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How Jack Ma’s troubles can help fintechs in S’pore

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Much has been written in recent months about the problems that Jack Ma, China’s nonconformist billionaire behind Alibaba, grappled with last year.

His comments on the Chinese regulatory environment for financial services prompted a crackdown by Beijing and the derailment of the Ant Group’s IPO of Shanghai and Hong Kong at the last minute.

Since then, Ma has largely disappeared from the public eye and is reportedly spending time in his hobbies, crouching down and avoiding the center of attention.

However, much less attention is paid to the consequences of the Chinese government’s attack on Ant that it will have inside and outside of China, particularly in Southeast Asia, which is a natural market for the expansion of Chinese tech companies.

The future has been postponed

Ant’s problems can be considered an earthquake of epic proportions, albeit largely unnoticed or underestimated in its severity, because it does not affect the present, but rather the future of fintech innovation in China, Asia, and most likely the world. whole.

To understand the extent of the damage, it is important to first understand the scale of Ant’s operations, as an arm of the Alibaba Group.

Image Credit: Ant Group

Based on Alibaba’s dominant position in Chinese e-commerce, the Alipay brand payment service has collected data over the years on more than 1 billion customers.

Using it, the company has rapidly expanded its range of services and deeply infiltrated the financial sector, offering loans, investments, credit ratings and insurance, handling trillions of dollars in transactions each year.

What Ant Group's IPO Says About the Future of Finance |  The Economist
Image Credit: The Economist

Due to its intimate relationship with customers who make regular purchases through various branches of the Alibaba empire, Ant Group was able to provide personalized financial services to more people, faster and more conveniently than any bank.

This was the basis for Ma’s comments during his nefarious speech at the Bund Finance Summit in Shanghai in October 2020, which has drawn the ire of Chinese regulators.

During the speech, he criticized both them and the contemporary financial system for being slow, incompetent, and inept at managing or promoting innovation.

Anyone who has dealt with any bank in the world, not necessarily China, must surely agree with your observations.

Financial institutions tend to be tragically slow in implementing new technologies (let alone developing them), and government regulators generally have limited knowledge of technology to create a friendly environment for fast-growing tech companies, which a they often operate in gray areas along regulatory boundaries designed for a world where it was impossible to collect so much user data.

Pride precedes the fall

group of ants
Image Credit: Aly Song via Reuters

Unfortunately, Ma has clearly gotten too bold and inadvertently scuttled the record IPO that Ant Group was about to launch in early November 2020, planning to raise more than $ 30 billion from the stock markets, placing its valuation above US $ 300 billion. .

Today, more than six months later, there is no news that it is returning to the stock markets and the company has been forced to transform itself into a financial holding company, submitting to regulatory oversight from the Chinese central bank.

It has also been prohibited from cross-selling financial products between its subsidiaries and forced to reduce its collection of personal data, allowing it to offer these products in the first place.

The government is now using the same playbook to bring all the other major IT companies online, so no one dares to break it again.

However, as a result, politics has crushed innovation that could have prompted Chinese tech giants to change the world of finance far beyond China’s borders.

This is good news and bad news for the rest of the planet, including Southeast Asia.

Threats and opportunities

The Chinese information technology sector is in a rather unique position as a uniform, rapidly developing, but largely hermetic market of 1.4 billion people. It is a whole continent of its own.

Due to the size of the local population, as well as its relative backwardness (which also frees it from the burden of outdated habits such as the use of cash), it provides a daunting breeding ground for all innovative companies.

If they are successful, they can grow rapidly and enormously, generating billions of dollars that will allow them to expand their services abroad.

Ant was definitely in the money with his vast and fast use of data that traditional banks don’t even have access to, couldn’t even understand. I was on my way to creating a frictionless fintech services future, which is really what we all want.

However, with the abrupt cessation of its ambitions, as well as those of its competitors, we can expect much less innovation, hampered by bureaucratic oversight.

It is likely to stop flowing from mainland China to other countries, many of which could also benefit from a shakeup of their domestic financial services.

As expertise and technology will be acquired more slowly, it is likely to affect the entire fintech industry. It’s a shame because China offers an environment like no other in the world.

On the other hand, every crisis is also an opportunity.

Beijing’s harsh treatment of fintech companies is also very instructive as to what not to do when you’re a government regulator.

As a result, even if the development of new products and services in China may come to a halt, it can still find a way to flourish abroad.

This is an opportunity both for Ant subsidiaries in foreign countries to develop their services there, and for smaller startups to innovate where the giant can no longer.

If Chinese companies are no longer able to offer novel financial products and services, it opens up opportunities for those operating in smaller countries, under governments that may be less concerned about non-conformist billionaires and more open to attracting IT investments to boost their economies. national (and political). public support).

In Singapore, there are already successful local multinational companies competing in an increasingly complex IT platform environment in Southeast Asia, such as Grab or Sea Ltd.

Each started with a single service, vastly expanding their offering in recent years, including financial technology (such as digital payments), in a growing number of countries.

By the way, they were both the first two to have received digital banking licenses in Singapore in December 2020. Meanwhile, Ant received a license to operate as a wholesale bank for commercial clients.

The city-state is in a rather unique position to benefit from Jack Ma’s stumbling blocks. It has a small domestic market, but its friendly regulatory environment has long made it a trusted financial, business, and technology hub.

With increasing legal hurdles in China, the center of gravity of fintech innovation may shift to a place that can be seen as a global benchmark for good legislation and a likely model for fintech regulation in the future; as well as being a gateway to a region of more than 600 million consumers in rapidly growing economies.

It may not be as big as China, but it is more than enough.

Beijing’s crackdown also helps Singapore’s Grab and Sea compete with a crippled ant in Southeast Asia. It’s another painful blow to Alibaba’s ambitions as its Lazada is already struggling to catch up with Sea’s Shopee in the e-commerce sector.

Given that Beijing decided to sacrifice innovation on the altar of political stability, it is highly unlikely that any of its recent decisions can be reversed. What’s more, it comes on the heels of another crackdown on cryptocurrency use and mining, forcing crypto companies to move abroad.

However, this heavy-handed approach cannot completely extinguish progress, as innovators will simply seek friendlier jurisdictions, which could be a good springboard for large enough markets.

In Asia, Singapore is clearly one of the best destinations for them.

Featured Image Credit: Chesnot via Getty Images

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