China constricts homegrown fintechs through new legislation
Chinese homegrown fintech companies are bracing themselves following news of tighter regulations to limit their activities in the communist nation-state.
Currently, an estimated 87% of China's $29tn domestic financial market, is made up of fintech consumers.
The move to further regulate the industry follows Ant Group’s IPO suspension late last year. With more than 730 million monthly users on its digital payments service Alipay, Ant Group is China's biggest payments provider.
Speculative reports suggest the CCP became nervous of the investment power and size of Ant Group, and its high-profile founder, Jack Ma, who controls 8.8% of the fintech.
They also say Beijing has been on a campaign to neutralise risks in the country’s $53tn financial system since early 2017. Executives who become too wealthy, powerful and outspoken are also on the CCP’s watchlist.
Last year, Ant Group, which is a third owned by e-commerce giant Alibaba, led China’s online lending industry, by issuing $324bn between June and November. The fintech’s IPO was then unexpectedly suspended on November 3rd, two days before a $37bn initial public offering. Ma was also summoned to speak with regulators.
New Fintech regulations
However, supporters of the move say officials are simply trying to establish a balance between fintech innovation and regulation in China. The swift growth of fintech in China has resulted in regulatory authorities having to consider the potential risks it poses to the financial system.
Ant Group’s public $35bn offering was the largest in history. The Shanghai Stock Exchange reported at the time, that “major issues regarding changes in the fintech regulatory environment might cause the company not to meet the listing conditions or disclosure requirements.”
A tightening up of rules will inevitably impact on smaller fintech operatives.
According to the East Asia Forum, the regulatory changes for homegrown fintechs proposed by the China Banking and Insurance Regulatory Commission include tighter rules on loan issuing. Proposals say internet platforms need to fund a minimum of 30% of co-lending partnership loans.
Ant Group's funding policy fell heavily short of that mark. The fintech's main role in the co-lending process was as an IT provider, with most funding was put up by partner banks.
Experts also speculate that this may result in online microlending companies (MLCs) establishing or maintaining partnerships with banks to sustain their businesses because of the capital requirements of the new regulations.
A recent report by the Washington-based international law firm Akin Gump Strauss Hauer & Feld LLP states, “China’s regulators have been concerned for some time about the systemic risks to the Chinese economy posed by online MLCs and the enormous amount of leverage made easily available by those lenders and their partners. A number of the consumer loan Fintech players put up only 1% of the loan amount, whilst collecting substantial loan referral fees from the bank lenders who make most of the loan amounts available.”
It adds that some of the new regulations will result in better management of China’s domestic Fintech industry.
“Some believe that the proposed regulations are long overdue – there has been increasing pressure on regulators to take a proactive stance with respect to the regulation of MLCs, especially given that a number of MLCs have undergone significant growth and their local regulators are not equipped to adequately deal with what have become (in some cases) systemically-important enterprises.”
Origami raises £20mn in Series C round led by Barclays PLC
The investment, which saw Barclays take the lead as part of the bank’s Sustainable Impact Capital initiative, is geared to back companies that specialise in sustainability and working towards zero carbon emissions.
Additional investors in the round were Origami’s existing shareholders, Octopus Ventures, Aggreko, and Cambridge Innovation Capital.
Origami green technology
The Cambridge-based technology company which was founded in 2013, is on a mission to build a green energy world powered by smart technology. It's green energy initiatives focus on transitions to renewables, energy systems, smart and real-time digital solutions.
Origami's trading and automation software currently provides power traders with real-time data and machine-learning decision support tools to reduce risk, improve visibility and capture valuable opportunities within new and rapidly evolving energy markets.
This new investment will enable the startup to improve its products, serve a growing customer base and scale up for international markets. The success of the funding round, said Origami executives, highlights the increasing investor appetite to back leading tech companies pursuing the reduction of global carbon emissions.
Green energy technology
Peter Bance, CEO, Origami, explained, “This investment recognises that with powerful real-time software solutions underpinning our emerging green energy systems, tackling the world's greatest threat of climate change can also become the world's greatest commercial opportunity.
“Barclays shares our vision and has a broad customer base in the UK and internationally, which includes many energy businesses. I am looking forward to working with them to help achieve our ambitious goals.”
As part of its broader commitments, Barclays has pledged to invest £175m of its own capital, led by the Principal Investments team, in fast-growing, environmentally-focused companies whose values are aligned with those of Barclays and which target the goals and timelines of the Paris Agreement.
Speaking about the Origami investment drive, Steven Poulter, Head of Principal Structuring and Investments, Barclays, said, “It is becoming increasingly clear that powerful digital solutions, like Origami’s, are critical enablers for maximising the potential of green energy assets such as renewables, batteries, and EVs.”
He added, “Their technology is essential for a successful and timely transition to a low-carbon economy, and the opportunity for Barclays to partner with such a compelling business in the world-class Cambridge Greentech ecosystem is an exciting prospect.”
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