The financial arm of JD.com, an e-commerce firm, and Lufax, an online wealth-management platform, are on track for IPOs this year. Not only has it steered credit towards small consumers and businesses, it has also given the government more information about money flows.

But that’s not where you make the money in insurance,” says Sam Radwan of Enhance, a consultancy. In March 2020 alone they profited over $1.3B, a 560% increase over last year. An initial public offering (IPO) in the coming weeks will bear testimony to Ant’s growth.

I earned my PhD in Economics from the University of Utah and my BA from Wellesley College.

The strength of Ant’s platform is what enables its third and fourth business segments: asset management and insurance (InvestmentTech and InsureTech, to use Ant’s nomenclature).

The first is payments—how it started and still the foundation of the company.

Ant also has an awkward relationship with banks. It now identifies and assesses borrowers, but passes them on to banks which extend the loans. Companies that operate in two or more financial industries may soon be required to obtain licenses from the central bank and meet capital requirements. Ant recorded about $17B in revenue last year and about $1.7B in profit. It then collects a service fee. Boosters once imagined a world connected by Ant, its credit-to-investment architecture straddling borders. Regulations are expected to be implemented on money market funds.

Officials endlessly tweak rules for banks and investors, patching up holes as they emerge in the fast-growing but debt-laden economy. Another threat to Ant is its competitors. By contrast foreign financiers look at Ant with curiosity, envy and anxiety. Some hawks in the White House reportedly want to rein in the company or hobble its IPO. The company is making use of artificial intelligence in several areas, to provide answers to consumer questions, process data and process customer payments.

A stake was also sold to a private equity firm managed by the grandson of Jiang Zemin, China’s paramount leader during Alibaba’s early years. So far these competitors have a much smaller financial footprint than Ant’s.

But growth is slowing, dropping from 55% of Ant’s revenue in 2017 to 36% in the first half of this year. Indeed, regulators have already put numerous hurdles in Ant’s path. They know who your customer is.

Its loans to small businesses total about 400bn yuan, about 5% of the micro-enterprise loan market. For now that is not much of a concern, given that it focuses on borrowers ignored by banks. Doubts exist about its investment and insurance platforms, too.

Shawn Yang of Blue Lotus, a boutique Chinese investment bank, says that Tencent, for instance, has high-frequency but low-value consumption data, less rich than the trove that Ant has thanks to Alibaba, which accounts for more than half of Chinese online retail sales. “Our growth on Ant has been faster than on any other digital platform,” says Li Li, deputy CEO of Invesco Great Wall Fund Management. Customers may find regulations on money market transfers burdensome, and chose another outlet for their funds. The final danger for Ant has the most global resonance: the nature of its model. The securitisation crackdown upended its lending model. It relies on them to fund the loans on its platform, but as it grows it may become a competitor in their eyes. A government plan to standardise QR codes could weaken it in payments, potentially reducing Ant’s market dominance. To close a deal on a valuable, complex policy like a variable annuity, brokers typically speak with consumers several times. That attracted people interested in Yu’ebao purely for storing cash, since its yields (now roughly 1.7%) were higher than those available on current accounts at banks. Duncan Clark, author of a biography of Jack Ma, notes that regulators have long struggled to monitor all corners of China, referencing the old saying that the mountains are high and the emperor far away.

Ant Financial, which began as an online payment branch of Jack Ma's internet marketplace behemoth Alibaba, is now an affiliate company that operates the largest online payments platform in the world.

Ant also offers loans, with a focus on very small businesses. Delinquent loans (more than 30 days past due) issued via its app nearly doubled from 1.5% of its outstanding total in 2019 to 2.9% in July. A shop owner needed to show only a QR code print-out to accept money, a big advance for a country previously reliant on cash. But regulators feared parallels with the securitisation boom that preceded the financial crisis of 2007-09. In partnership with big insurance firms, it has unveiled life, car and medical insurance—again collecting fees as a distribution platform. With no property as collateral, they could not get a bank loan. There are also some limitations hard-wired into Ant’s strategy. “Ant has basically let Beijing tunnel through the mountains and fly drones over their summits,” he says. Expert insights, analysis and smart data help you cut through the noise to spot trends, Now, investors may transfer up to 10,000 RMB daily to their bank accounts.

Some suspected that he wanted to bring in powerful investors closer to home. Many have long assumed that the government will give Ant, a private-sector firm, only so much leeway in the state-controlled system.

