What kind of company is Ant Group, which attacked regulators before listing? There are two reasons for it. Firstly, Ant Group is very prominent, proud, and sensational in Jack Ma’s view, but he doesn’t want it to be particularly important, because Systemically Important Financial Institutions (SIFI) need special supervision. Instead of being subject to such “stale” supervision, he hopes that supervision can keep up with Ant. This statement is not exactly true, since if the regulation can keep up with it and there are systematic rules for Internet finance or Internet financial services, Ant maybe not necessarily important.
Is Ant Group Special?
Then does Ant Group expect a special rule just for itself? From its successful listing, it is obviously special enough already. In fact, Ant is also advanced in Jack Ma’s view, representing advanced technology. Yet just considering the problems that most technology companies face up around the world. At present, both Google and Facebook are subject to antitrust investigation in their own country, the United States. On October 20th, the U.S. government just filed an antitrust lawsuit against Google. Facebook paid $5 billion in a settlement with the U.S. Department of Commerce in 2019 due to a data privacy scandal. Even so, it may soon face prosecution by the U.S. Department of Commerce.
American technology giants are treated similarly to the European Commission. Since 2017, Google has received large fines from the European Commission, and by 2019, it has accumulated $9.5 billion. In addition, both Amazon and Apple Inc have been investigated by the European Union for hindering fair competition in online sales and their monopoly power. The lawsuit of the United States Department of Commerce against Google is regarded as a continuation of the EU’s efforts to fight technology giants and strengthen government regulation. Japan has joined the ranks of fighting against tech giants, recently, that is to say, major countries in the world have started to be vigilant against the harm of technology on personal information violation and free-market competition. As the services of these technology giants are global, the single supervision of any country may lead to regulatory depression. Only when countries work together to formulate regulatory rules can we protect global personal information and free competition environment.
Secondly, why did Ant Group and China’s regulators choose to attack each other before IPO? Since we are not accustomed to an individual’s severe criticism of regulation, we have focused on Jack Ma. As a matter of fact, ZouJiayi, vice minister of China’s Ministry of Finance, has three sentences that are very targeted: “Prevent financial technology from inducing excessive financial consumption, prevent financial technology from becoming illegal arbitrage means, and prevent FinTech from promoting the monopoly of winner-take-all.”
Aspects of Supervision Related to Ant Financial
Without a doubt, Fintech has challenged conventional business models, services and products in the Banking and Finance industry. In China, the financial industry has always been strictly regulated by the People’s Bank of China and three sector-based regulators; CBRC, China Securities Regulatory Commission and China Insurance Regulatory Commission. The Chinese Central bank has also expressed its intention to launch the Digital Yuan. As mentioned above, Ant Group’s money market fund Yu’e Bao had about $173 billion yuan in assets. However, Chinese regulators stepped in and limited how much money each investor could put in the fund. How will all these regulations and structural changes in the banking industry impact the Fintech Giants? Will they be frenemies of the traditional ecosystem or will they complement one another? Only time will tell. Another potential risk would be the current global tensions. In Ant Group’s prospectus, it warned about how rising political tensions could affect Ant Group’s businesses in the United States, India and Southeast Asia. Jay Lin & Sun Wanxin , CFD Team & Athena Miao , CFD Team
There are actually three aspects of supervision related to Jack Ma’s Ant Financial. First of all, he is engaged in financial services, so it should be financial regulation. Secondly, he is a giant involved in monopoly, thus related to the Ministry of Commerce. Although the criticism of ZouJiayi is straightforward, it is not the counterpart department. The third is the security of personal information and data. There is no legislation specifically for data security in China so far. From the point of Jack Ma’s criticism, it mainly focused on the financial field, but what is more important than the imminent listing? Successful listing means that all regulatory lines affirm the status quo of Ant Group.
Many analyses of Ant Group discerned two points: the loan business has already accounted for 40% of Ant’s income, and the average annual loan interest rate is about 15%. This interest rate is at the same level as the highest interest rate of 15.4% in the newly revised Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Laws in the Trial of Private Lending Cases issued by the Supreme People’s Court on August 20. But for Ant with an average annualized interest rate of 15%, roughly half of the lending rates may be higher than 15% according to different distributions, and it is confronted with restrictions on cutting this part of loaning business under the new judicial regulations.
What’s the difference between Ant Group and traditional banks?
According to Jack Ma, however, the difference between Ant Group and traditional banks is the precise capture of demand taking advantage of excavating personal information. People who are willing to accept such a high-interest rate may be important customers of petty loans. And the risk preference of lenders within the 15% annualized interest rate is not much different from that of the bank. The interest rate of the bank’s credit card customers is above this level. In this way, the information analysis ability that shows its technological content and its usage advantage can not be brought into play. Compared with traditional financial institutions, the disadvantages of Ant are relatively obvious. It has no bank license and can not engage in a low-cost cash deposit. When the legal red line is unshakable, Jack Ma can only aim at financial regulation. Therefore, this address can be regarded as Jack Ma’s call for shareholders. If the profitability of the company is affected after listing, at least the “innovation” ability of the Ant Group should not be questioned.
