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Jack Ma’s Ant Group was the next big thing. Now it may become just a boring bank

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Analysis by Laura He, CNN Business
Updated 6:57 PM ET, Fri February 19, 2021

Hong Kong (CNN Business) — Jack Ma’s Ant Group quickly became one of China’s most powerful companies, and its plans for bridging the worlds of tech and finance were growing ever more ambitious by the day.

Now it appears to be turning into the kind of highly regulated Chinese bank that it hoped to supplant.
Months after the company’s blockbuster initial public offering was shelved at the last minute — a move that appears to have been sparked by Ma’s criticism of Chinese regulators — several media outlets have reported that Ant has agreed with authorities to become a financial holding company.
Ant declined to comment on those reports earlier this month, and the details of any potential agreement were not immediately clear. The company did not respond this week to additional questions about any deal with authorities.
    But the reports suggest that the Alibaba-affiliated company may now have to follow rules similar to those required of traditional Chinese banks — a move that could force it to scale down its aspirations to be a dominant force in the tech world.
    The company is best known for its Alipay digital payments app, which boasts more than 700 million active users every month. It also has massive interests in online investing, insurance and consumer lending, which have helped it grow into business with assets worth about $635 billion under management.
    While the company was largely able to grow unchecked over the past decade, the political winds in Beijing are changing. Authorities are growing increasingly mindful of how much influence Ant and its peers have on the country’s financial system — Ant, for example, now commands more than half of the mobile payments market in China — and are looking for ways to rein them in.
    “The Chinese government is moving to regulate these apps with a much heavier hand,” said Doug Fuller, an associate professor at the City University of Hong Kong who studies technological development in Asia. “The aim is not to kill these apps, but the days of unrestrained growth and hopes of displacing traditional banking some day are over.”

    What it means to be a bank

    Beijing’s tech crackdown has taken many forms over the past several months. Not only did regulators force Ant Group to call off its record-breaking IPO, they also launched an antitrust investigation into Alibaba (BABA), questioned executives at Tencent (TCEHY) and Pinduoduo (PDD), and floated new rules that could govern the operations at many tech firms.
    While several loose ends remain, there are some clues as to what Ant’s ultimate fate may be, at least. The People’s Bank of China last September outlined new measures for financial holding companies that required them to hold “adequate capital” matching the amount of assets they have, among other measures.
    If Ant is now classified as one of those companies, that could mean it will either have to significantly increase the amount of cash it holds in reserve, or otherwise slash the size of its consumer lending business.
    Even though the details of Ant’s reported agreement have not yet been confirmed, it’s easy to see why these new rules might be a problem.
    Ant held about 2.15 trillion yuan ($333 billion) worth of consumer and small business loans as of last June, according to its IPO prospectus. By comparison, more than 4,000 commercial banks in China held just six times as much in outstanding loans at the time, according to data from the People’s Bank of China, the country’s central bank.
    Against that huge loan book, Ant held just 16 billion yuan ($2.5 billion) in authorized capital.
    Beijing, meanwhile, mandates that “systemically important” banks, or those deemed too big to fail, have enough money to cover at least 11.5% of their risk-weighted assets — a rule it adapted from a widely used international banking guideline called the Basel Accord. Ant’s balance sheet falls far short of that ratio. (Notably, China’s ratio is even stricter than that used by other countries that follow Basel.)
    Ant will have “less flexibility and innovative space,” if it becomes a financial holding company, wrote Ji Shaofeng, the chairman of the China Small and Micro Credit Industry Research Association, in Caixin Global magazine last November after the IPO was pulled. He added that the large amounts of consumer data that Ant has collected through its digital payments services could also now fall under the watchful eye of regulators, potentially presenting further challenges.
    “For a tech company that needs constantly [to] innovate, such regulations will pose extremely big pressure,” he wrote.

    Longstanding public tensions

    This is exactly the kind of pressure that Ma, the co-founder of Ant and Alibaba, was worried about when he landed himself in hot water with regulators late last year.
    “The Basel Accord is more like a club for the elderly,” Ma said during a speech in Shanghai last October, his last before Ant’s IPO was pulled and he largely retreated from public life.
    “What it wants to solve is the problem of the aging financial system that has been in operation for decades,” Ma said. But while systems like Europe’s are complex, he called China’s financial system an “adolescent” that is better served by innovative tech firms that can bring banking to poor populations and small-time businesses that are otherwise locked out of traditional banks.
    “The Basel Accord is about risk control,” Ma added. “But China’s problem is the opposite. China doesn’t have systemic financial risks, because it basically has no financial system.”
    The tech entrepreneur’s choice of words during that speech grew even more colorful — he criticized China’s conventional, state-controlled banks for having a “pawn shop” mentality — and likely spurred Beijing to act swiftly in retaliation.
    While the Shanghai Stock Exchange was cryptic at the time about the reason for pulling the IPO, saying that Ant’s listing had “major issues,” the government’s response since indicates that its decision was about exercising authority and control.
    “China’s central planners’ primary concern is that the party remains in control of all aspects the economy and business sector,” said Alex Capri, a research fellow at Hinrich Foundation and a visiting senior fellow at National University of Singapore. “The rapid growth of Chinese tech giants clearly diminishes the influence of state-owned banks and [other] financial institutions, and that diminishes the power of the Communist Party.”

