Much has been written in recent months about the problems faced by Jack Ma, China’s billionaire behind Alibaba last year.
His comments on the Chinese financial services regulatory environment led to a downsizing of Beijing and the derailment of Ant Group’s IPO from Shanghai and Hong Kong at the last minute.
Since then, Ma has largely disappeared from public view and it seems time has passed about his hobbies, getting down and avoiding spotlights.
However, much less attention is being paid to the consequences the Chinese government’s strike against Ant will have inside and outside China, particularly in Southeast Asia, which is a natural market for the expansion of Chinese technology companies.
The future has been postponed
The problems of ants can be considered an earthquake of epic proportions, although largely unnoticed or underestimated in their severity, because it does not affect the present, but the future of fintech innovation in China, Asia and, most likely, all over the world.
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.
Based on Alibaba’s dominant position in Chinese e-commerce, the Alipay-branded payment service has collected data on more than a billion customers over the years.
Using it, the company has rapidly expanded its range of services and has delved deeply into the financial sector, offering loans, investments, credit rating and insurance, managing billions of dollars in transactions each year.
Due to its close relationship with customers who make regular purchases through various arms of the Alibaba empire, Ant Group was able to provide tailor-made financial services to more people, faster and more conveniently than any bank.
This was the basis of Ma’s comments during his unfortunate speech at the Bund funding summit in Shanghai in October 2020, which has sparked anger from Chinese regulators.
During the speech, he criticized both them and the contemporary financial system as slow, incompetent and inept at managing or promoting innovation.
Anyone who has dealt with any bank in the world (not necessarily in China) should agree with their observations.
Financial institutions tend to be tragically slow when it comes to implementing new technologies (let alone developing them), and government regulators often have limited knowledge of technology to create a friendly environment for fast-growing technology companies. , which often operate in gray areas along regulatory boundaries designed around the world where it was impossible to collect so much user data.
Pride comes before the fall
Unfortunately, Ma has become too bold and inadvertently removed the record-breaking IP Group that Ant Group was about to launch in early November 2020, with the intention of raising more than US $ 30 billion from the stock exchanges, placing its valuation north of US $ 300 billion.
Today, more than six months later, there is no news of a return to the stock markets and the company has been forced to transform into a financial stake, subject to regulatory supervision by the Chinese central bank.
He has also been banned from cross-selling financial products between its subsidiaries and has been forced to reduce the collection of personal data, which allowed him to offer these products in the first place.
Now the government uses the same game book to put all the other big IT companies online, so no one ever dares to break it.
As a result, however, politics has driven innovation that could have driven Chinese technology giants to change the world of finance far beyond China’s borders.
This is good and bad news for the rest of the planet, including Southeast Asia.
Threats and opportunities
The Chinese IT sector is in a fairly unique position as a uniform, rapidly developing but largely airtight market of 1.4 billion people. It’s 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 obsolete habits such as cash use), it provides a breeding ground of enormous proportions for all innovative companies.
If they are successful, they can grow rapidly and enormously, reaching billions of dollars that will allow them to expand their services abroad.
Ant definitely made money with his extensive and quick use of data that traditional banks neither have access to nor could even make sense of. I was on my way to creating a future largely frictionless fintech service, which is really what we all want.
However, with the abrupt halt of its ambitions, as well as those of its competitors, we can expect much less innovation, hampered by bureaucratic oversight.
He is forced to stop leaving the Chinese mainland for other countries, many of which could also use a shake-up of their domestic financial services.
Since experience 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 intense treatment of fintech technology companies is also very instructive as to what not to do when it comes to a government regulator.
As a result, even if the development of new products and services in China can be paralyzed, 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 monster can no longer.
If Chinese companies are no longer able to offer new financial products and services, it opens up opportunities for those operating in smaller countries, under governments that may be less concerned about nonconformist billionaires and more open to attracting investment in IT to drive their national economies (and public support).
In Singapore, there are already successful multinational companies competing in an increasingly complex IT platform environment in Southeast Asia, such as Grab or Sea Ltd.
Each began with a unique service, greatly expanding its offering in recent years, including fintech (such as digital payments), in a growing number of countries.
By the way, both were the first two to receive retail digital banking licenses in Singapore in December 2020. Meanwhile, Ant received a license to operate as a wholesale bank for commercial customers.
The city-state has a unique position to benefit from Jack Ma’s stumbles. It has a small internal market, but its friendly regulatory environment has long made it a trusted financial, business and technology center.
With the legal hurdles being mounted in China, the center of gravity of fintech innovation can be moved to a place that can be seen as a global benchmark for good legislation and a likely model of fintech regulation in the future. ; at the same time it is a gateway to a region of more than 600 million consumers in fast-growing economies.
It may not be as big as China, but it’s more than enough.
Beijing’s crackdown also helps Singapore’s Grab and Sea compete with a paralyzed ant in Southeast Asia. It’s again painful for Alibaba’s ambitions, as its Lazada is already struggling to catch up with Sea’s Shopee in the e-commerce industry.
Since Beijing decided to sacrifice innovation to the altar of political stability, it is unlikely that any of its recent decisions can be reversed. In addition, it is achieved after another crackdown on the use and mining of cryptocurrencies, forcing cryptocurrency companies to move abroad.
However, this heavy focus cannot completely extinguish progress, as innovators will simply look for 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