Jack Ma Anxious about the Future of Ant Financial

About 10 days ago, Jack Ma attacked the traditional banking system, with traditional lending practices and the Basel guidelines in particular, during the Forum of 40 Finance Elites in Shanghai, China.

He compared the traditional banking system to a pawn shop that heavily rely on collaterals to make loans. He also mocked Basel guidelines as Old Man Club.

He advocated that China doesn't have to always follow international rules, especially in the FinTech field which is as energetic as adolescents and could make China lead the world. It looked like he failed to recognize that, without integration of China into the rest of the world, Alibaba wouldn't have existed, let alone succeeded.

His attack on traditional lending practices was wrong. Unlike his claim that big data driven lending doesn't require collaterals, it just requires a different kind of collateral. Under traditional lending, collaterals are normally assets that are separable from the borrower. Under big data driven lending, consumers simply give out their personal characters and social contacts as collateral. The fact that not everyone holds assets but everyone has his/her personal characters and social contacts don't make personal characters and social contacts cheaper collateral. On the contrary, they are invaluable to each and every consumer. In China, there have been many youngsters taking their own life under the threatens of lenders abusing their personal characters and social contacts after failing to repay their loans. Borrowers in that situation are indeed hostages, which is far worse than collateral.

On the Eve of the scheduled public listing of Ant Financial, Jack Ma's remark demonstrated nothing more than his anxiety over the future of Ant Financial. Both mobile payment and microloans, two major businesses of Ant Financial, are gloomy in the wake of the digitalization of the Chinese Yuan and bank-like regulations to be posed on Ant Financial. He was trying to distinguish Ant Financial from Traditional banks and label Ant Financial as an innovative tech firm.

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