    China’s tricky balancing act

    Beijing’s calculated crackdown on tech is rooted in economic concern just as much as exercising control.
    Authorities have long been incredibly wary about whether the influence that tech firms have over the financial sector makes that industry vulnerable to structural risks. If any of the major players failed for some reason, that could wreak havoc on China’s economy.
    “The idea is to have these firms more firmly under Beijing’s control so that they can better serve the state when it comes to building the next generation of [the Internet of Things] or financial infrastructure or rolling out the digital [yuan],” Capri said. “All of these actions promote and project Beijing’s power.”
    But it’s also a tricky balancing act. While Chinese President Xi Jinping has long favored state-owned firms over private ones like Alibaba and Ant, analysts point out that those state companies are not nearly as adept at driving productivity and innovation as their publicly owned counterparts.
    “There are legitimate concerns about financial risks and anti-competitive behavior that justify greater oversight of the tech giants,” wrote Julian Evans-Pritchard, senior China economist at Capital Economics, in a research note last week. “But we think a desire to reassert control means that regulators are now swinging too far in the other direction. This threatens to undermine the recent prop to economic growth from rapid productivity gains in the tech sector.”
    That means Beijing will likely remain careful “not to kill the goose that lays the golden eggs,”said Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics, who researches financial tech innovation in China.
    “There is widespread recognition of the importance of the super apps for China’s innovation ecosystem, hopes for international influence and status, and its economy,” he added.
      Fuller of the City University of Hong Kong agreed. If China wants to compete with the West, he said, the country “has to pursue industrial and technology policies in a more efficient manner.”
      There is “a trade-off between promoting state ownership and innovation,” he added.

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      Lyft focuses on seniors with new option to book rides by phone call

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      By Sara O’Brien, CNN Business
      Updated 12:50 PM ET, Wed February 24, 2021

      (CNN Business) — Lyft is adding an option to allow people to order a ride in a more retro way — by phone call — a year after Uber tried doing the same before shutting it down.

      The ride-hail company said Wednesday it launched a special service in dozens of Florida cities to allow people to call a number (631-201-LYFT) with a cell phone to book a car on weekdays from 8 a.m. to 8 p.m. It’s geared towards seniors and those without access to its app. Once a ride is booked, Lyft (LYFT) said it will communicate updates via text message.
      The service, which Lyft said it piloted in late 2020 in Miami before expanding to more Florida cities, is similar to one Uber announced last February. Uber’s service was only available in select markets — Arizona, Florida and New York City — for rides or meal deliveries, but by the end of 2020, the company paused the program.
      An Uber (UBER) spokesperson told CNN Business Wednesday that there was declining use of the service, with only a few hundred people a month using it. Uber’s service also allowed users to order food delivery. (Those who call the Uber hotline now are told they can request rides from the mobile site or app.)
        Sam Bond, regional director for Lyft in the Southeast, said in a statement that the company looks forward to “helping seniors access transportation to essential services and resources that may be currently out of reach without a car.”
        The company didn’t directly address why it believes the program will succeed where Uber’s stalled, only reiterated that it is dedicated to serving vulnerable and underserved communities.
          On an earnings call earlier this month, Lyft president John Zimmer said the pandemic “has amplified transportation and security, especially for seniors and vulnerable communities. We are committed to ensuring that transportation access is not a barrier to beating this virus.”
          At the end of 2020, the company announced a vaccine access program with a goal to provide 60 million rides to and from vaccination sites alongside JPMorgan Chase, Anthem Inc. and United Way.

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          Facebook will restore news in Australia after talks with the government

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          By Michelle Toh and Chandler Thornton, CNN Business
          Updated 11:08 PM ET, Tue February 23, 2021

          Hong Kong (CNN Business) — Facebook will restore news pages in Australia after the government agreed on changes to a planned media code that the company said would allow it to retain greater control over what appears on its platform.

