"The risk that Ant poses to the financial system is that it acts like a financial institution but isn't regulated like one. Ant runs China's ubiquitous payment app, Alipay, and facilitates investments for its customers' savings, sells insurance and originates short-term loans. Ant provides just a small amount of the money it lends. The bulk of the funds come from more than 100 commercial banks that it has teamed with and from the sale of securities. Ant collects fees for facilitating the transactions.
However, that's where regulators think the risks come in: Ant takes business away from traditional lenders and leaves them with the credit risk from both consumer and small-business loans. Big state-owned banks, a powerful lobbying force in China, increasingly see Mr. Ma's invention as a threat to their businesses. They argue Ant hasn't been required to abide by the tough banking regulations on capital and leverage that they face. Under draft rules, Ant would be required to fund at least 30% of each loan it makes in conjunction with a bank or other financial institution.
Mr. Ma and his team were informed of the new regulations targeting firms like Ant. "It means the company would have to examine how they disclose information to its investors, whether it has adequate capital level to meet the new rules, and whether it should adjust its overall business scope."
By making Ant more like a bank, regulators could stifle its growth, reduce its profitability and shrink the company's valuation. Banks are typically valued much lower than tech companies." [1]
It is time for the Lithuanian phlegmatic banking regulator to start getting nervous. It will be sad if fintech companies in Lithuania, taking advantage of the lack of understanding typical for a small country - Lithuania - would make trouble for the whole of Europe, including Lithuania. We haven’t forgotten the tragedy of Sekundės Bank yet.
1. Chinese Regulators Send a Message to Ant's Jack Ma
Wei, Lingling; Yang, Jing. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]04 Nov 2020: A.8.
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