China’s fintech giants follow Ant Group in halting banks’ online deposit products

21 Dec, 2020 10:49
source: Singularity Financial

Singularity Financial Hong Kong December 21, 2020 – China’s largest fintech firms have removed online saving products linked to small regional banks from their platform. The news follows confirmation Friday by Ant Group Co. Ltd., the country’s dominant online fintech platform, that it had halted the service on its Alipay mobile payment app in accordance with heightened scrutiny from regulators concerned that the funds are being raised by unstable smaller lenders and could fuel financial risks.

The financial services arms of tech giants Tencent Holdings Ltd., JD.com Inc., Baidu Inc., Didi Chuxing Technology Co. Ltd., Meituan, Xiaomi Corp., and Lufax Holding Ltd., which is backed by financial conglomerate Ping An Insurance (Group) Co. of China Ltd., have stopped offering products that allow consumers who use their online platforms to make deposits with brick-and-mortar lenders.

On Friday, Ant Group removed internet-deposit products offered by banks from the shelves of its virtual financial market place. The three-year deposit products on the platform pay a top rate of 4.125 per cent while the highest interest for five years is 4.875 per cent per annum, near the upper limit of the central bank’s guidelines and more generous than returns by China’s state-owned banks.

Some of the companies have said the move will not affect users who have already deposited funds via the products. JD Finance and Didi Finance said existing customers will have to withdraw their money but it isn’t yet clear how that will be done and what alternative products will be made available to them.

Analysts at UBS expect China’s regulators to intervene to limit growth case-by-case; set capital requirements and firewalls within a financial holding regulatory framework include fintechs’ lending partnerships with banks in China’s macroprudential assessment framework on banks; and set more stringent rules on data-sharing and mis-selling of financial products. Regulators may also guide banks to slow growth of loans under lending partnerships, said UBS.

China’s consumer credit market will almost double to 24 trillion yuan by 2025, according to Oliver Wyman. Ant Group is the largest player with a market share of 16 per cent as of June 30, followed by Tencent-backed WeBank with a market share under 5 per cent. WeBank offers micro loans under the brand Weilidai.

China’s regulators published draft rules early last month to force the country’s 7,227 microlenders to contribute 30 per cent of the loans that they jointly extend with banks.

Also China is curbing loans by licensed financial institutions at 24 per cent, according to an analysis.  One of the biggest changes is lower annual interest rates (APRs) after an August ruling by China’s Supreme People’s Court capping APRs on personal loans at no more than 15.4 per cent, or four times the government’s one-year loan prime rate at 3.85 per cent.

Public consultation on the draft lending rules closed on December 2, with the results expected in six to nine months. Regulators may clarify what prices banks can offer borrowers over digital platforms, and which banks can continue to partner with digital platforms, said industry insiders.