          The announcement caps months of bitter dispute between the American tech firm and Canberra, which had been working on legislation that would force tech platforms to pay publishers for news content.
          The initial version of the legislation would have allowed media outlets to bargain either individually or collectively with Facebook and Google (GOOGL) — and to enter binding arbitration if the parties couldn’t reach an agreement.
          On Tuesday, the Australian government said it would amend the code to include a provision that “must take into account whether a digital platform has made a significant contribution to the sustainability of the Australian news industry through reaching commercial agreements with news media businesses.”
            Arbitration, meanwhile, will now only be used as a “last resort” following a period of “good faith” mediation.
            Facebook’s decision to restore news came as the Australian Senate discussed the latest iteration of the media law.
            “It’s always been our intention to support journalism in Australia and around the world, and we’ll continue to invest in news globally, and resist efforts by media conglomerates to advance regulatory frameworks that do not take account of the true value exchange between publishers and platforms like Facebook,” Brown said.
            Google, meanwhile, had already been trying to get ahead of the new legislation by announcing partnerships with some of the country’s largest media organizations, including Rupert Murdoch’s News Corp (NWS) and Seven West Media. Facebook revealed its own deal with Seven on Tuesday.
              Asked about Google’s partnerships last week, Australian Treasurer Josh Frydenberg alluded to the changes that were ultimately announced Tuesday. He said that “if commercial deals are in place, then it changes the equation.”
              — Kerry Flynn contributed to this report.

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              The worldwide web as we know it may be ending

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              By Rishi Iyengar, CNN Business
              Updated 12:00 PM ET, Tue February 23, 2021

              (CNN Business) — Over the last year, the worldwide web has started to look less worldwide.

              Europe is floating regulation that could impose temporary bans on US tech companies that violate its laws. The United States was on the verge of banning TikTok and WeChat, though the new Biden administration is rethinking that move. India, which did ban those two apps as well of dozens of others, is now at loggerheads with Twitter.
              And this month, Facebook (FB) clashed with the Australian government over a proposed law that would require it to pay publishers. The company briefly decided to prevent users from sharing news links in the country in response to the law, with the potential to drastically change how its platform functions from one country to the next. Then on Tuesday, it reached a deal with the government and agreed to restore news pages. The deal partially relaxed arbitration requirements that Facebook took issue with.
              In its announcement of the deal, however, Facebook hinted at the possibility of similar clashes in the future. “We’ll continue to invest in news globally and resist efforts by media conglomerates to advance regulatory frameworks that do not take account of the true value exchange between publishers and platforms like Facebook,” Campbell Brown, VP of global news partnerships at Facebook, said in a statement Tuesday.
                But if such territorial agreements become more common, the globally-connected internet we know will become more like what some have dubbed the “splinternet,” or a collection of different internets whose limits are determined by national or regional borders.
                The stakes will only get higher if more governments jump on the bandwagon.
                “It’s kind of a game of chicken,” said Sinan Aral, a professor at the MIT Sloan School of Business and author of “The Hype Machine: How Social Media Disrupts Our Elections, Our Economy and Our Health.”
                Aral says companies such as Facebook and Google will encounter a slippery slope if they start to exit every market that asks them to pay for its news, which would “severely limit” the content they can serve their global user base.
                “They have a vested interest in trying to force any one market to not impose such regulations by threatening to pull out,” he said. “The other side is basically saying: ‘If you don’t pay for the content, you’re not going to have access to our market of consumers or the content in this market.'”

                As the internet fractures, global regulators coalesce

                A fight over news in Australia is a relatively small part of the clash between tech and governments, which has largely been focused on issues such as censorship, privacy and competition. But the response to Facebook’s move in Australia has shown that a more international effort to rein in Big Tech may be gathering momentum — and with it, the potential for additional fracturing of how internet services function from one country to the next.
                As his government faced off against Facebook last week, Australian Prime Minister Scott Morrison issued a warning to the social media giant: what you do here may come back to hurt you in other countries.
                “These actions will only confirm the concerns that an increasing number of countries are expressing about the behavior of Big Tech companies who think they are bigger than governments and that the rules should not apply to them,” he said in a Facebook post. “They may be changing the world, but that doesn’t mean they run it.”
                On Tuesday, Morrison said Facebook’s decision to restore news was “welcome,” adding that the government remained committed to proceeding with its legislation to ensure “Australian journalists and news organisations are fairly compensated for the original content they produce.”
                Several other countries, including the United Kingdom and Canada are now considering similar legislation against social media companies — and many of those countries are talking to each other about how best to do that.
                “It would be extremely useful if governments would come together in some kind of transnational process and come up with a treaty or some kind of standard about who gets to reach out and affect content and information outside their national territory,” Keller said, “because that’s what a lot of them are trying to do, but they haven’t, and so as a result you get this very fragmented patchwork.”
                  If that increased fragmentation is allowed to reach its natural conclusion, however, the consequences could be dire.
                  “If the eventual outcome of that is that we have social media platforms in every major country or market that are separate, then what we will have is an information ecosystem that is completely bifurcated or splintered across the globe,” Aral said. “What that portends is a citizenry that has completely different sets of information about local events, about world events, and perhaps a very splintered worldview of reality.”

