Fintech's reckoning

Chinese fintech has had its wings clipped by regulators, in a move that could have ramifications for anti-monopolistic practices by tech companies globally.

In China, two mobile payment providers, Alibaba’s Alipay and Tencent’s WeChat Pay, operate competing systems that together control as much as 95% of the market. As Chinese consumers have largely leapfrogged credit card usage and adopted digital payments on a mass scale, the operators of these systems have been able to collect enormous amounts of data from transactions and use it to develop proprietary insights into consumer behavior.

But while nearly all offline merchants in China accept both forms of payment, online has been a different story. Until recently, shoppers on Alibaba’s ecommerce platforms haven’t been able to use WeChat Pay for their purchases, and shoppers on JD.com and Pinduoduo—which counts Tencent as a major investor—could not use Alipay.

What’s more, brands and merchants had to pick between one platform or the other. For example, Alibaba kept fashion brands on Taobao from selling on JD.com, giving it a decided edge in the apparel business.

But the walled gardens built up by tech firms over the past decade are now crumbling, with Alibaba bearing the brunt of regulatory scrutiny thus far. In late 2020, Chinese authorities put a halt to Alipay parent Ant Financial’s planned mega-IPO and launched an antitrust investigation into Alibaba’s ecommerce business practices, resulting in a record $2.8 billion fine and a mandated end to forced exclusivity.

The crackdown is spreading more broadly to the platform economy, with new rules issued in February 2021 by the State Administration of Market Regulation specifically targeting tech firms, and numerous reports of fines being levied against companies for anti-competitive practices. Signaling a continued crackdown, the Chinese government announced plans in August 2021 to draft new laws on technology innovation and monopolies—targeting newer sectors like the digital economy and internet finance.

While these moves are unlikely to dislodge any of the giant players, they will require such players to work much harder for future growth, rather than relying on their market power. “Alibaba, Tencent, Meituan, Pinduoduo and JD.com have already signaled plans to increase investments substantially in the coming year,” Vey-Sern Ling, senior Asia internet analyst at Bloomberg Intelligence, tells Wunderman Thompson Intelligence. “This means sacrificing profit to benefit users and merchants, driven by a need to compete in a different way.”

Ling adds: “Over time, this will lead to more innovation.”

China’s anti-monopoly crackdown comes at a time when multiple governments around the world are also trying to rein in the power of tech companies for a slate of reasons, ranging from anti-trust to political control to spreading false news.

This story is adapted from “Transcendent Retail: APAC.”