According to its prospectus, 63 per cent of Ant’s revenue in the first six months of this year came from its digital finance technology platform and 36 per cent from digital payments and merchant services – compared to a 44 per cent -55 per cent split for the year to Decembr 31, 2017. The remainder of revenue is in its Innovation Initiatives unit.

The main driver of that growth has been its CreditTech business, which gets fees and commissions for loans issued by partner financial institutions enabled by Ant’s platform.

But now Beijing has told Ant to “rectify” its lending, insurance and wealth management businesses. Authorities also publicly criticised its cavalier attitude toward regulatory requirements, sub-par corporate governance and regulatory arbitrage.

By taking away entire categories of financial services, Beijing not only reduces Ant’s value but freezes its growth prospects. The company’s payments business expanded just 13 per cent in the first half, from a year prior, while digital finance grew 57 per cent. This means that in a worst-case scenario, Ant could lose 63 per cent of an operation that posted almost 60 per cent growth, leaving it with a much smaller and slower business.

Compounding the problem is the value that these non-payments services brought in the form of network effects. In Ant’s own words from its prospectus, while the financial services business benefits from Alipay’s popularity, the reverse is also true.

“Our broad suite of digital payment and digital finance services attract to our Alipay platform a large number of consumers and businesses.”

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And while Alibaba, Ant and their founder Jack Ma ought to be worried, others in the fintech space aren’t in the clear either. Tencent Holdings is the other major player in this arena and is too big for regulators to ignore, even if its executives have been more circumspect in how they address the nation’s regulatory flaws.

Less than two months after the dramatic cancellation of its blockbuster IPO, Ant executives are left in charge of a company whose own narrative is now unclear. Doubtless its shareholders still want a public listing since that’s the best way to liquidate their holdings, so management must come up with a new storyline that justifies even a drastically-trimmed valuation.

After all, that’s where a unicorn’s magic lies – in a fantastic fairytale that everyone wants to believe.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

©2020 Bloomberg L.P.

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