Breakingviews – Beijing makes Ant’s credit less addictive

HONG KONG (Reuters Breakingviews) – China is trying to wean consumers off Ant’s addictive credit. The central bank is curbing the financial technology giant’s sprawling consumer loans business. Surging household debt is raising alarm bells, so it looks prudent to make it harder to borrow for online purchases.

For years, Ant has successfully peddled consumer loans, investment products and insurance through its dominant Alipay payments app, which boasts more than 730 million monthly users in China. Online credit in particular has taken off. Thanks to offerings like Huabei, a virtual credit card, the unit has become Ant’s biggest business by revenue, with a consumer lending balance of some $260 billion as of June. That’s equivalent to more than a fifth of all short-term consumer loans issued by traditional Chinese banks, according to Reuters.

Between 2015 and 2019, China’s household credit surged to 128% of average income, adding $4.6 trillion of bank borrowing, according to the Rhodium Group. Officials grew particularly concerned by media reports of young people burying themselves in short-term debt to make impulse purchases online. This is probably where the crackdown on Ant, which helps consumers buy things on Alibaba’s Taobao and Tmall shopping sites, comes from.

One key demand from the central bank is for Ant to cut “improper” linkages between payments and financial products. That may mean the Alipay app will no longer be able to promote Huabei or short-term loans from Jiebei as payment options, according to someone familiar with the matter. Denying customers the convenience of borrowing for whimsical purchases with a tap on a smartphone screen will quickly dock growth, and given Beijing’s general suspicion of so-called financial super-apps, it’s unlikely regulators will stop there.

Moreover, the central bank, antitrust watchdogs and other agencies have recently unleashed a flurry of new rules targeting online lending, digital payment monopolies, data collection and more. Altogether, Ant’s ability to profit from credit-fueled casual consumption will be diminished, which is exactly what Beijing wants.