money to friends and to pay bills. Alipay is accepted by shops in over 50 countries, where it targets Chinese travelers.

In the 12 months that ended in June, Ant reported that the company processed some 118 trillion yuan ($17 trillion, €14 trillion) worth of transactions.

Alipay, together with its main rival WeChat Pay, which is offered by WeChat, the country's dominant messaging app, has transformed Chinese commerce and daily life.

The platforms turned China into a largely cashless society and allowed the country to leapfrog straight to mobile payments using QR codes, circumventing debit and credit cards, while Americans and Europeans still carry plastic cards and use billions of checks.

Chinese users of these apps can do all sorts of transactions from within them — be it buying flight or train tickets, paying bills, ordering food or hailing a cab, among other things.

In recent years, Ant has expanded beyond payments and into other financial services, including offering consumers quick loans as well as running one of the world's largest money-market funds and a private credit rating system for its users.

The company in 2019 entered the insurance market, creating a healthcare product called Xianghubao that allows people to pay a small monthly fee that is pooled to help cover treatment costs for members stricken by illnesses such as cancer and Alzheimer's.

Regulatory clampdown?

Ant's meteoric rise and dominant role in China's financial landscape has caught the attention of Chinese regulators, who have tried to slow the pace of change.

The current scrutiny of Ant Group and Alibaba comes as China closely examines the influence of the country's internet sector.

Last month, China released draft regulations to clamp down on anti-competitive practices in the industry, such as signing exclusive agreements with merchants and the use of subsidies to squeeze out competitors.

Alibaba and a company spun off by Tencent Holding Ltd. were fined this month for failing to apply for official approval before proceeding with some acquisitions.

sri/shs (AP, Reuters)