Banking & Finance

Zooming off

Why China’s first credit tech IPO was pulled


Guo Shuqing: fintech sceptic?

As public relations disasters go it doesn’t get much worse than being sanctioned for the very attribute your company is supposed to excel at. That is what’s happening to VZoom CreditTech, whose IPO in Shanghai has just been pulled by financial regulators.

The fintech’s raison d’etre is providing banks with the technology that enables them to sieve through loan applications from small- and medium-sized enterprises (SMEs). This is supposed to weed out blacklisted and high-risk borrowers. But VZoom clearly never expected this categorisation to be attached to its own major shareholder Sun Haotian.

Having just approved VZoom’s listing application in December,the Shanghai Stock Exchange said this month it had pulled the fintech firm’s Rmb259 million ($40 million) IPO as Sun is being investigated on suspicion of graft and bribery.

Judicial authorities are also looking into major violations of information disclosure laws, as well as other illegal acts by Sun related to areas of national and public security, CBN newspaper reported.

Had its offering gone ahead as planned, VZoom would have become the first credit technology player to list on Shanghai’s tech-driven STAR Market.

The company itself says that it continues to operate as normal as Sun isn’t involved with its day-to-day operations, even though his firm owns a 32% stake in VZoom and has 41.59% of the voting rights.

Many of the more established fintech firms such as Ant Group have taken stakes in up-and-coming players, not least to stop them from potentially stealing their market share.

In VZoom’s case, Ant is not only its second largest shareholder but also its largest client. Ant’s wholly-owned Chongqing Wantang accounted for 27.3% of VZoom’s 2020 first quarter operating income.

VZoom’s travails are another source of embarrassment for Ant at a time when it is under intense regulatory scrutiny for its market dominance and potentially anti-competitive practices.

VZoom’s other four largest clients comprise Tencent’s WeBank, Bank of China, Minsheng Bank and Ping An’s fintech unit OneConnect. It also has a roster of 90 small city and rural commercial banks, which use its services to bolster their credit-checking abilities.

The Chinese government has been tightening the screws on the burgeoning fintech sector ever since it started clamping down on P2P companies in 2017. It wants to ensure there is a level playing field between the traditional lenders and tech-driven start-ups.

Where VZoom is concerned, its business model may come under further pressure after the State Administration of Taxation decided to stop signing deals with third-party companies that take its data to power the algorithms that banks use to make their credit decisions. In future, the government wants to forge a direct link between the traditional banking sector and its valuable tax data.

Much has been made of the purported antipathy felt towards the fintech players by Guo Shuqing, head of the China Banking and Insurance Regulatory Commission (CBIRC). In 2017, he famously said that he’d never “used a fintech product”. However, Guo gave a far more nuanced speech to a conference in Singapore in December in which he likened fintech regulation to a saying attributed to Deng Xiaopeng. The former paramount leader described his 1979 economic reforms as a case of “crossing the river by feeling the stones”. And Guo said that the CBIRC is following a similar approach in relation to fintech. Guo added that China wants to take a “positive and prudent approach” by encouraging innovation and enhancing risk controls.

As we wrote in WiC526, the heart of the issue is who controls the data that oils the wheels of the twenty-first century economy: the consumer who provides it, the company who harvests it, or the government, which establishes the ultimate rules and regulations. In his speech Guo said that big tech had effectively taken de facto control of data, given how few jurisdictions across the world have specified who actually owns it.

The Chinese government is at the forefront of trying to change that. Guo, for one, believes this will lead to “healthy development” all round.

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