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                  Former WeWork CEO in talks to get nearly $500 million in SoftBank settlement

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                  By Sara Ashley O’Brien, CNN Business
                  Updated 2:29 PM ET, Tue February 23, 2021

                  (CNN Business) — Adam Neumann, the disgraced former CEO and cofounder of WeWork, may soon have a massive payday as part of a possible settlement with SoftBank, the company’s largest investor, but the amount under discussion is far less than the golden parachute originally offered.

                  Neumann, who stepped down in late 2019 after a disastrous attempt to take WeWork public, could be eligible to sell nearly $500 million worth of his shares to SoftBank as part of a $1.5 billion stock buyback program for early WeWork employees and investors, according to a source familiar with the matter. The deal is not yet finalized.
                  The deal is part of a settlement under discussion to resolve a long-simmering legal dispute between Neumann, WeWork and SoftBank after the Japanese conglomerate walked away from a $3 billion WeWork share purchase agreement.
                  The terms of a possible settlement were first reported by the Wall Street Journal. A second source familiar with the matter told CNN Business that the deal is close to being finalized but could still fall through.
                    WeWork, SoftBank, and a representative for Neumann declined to comment.
                    The settlement is half of what was previously on the table when SoftBank agreed to bail out the co-working company after a period of turmoil. As part of the deal in fall of 2019, Neumann departed and had the chance to sell back nearly $1 billion of his shares — an opportunity that infuriated some workers.
                    Under Neumann’s leadership, WeWork raised billions of dollars, scaled its coworking operations to hundreds of cities around the world, and was valued at an eye-popping $47 billion during one investment round. But the company also failed spectacularly in its attempt to go public in large part because IPO paperwork revealed his unchecked power and numerous potential conflicts of interest, as well as WeWork’s staggering losses.
                      In April 2020, SoftBank abandoned plans to buy $3 billion in WeWork stock from Neumann and others, citing certain conditions of the deal that hadn’t been met, including the existence of pending criminal and civil investigations into the company, global restrictions related to the coronavirus, and the failure to restructure a joint venture in China. In response, Neumann and a special committee of WeWork’s board brought lawsuits.
                      News of a possible deal comes as SoftBank and WeWork attempt to turn the page on the Neumann chapter of the company. As the Journal reported, WeWork is in talks about a potential deal to merge with a special purpose acquisition company, or SPAC, to fulfill its ambitions of becoming a public company at long last.

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                      The hot new thing in tech: speaking into your phone

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                      By Kaya Yurieff and Rishi Iyengar, CNN Business
                      Updated 9:03 AM ET, Wed February 24, 2021

                      (CNN Business) — Before last year, 28-year-old Meredith Giuliani thought voice notes were “kind of weird,” and she mostly stuck to texting. But after the pandemic hit, audio messages became a daily routine for her and many of her friends.

                      “This is my way to debrief and tell everybody what’s going on,” she told CNN Business. “It’s not like it used to be where I would wait until I was going to see my friends over the course of the next week for drinks or for brunch.”
                      For years, Apple and others have offered the option to record short messages and send them via text and chat apps. But the format has gained new appeal for many in the United States during the pandemic as we approach a year of limited opportunities to socialize with friends, family and coworkers.
                      Romina Hyskaj, a 23-year-old recruiter who lives in New York City, uses them mainly to keep in touch with her parents who live six hours away, noting that “it can get your tone, attitude, or joke across.” Nick Hofstadter, a 38-year-old luxury travel adviser in Los Angeles, sends voice notes to a handful of close friends, mostly to tell funny stories with a more “dramatic effect” and to avoid sending long text messages. (He prefers using voice notes on iMessage over Instagram so he can listen to it before sending.)
                        And it’s not just voice messages. Voice is having a moment — and the tech industry is taking notice.
                        Hall said an added part of the appeal — beyond conveying more emotional nuance — is how easy voice notes are to record, store and replay.
                        “Back when we had answering machines, people used to save important messages, particularly from loved ones, sometimes for as long as the machine had space and power to store those messages,” he said. “People don’t use voicemail in the same manner, partly because the phone is not the easiest way to leave a message for another person — that would be a text.”
                          Prior to the pandemic, Giuliani said there were many friends she didn’t talk to daily. Voice notes have changed that.
                          “It’s kept some of my friends and I really close together,” she said. “We send over voice notes and we’re chatting every single day, way more than we ever did before the pandemic.” She added: “I can’t believe that we didn’t before.”

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