Jack Ma’s Booming Loan Business Threatens Visa, AmEx in China
(22 January 2020 - China) As Visa, Mastercard and American Express prepare to enter China for the first time, one of their biggest competitive threats will come from a company that doesn’t issue credit cards.
Jack Ma’s Ant Financial, already the biggest player in China’s $27 trillion payments market, is leveraging its ubiquitous Alipay mobile app to mount a rapid expansion into consumer lending.
Instead of issuing cards, Ant allows customers to borrow with a few taps on their smartphones. The loans are wildly popular among China’s army of mobile-savvy shoppers, who often lack formal credit histories but generate enough financial data via Alipay for Ant to make informed decisions on whether they’ll default. The company’s outstanding consumer loans may swell to nearly 2 trillion yuan ($290 billion) by 2021, according to Goldman Sachs Group Inc. analysts, more than triple the level two years ago.
Ant’s push into China’s 10 trillion yuan market for short-term consumer loans will make it an even more formidable challenger to U.S. card companies, which are counting on the world’s second-largest economy as a source of long-term growth.
The card giants appear to be moving forward with their China plans despite the headwinds. AmEx’s application to start a bank card clearing business has been accepted by the country’s central bank, while Mastercard has called China a “vital” market and Visa has said it’s working closely with regulators for a license.
As part of its phase-one trade agreement with the U.S., China said it won’t take longer than 90 days to consider applications from providers of electronic-payments services. Regulators are opening the industry to foreign competition amid an unprecedented push to give international firms access to the country’s financial sector.
In response to questions from Bloomberg on the threat posed by Ant, Visa said it sees significant potential to support the growth and evolution of digital payments in China and is approaching the market with a long-term focus. Mastercard said it would continue to work with regulators to advance its application and is committed for the long haul. AmEx declined to comment.
The Hangzhou-based company, which declined to disclose the value of its outstanding loans, keeps delinquencies in check by tapping into a trove of data amassed by Alipay and Alibaba.
Many customers have been using the payments and e-commerce platforms for years -- handing over details from ID cards to addresses and spending habits. Once Ant extends a loan, it can track how the money is spent via Alipay. The result is a bad-debt ratio that stands at about 1 percent, below the 1.24 percent national average for credit cards.
Ant keeps some of the loans on its own balance sheet, charging interest rates that range from about 5 percent to 18 percent, according to Huang. But most are passed on for a fee to banks and other financial institutions.
“We’re set to continue to work with more banks and finance companies,” Huang said. “We are, at the end of the day, a platform.”
The risk for Visa, Mastercard and AmEx is that a swathe of Chinese consumers and businesses will view credit cards as obsolete. About 60 percent of borrowers on Ant’s Huabei platform don’t have one, and many smaller merchants don’t accept cards because they find it’s cheaper and easier to use Alipay or Tencent’s WePay. The former, with more than 900 million users, is Alibaba’s preferred payments provider.