How advanced is the technology of Ant Group?
Jack Ma said that the foundation of credit should be based on big data, and the so-called Internet finance is based on three points: first, the abundant data; second, the technology of risk control based on big data; third, the credit system based on big data. In other words, Ant obtains their assets or liabilities and the probability of default through a large amount of information and data of merchants or individuals, restricts their consumption intention by linking with the future business or consumption behavior of merchants or individuals, and then improve the performance rate. Meanwhile, it makes differential pricing according to the interest rate sensitivity of different people and the level of default rate.
Data-based credit of Internet finance
We all know that according to utility theory, consumers are willing to pay different prices according to their preferences, so that producer can exhaust all consumers’ surplus through differential pricing. A market-oriented economy (which is also anti-monopoly) does not allow differential pricing, so producers can only strive to maximize profits under the law of one price. But financial products are special, the value of the products traded is much higher than the transaction price, even so, the banks only have limited differential pricing space. One reason is the high cost of identification; the second is competition among banks, and the third is supervision. But does regulation necessarily limit the pricing power of banks? The truth is otherwise.
Modern banks can also develop into an entity with armed collection ability to exhaust all the repayment capacity of DR with the possibly highest interest. But it is obviously not the financial system of modern society. The modern financial system is based on the benchmark interest rate, it adjusts credit demand through the benchmark interest rate, and guarantees the default rate equivalent to the level of the economy through social credit system and legal, so as to ensure the profitability of the bank under the average level.
If financial institutions exhaust all the ability of borrowers to pay, interest rates will lose the ability to regulate economic activities in the short term. In the long run, it will exert an important impact on wealth distribution, which is an important reason for academically opposing usury. The occasional short-term high-interest loaning may provide a supplement to traditional banks and make up for part of the loaning demand. However, if it is the main way of wealth distribution in society, it may hit people’s enthusiasm for wealth creation.
The discussion above simply illustrated from the perspective of economics, but the discussion of high-interest rates is not simple. The study of economics itself is dominated by the periodic ideological trend, and the analysis of things may come to completely different conclusions. However, the fact that all the discussions need to address squarely is, what kind of social enforcement mechanism is needed for high-interest-rate loans?
If we return to an extreme imperial society, where individuals are all accessories, and consumer surplus can be included in exorbitant taxes; and then the government, as a violent institution, supports the interest collection of usury, then a symbiotic relationship will develop between the bank and the government. A government like this must be a totalitarian government. The middle state is that beyond the scope of the modern banking system, a certain amount of private lending is allowed, but interest rates are capped.
The so-called data-based credit of Internet finance has realized self-execution in a certain sense. The credit of merchants and individuals is based on business transactions with the platform. Its loan repayment may further affect the business development on the platform in the future. Due to extensive data acquisition, it can also make differential pricing according to the asset status and risk preference of merchants and individuals. This closed-loop ecology by itself leads to an independent small business society.
Neither consumers nor lenders can escape from this ecology without paying a greater price, and the derived costs can not claim to this ecology, because it has its own logic. This discussion on this aspect has risen to the level of personal information protection. In face of the giants in modern society who control both personal information and discourse power on the Internet, individuals are easily controlled invisibly, which makes it difficult to break away from a virtual ecosystem.
Finally, the conference appeared to be full of hostility, but it was extremely harmonious in effect. We all know that in the past, it was very difficult for people to leave voice and evidence in history. Either the official history made the final judgment, or the wild history reverse the verdict. But there is always so much discord that inevitably makes people suspicious.
It is difficult to have a consistent voice of information in modern society. The advantage of different voices is that its thought-provoking, but the disadvantage is that the processing cost is too high. However, for those involved, there are many benefits, and they have a variety of channels to leave their excuses. This grand event is such a confession between tradition and new tide, leaving an explicit mark in history. It eliminates the possibility of bearing the burden of history because of “inaction” and “overdoing “.
What exactly kind of company is Ant Group?
To sum up, what kind of company is Ant? it should be neither finance nor technology, but an important strategy for the rise of China as a great power, which is similar to the value distinction between China and the West. When the West pays more and more attention to data security, biosecurity, and privacy protection, China is aware of the two sides of technology and takes advantage of them to blur the boundaries of personal security, rights, and protection.
The cloud of the Sino-US trade war has masked many substantial cognitive differences. Our differences in the development and application of technology may lead to the complete decoupling of the high-tech industry. During the Sino-US trade war and the deterioration of the international environment in this process, China put forward the development strategy of internal circulation. Although China has also expressed its intention to strengthen opening up and internationalization synchronously on different occasions. However, it didn’t get closer to the international community in terms of rules and cognition, which may cause Chinese enterprises to encounter a lot of practical resistance in the process of promoting external circulation.