Ant, which uses algorithms to determine the loans individuals are eligible for, is set to come under even more valuation pressure due to the new rules, experts said.
Wong Kok Hoi, the founder of APS Asset Management, said the rules were likely to force the current scale of fintech loans to "contract significantly" in China and the changes could force the companies to operate more like commercial banks. "Ant's business model will need to be drastically revamped," he said.
"This will raise financing costs for consumers and will cripple one of the fastest-growing business segments for Ant, almost certainly forcing a steep drop in its eventual valuation," said Michael Pettis, finance professor at Peking University.
Bruce Pang, head of macro and strategy research at China Renaissance Securities, said the new rules meant banks would be required to cap the joint lending business they carry out with these fintech companies. Some of the fintechs would also need to seek new licenses.
"Online lending platforms could face more valuation pressure with dampened growth prospects, considering that they would have to raise more capital to fund [themselves] in joint loans with banks," Pang said.
Before these new regulations on capital contributions, Ant had been funding only 2 per cent of its hundred of billions of dollars in consumer loans with most of the remainder coming from partner banks.
Ant's listing would have been the world's largest and was suspended just days before it was due to start trading.
The company's Alipay app, which is used for payments, loans, and insurance, has more than 700m monthly users.
The cancellation was also seen as political, and came after Ma, Ant's founder, had publicly criticised Chinese regulators.
Since then, the company has reached a deal with Chinese regulators to restructure its business, which would involve Ant placing all of its major businesses, including its technology units, inside a financial holding company.
The squeeze on Ant has pushed Chinese borrowers towards alternative lending platforms, many of which charge higher interest rates because they lack Ant's economies of scale and have less sophisticated systems to identify and manage risk.
Regulators have in recent months taken a harsher stance against the nation's burgeoning private fintech companies in official statements.
Ant Group declined to comment.
- Financial Times
