SHANGHAI – China’s financial industry watchdog has announced new regulations that will deal an additional blow to Ant Group and fundamentally disrupt the online microlender’s business model.
Banks will be required to manage the risks of joint lending with Internet platforms, such as Ant, and “strictly prohibited” from outsourcing the function, the new regulation released on February 20 by the China Banking and Insurance Regulatory Commission stipulated in its first article.
Ant receives loan requests via smartphones and forwards them, along with its candidate credit scores, to partner banks. Subsidiary of Chinese e-commerce giant Alibaba Group Holding collects fees from lenders for information.
The fees are estimated at 15% or 20% to 30% of the partners’ interest income and contribute 40% of Ant’s operating income. If Ant becomes unable to provide banks with credit scores, her value to those lenders will drop and she will eventually have to reduce the fees she charges them.
The new regulations aim to strengthen banks’ risk management, the CBIRC said. But in reality, they’re targeted at Ant’s main source of income – small-batch loans to consumers and mom-and-pop business operators.
The CBIRC also stipulated, in a second article, that an online microlender like Ant will be required to provide at least 30% of the funding on their own under a single joint loan with a bank.
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