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Photographer: Chan Long Hei / Bloomberg
Photographer: Chan Long Hei / Bloomberg
The Trump administration’s possible restrictions on two Chinese payments giants would have repercussions far beyond politics, potentially affecting multi-billion dollar deals, shaking up international trade and even shaping the evolution of the global financial system.
US officials have stepped up behind-the-scenes talks in recent weeks about the possibility of restricting the expansion of Alipay from Ant Group and Tencent Holdings Ltd.’s WeChat Pay over concerns that digital payment platforms threaten national security, Bloomberg reported Wednesday.
Read more: US Explore restrictions on Ant Group and Tencent payment systems
If management proceeds, the most immediate hit would be Ant Group’s plan for a stock listing in Shanghai and Hong Kong, a deal that could be classified as the world’s largest initial public offering. Some international companies have been working with payment applications and could see those strategies corrupted or derailed. And while the restrictions may ultimately drive away powerful competitors to US and European banks, they could also, depending on how China responds, thwart its own planned expansion into the world’s second-largest economy.
Here’s a breakdown of the many companies with businesses at stake as President Donald Trump’s administration weighs its decision:
Ant IPO
Investors were eager to join Jack Ma’s Ant Group. After gauging initial interest, the company is looking to raise at least $ 35 billion in its IPO, people familiar with the matter have said, which could exceed Saudi Aramco’s record sale for $ 29 billion. Ant raised the target based on a valuation increase of about $ 250 billion, which would exceed the market capitalization of Bank of America Corp., America’s second-largest lender.
Restricting Alipay would cloud the sale. It is unclear whether US investors could buy shares. US funds included Silver Lake Management LLC, Warburg Pincus LLC and Carlyle Group Inc. already put at least $ 500 million into the fintech giant in 2018. The sanction could also make non-US funds like Singapore state investors Temasek Holdings Pte and GIC Pte. – Existing sponsors that could increase their holdings in the IPO.
Ant Group generates the vast majority of its revenue in China. But the Trump administration’s deliberations may at least prompt investors to recalibrate expectations for the international growth of payment apps.
The prospect of one day serving American consumers “is a huge adrenaline rush to the heart of the business,” said David Menlow, president and founder of IPOFinancial.com. Now investors “will think twice.”
American banks Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley is working as sponsors of the IPO in Hong Kong, which alone could generate around $ 17.5 billion, according to people familiar with the matter. It’s unclear how the U.S. restrictions would affect investment banks’ close relationship with Ant.
Global payments
For US officials, the concern is that the growing popularity of Alipay and WeChat Pay internationally gives China unprecedented access to banking and transaction data that could ultimately include personal information on hundreds of millions of Americans. . The question is whether the Chinese authorities could raise similar concerns about US companies.
Initially, Alipay’s foray into the US was focused on places where Chinese consumers visit and shop, such as luxury stores in New York or tourist destinations in California. But last year, things started to pick up speed when Alipay signed deals with retailers like the drugstore chain. Walgreens, putting the app logo in front of millions more American consumers.
At the same time, American payment networks have been entering China. In November, Visa Inc. and Mastercard Inc. announced deals that allow its cards to be added to WeChat Pay and Alipay wallets, making it easier for cardholders outside of China to shop on the mainland, where apps already dominate all forms of commerce.
Card networks have longed to expand in that market. “I couldn’t be more excited,” Visa CEO Al Kelly told investors in May. There was more progress recently, with American Express Co. obtained approval in June to start bank card clearing services in China.
Now, any action against Alipay or WeChat Pay could spell trouble for the ambitions of US networks.
Investment banks
For US banks, the news has its pros and cons. American bankers have long feared that domestic consumers will one day adopt Chinese-style payment apps, which allow people to shop, order take-out, pay bills and manage brokerage accounts using mobile phones. A variety of banks and technology companies have tried unsuccessfully to obtain the kind of dominance that allows them to avoid outside competition.
On the other hand, US banks have been viewing China as fertile ground for revenue growth.
Wall Street giants like Goldman Sachs Group Inc. and JPMorgan have waited for decades to enter the nation’s $ 45 trillion financial market. The top five US banks had roughly $ 70 billion of combined exposure to China in 2019. But even that is small compared to their expansion ambitions there.
JPMorgan’s joint venture in the region has started offering brokerage services, investment advice and business underwriting. Goldman has said it wants to take full ownership of its joint venture in China. It expects to double its workforce in the country as asset and wealth management offerings increase.
If financial services companies are dragged tit for tat between the two countries, it could complicate such strategies and threaten the relationships they have spent years trying to build with giant Chinese companies like Alibaba Group Holding Ltd., which owns a third-party company. participation in Ant.
U.S. Associations
Brands included Marriott hotels and KFC restaurants in China use Ant’s Alipay super app, creating their own lightweight apps that can help users book rooms and order food. Asset manager Vanguard Group established a joint venture with Ant to provide automated financial advisory services in China. The robbery advisor attracted more than 100,000 people in the country as of June. Ant is also working with the joint ventures of mutual fund operators such as Invesco Ltd.
Still, the Trump administration’s guidelines for Tencent’s WeChat instant messaging app could offer clues as to how the United States might handle payment platforms. It has allowed US companies to continue working with WeChat outside of the US.
– With the help of Sarah McBride
