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Not A Coincidence: WorldFirst Shed U.S. Business Before Acquired By China’s Ant Financial

Ant Financial, now known simply as Ant, is the China-based financial services giant backed by Jack Ma, one of the brainchildren behind the creation of Alibaba. Ant Financial’s roots trace back to serving as Alibaba’s payment processing service in 2004 when it was known as Alipay.

Since then, Ant evolved to its own standalone company that includes the Alipay service although the two names are often conflated. Ant and its Alipay unit grew over the years to become China’s most widely used mobile payment platform.

Ant had no interest in keeping to its home base of China and raised $14 billion from local and international investors in 2018, specifically to fund its global expansion ambitions. Fast forward to early 2019 when Ant flexed its financial muscles by acquiring the FinTech company WorldFirst.

Background: WorldFirst Wasn’t Ant’s First Choice

WorldFirst, the U.K.-based international payments company could be considered a consolation prize for Ant. The Chinese giant attempted to acquire payments company MoneyGram in 2018 but the deal was quickly vetoed amid national security concerns.

The Chinese government would theoretically have access to U.S. citizens and companies’ private information by default of being a part owner of Ant.

So when Ant’s MoneyGram acquisition offer was shut down from the U.S. Committee on Foreign Investment, the Chinese company started to look at other options across Western nations.

Ant ultimately reached an agreement to buy WorldFirst for around $700 million in early February 2019. London appeared to have not shared similar privacy concerns as it offered its blessings on the deal.

The acquisition of WorldFirst would position Ant to become one of Europe’s largest and most powerful Fintech and payment companies.

WorldFirst Needed To Resolve A U.S. Problem

Amazon sellers who relied on WorldFirst to transact globally received out of nowhere a letter from WorldFirst’s management. The letter said its shareholders “have taken the decision to discontinue the US operations.” The letter was straight to the point, further noting: “we will no longer be able to offer our products and services to you.”

There was little doubt why a business that services some of Amazon’s largest sellers would cease to exist, almost overnight. U.S. law grants the government final say on whether the merger between Ant and WorldFirst can proceed or not — even if the deal consists of a Chinese company acquiring a U.K.-based company.

A rival fintech executive who was following the latest developments told the Financial Times that shutting down the U.S. business appears to be the “only way to avoid the US regulator blocking the deal.”

The U.K. Dilemna: New Reality In 2020

China’s rapidly growing FinTech sector is dominated by a handful of companies with global ambitions, including Ant, Tencent, Baidu, and JD. It is only logical that these Chinese giants and smaller players recognize the important role London plays as a global financial hub.

There is precedent to this view following the 2015 visit of Chinese President Xi Jinping to the U.K. This resulted in a declaration of a new “golden era” between the countries, in terms of cultural, political, and economic ties.

Taking a step back, research provider and data analytics firm Rhodium Group notes the U.K. was “by far” the largest recipient of Chinese foreign direct investment among all European countries.

As the United Kingdom became a hub of influence for Chinese companies, does the country need to take a closer look at its relationship?

The Johnson government was on the receiving end of flack from the Trump administration over its relationship with Chinese tech companies. The U.S. President was reportedly furious with Johnson’s early 2020 decision to include China’s Huawei as part of its 5G telecom buildout.

But Trump’s position isn’t as extreme as many make it out to be. He received support from some of the most recognized experts on China’s influence in the U.K.

Sir Richard Dearlove, the ex-head of MI6, said on a Daily Telegraph podcast that “a lot of his China policy makes sense.” He added: “We must modulate our relationship with the Chinese in light of the type of regime it is.”

The list of those whose views more closely resemble Trump includes the U.K. Foreign Secretary Dominir Raab. He said the London – Beijing relationship will not be “business as usual.”

He also noted:

“There absolutely needs to be a very, very deep dive after the event and review of the lessons, including of the outbreak of the virus. I don’t think we can flinch from that at all.”

Bottom Line: Big Changes Could Come

What exactly the recent developments entail for U.K. companies is unclear and a difficult exercise to predict. Any action taken by London to hurt Beijing economically could be met with a blow twice the size so politicians need to proceed cautiously.

Many U.K. companies thrived because of direct investments from China. The loss of billions of pounds worth of investment capital could be detrimental to the economy.

Adding to the difficulties is China imposing a new national security law in the former U.K. colony of Hong Kong. The U.K. already offered refuge to 3 million Hong Kong citizens and China responded with unspecified threats of consequences.

If anything, the U.K. appears to be entering a new cold war with China. Unfortunately, many FinTech companies are inadvertently trapped in the middle.