In barely half a decade Ant has reached 1.7trn yuan in outstanding consumer loans, or roughly a 15% share of China’s consumer-lending market. Ms Li of Invesco gushes about her fund-management firm’s mini-site within the Alipay app, one of the tens of thousands of separate sections that constitute the Ant ecosystem. For China as a whole, digital transactions reached 201trn yuan in 2019, up from less than 1trn in 2010. Ant also offers insurance and had issued 258.8 billion RMB in consumer loan asset backed securities in 2017. Such are its efforts to distinguish itself from a purely financial firm that it has asked some brokerages to assign tech analysts to cover it. Copyright © The Economist Newspaper Limited 2020. Ant began consumer lending as recently as 2014, with the launch of Huabei, a revolving unsecured credit line for purchases—basically a virtual credit card.

So Jack Ma, the founder of e-commerce giant Alibaba, made headlines in 2008 when he bemoaned how hard it was for small businesses to get loans: “If the banks don’t change, we’ll change the banks.” He has not repeated his warning since then. I am an Associate Professor of Economics at the State University of New York at New Paltz, and have published over six books and fifteen journal articles on the Chinese economy and financial sector. The regulations are for the good of the financial economy, but will no doubt come at a cost to China’s largest fintech firm, Ant Financial.

(Of course, it does not hurt that the valuations for tech stocks are much plumper than for bank stocks.). Ant is invested in payments firms Paytm in India, Ascend in Thailand, and M-Daq in Singapore, and has a number of other investments in fintech and startup businesses like One97 Communications, an Indian mobile-internet business and V-Key, a Singaporean digital security provider. Join over 300,000 Finance professionals who already subscribe to the FT. Then 60,50 € per month.New customers onlyCancel anytime during your trial, Try full digital access and see why over 1 million readers subscribe to the FT, FT print edition delivered Monday - Saturday along with ePaper access, Premium FT.com access for multiple users, with integrations & admin tools, Purchase a Trial subscription for 1,00 € for 4 weeks, You will be billed 60,50 € per month after the trial ends, Purchase a Digital subscription for 6,50 € per week, You will be billed 37,50 € per month after the trial ends, Purchase a Print subscription for 15,26 € per week, You will be billed 66,13 € per month after the trial ends, Purchase a Team or Enterprise subscription for per week, You will be billed per month after the trial ends, Trump threatens legal action over swing state vote, Jacinda Ardern appoints most diverse cabinet in New Zealand history, How North Korea’s nuclear weapons advancement has left experts baffled, Donald Trump suffers court defeats in effort to exclude early votes, Trump warns of fraud as Americans vote early in huge numbers, Trump’s last gamble: proving the pollsters wrong in Pennsylvania, Sony and Microsoft look to match the hype with PS5 and Xbox launches, US stock market rebounds ahead of election day, British business warns of ‘devastating’ lockdown hit, Vodafone supports 5G networks alternative as Huawei phased out, Carlyle appoints top Indian banker Aditya Puri as senior adviser, Chinese economy outstrips US despite Beijing bashing, What the US election could mean for EM investing, Hedge fund GSA moves low-cost fund into high-fee markets, A clear US election result will calm investor nerves, Investors find a novel way to hedge their portfolios: hedge funds, The virus has crushed the challenger bank dream, Democracy can fail anywhere, even in America, Global liquidity trap requires a big fiscal response, Boris Johnson’s mistakes in the pandemic are depressingly familiar, Mareva Grabowski-Mitsotakis: the Greek prime minister’s wife talks personal taste, Adèle Haenel: ‘It’s not a career choice, it’s a life choice’.

Four years ago she and her husband wanted to open their store. Ant Financial is considered the largest fintech firm in the world. The biggest beneficiary of all this data is Ant’s lending arm, the second part of the company (which Ant, never one to shy away from jargon, calls CreditTech). Still, many bankers are persuaded that Ant truly does have an advantage in its analytics.

Ant Financial also has the world's largest money market fund and offers insurance, consumer loans and securitization.

New regulations are likely to reduce Ant’s business scale as well as its profitability. By repaying that initial loan and getting customers to use Alipay—giving Ant a look at her cash flow—Ms Zhu’s credit score improved. Little wonder that Ant plans to devote just a tenth of its IPO proceeds to cross-border expansion. More than 3,000 variables have gone into its credit-risk models, and its automated systems decide whether to grant loans within three minutes—a claim that may seem far-fetched but for Alibaba’s proven ability to handle 544,000 orders per second.