Chinese government wants to split up Alipay

Alipay, an app which a billion Chinese people use to pay, is being split up by the Chinese government. Why is Alibaba‘s hugely popular and profitable payment service under such scrutiny?

One in ten consumer loans

The dispute between technology giant Alibaba and the Chinese government is still raging. The regime is determined to curb the power of Alibaba’s financial sister company Ant Financial and gain more control over the company that provides billions in loans to both individuals and businesses. After all, with Alipay, Ant Financial – and by extension AliExpress owner Alibaba – controls one of the largest financial ecosystems in China.

With over a billion users, the Alipay app is one of the country’s most widely used payment systems. You could compare it to PayPal, but used for both online shopping and in physical shops. Ant derives about the same amount of turnover – and increasingly more – from providing loans. Through Huabei, the Chinese can obtain a type of credit card. Jiebei is a popular system for small loans. 

Chinese who ask Ant for a loan can do so entirely digitally, and their credit rating is assessed within seconds. Last year, the company accounted for one in ten new unsecured loans in the country, a figure that surprised both friend and foe. Given that Alibaba already has a wealth of data through the company’s e-commerce and entertainment platforms, the risk of an overly powerful position is genuine. And, of course, borrowing money where you spend it is always risky. 

Less consumer credit, more social credit

The Chinese Communist Party already decided to tighten its control over Ant Financial by appointing state-owned companies and state banks as supervisory shareholders, and to impose a massive fine of 2.8 billion dollars. Earlier, the party had already foiled Ant’s planned American IPO following controversial quotes by Alibaba founder Jack Ma. President Xi Jinping has been determined to curb the power of the country’s foremost technology players in recent months.

Nevertheless, the Chinese government’s interest in Alipay goes even further: the credit system, in particular, is of interest to the government because it is currently working on a social credit system itself, aiming to reward people for good behaviour and punish them when they misbehave through a points system. Ignored a red light or spoken badly about the government? Then your credit score goes down. Possible penalties include a travel ban and, yes, the refusal of a loan.

So it should come as no surprise that Ant now has to hand over its user data on which its credit decisions are based to a new and separate credit scoring company, which would be partly state-owned. Alipay’s app is now also affected, according to the Financial Times. The government is demanding that Huabei and Jiebei become two stand-alone apps, separate from the Alipay payment platform.

The easy integration of both systems makes it quite common for Chinese people to quickly open a microloan when they want to purchase something, which they then pay off just as quickly. Ant deliberately keeps interest rates low, but that way, the money remains in constant circulation. Perhaps the idea is to put a brake on this in the future.