Big data, Chinese surveillance, and Donald Trump could keep China’s biggest payments company from entering the US

The target.
The target.
Image: Heinz-Peter Bader
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It’s a meeting of the old economy and the new economy. The closed internet and the open one. Aging US holdouts and young Chinese giants. All in a single deal, which looks set to face close scrutiny this year.

For months, Ant Financial, the online financial services company spun out of Chinese e-commerce giant Alibaba, has been attempting to buy MoneyGram International, the Dallas, Texas-based remittance provider. MoneyGram announced its “agreement” to the $880 million Ant Financial offer in January. But since then, a bidding war has emerged, and members of US Congress have called to investigate the deal. On May 16 MoneyGram’s shareholders voted to approve the deal, moving it one step further toward closing. Alibaba is due to announce its first-quarter earnings today (May 18).

For Ant Financial, the deal would mark its first foray in the US, and one rife with potential too. Ant Financial has had little direct exposure to American consumers. But unlike MoneyGram, it has already successfully developed and promoted its mobile payment service—and a very popular one at that. By buying MoneyGram, Ant Financial can acquire a customer base in both the US and abroad to complement its existing one in China. That is, if the deal gets approved.

The back story

MoneyGram was formed from a merger between Travelers Express and MoneyGram Payment Systems. The entity was sold by its parent company, Viad, and had an initial public offering in 2004. Now the industry’s number-two player, it currently has 350,000 agent locations all over the world (including China), and a partnership with Walmart. Before being sold, it was affiliated with Western Union, now its major competitor and the number one player in the money remittance market.

A significant portion of MoneyGram’s revenue comes from transfers made outside the United States.

Despite steady revenue and profits, MoneyGram’s prospects are clouded by the countless internet companies that do the same thing. From Venmo to TransferWise to Azimo many startups now offer digital money transfers via smartphone, rather than brick-and-mortar kiosks. 

Ant Financial is the perfect example of a company poised to wipe out traditional money transfers altogether. Along with Tencent (its fast-growing rival), Ant Financial dominates China’s online payments industry, which generated 6 trillion yuan (about $870 million) in transactions in the last three months of 2016.

That’s due to the success of Alipay. Originally a PayPal-esque service for Alibaba’s e-commerce sites, Alipay blew up across China and became popular for making cashless payments in stores, and transferring money to friends. The division spun out of Alibaba in 2011 and was renamed Ant Financial in 2014, though its main payment app retained the name Alipay.

There’s more to Ant Financial than just cash transfers and payments. The company operates Yu’ebao, the world’s largest money-market fund (paywall). It also runs Sesame Credit—a fledgling credit-scoring service, where users earn points and perks for making certain purchases. It even has dipped its toes in social networking, copying certain elements of Tencent’s WeChat, China’s leading chat app.

Ant has already been investing in overseas payment companies aggressively. The company has funneled money into online payment companies in India, the Philippines, Korea, Thailand, and Singapore. It also is reportedly raising $3 billion in debt for the sole purpose of making more acquisitions, all in advance of an IPO, which Alibaba may reveal more details about on Thursday (paywall).

If it enters the US, Ant Financial will face a number of rivals—not just the startups and Western Union, but potentially giants like Facebook and PayPal. Its competitive advantage will be its expertise—none of those company’s transfers services have achieved the ubiquity that Ant Financial’s Alipay has in China.

MoneyGram shareholders are enthusiastic about the deal. Since it was announced, its stock price has risen over 30%.

Yet the deal will not necessarily come through, for two possible reasons.

The data dilemma

Over the past several years China has invested in or acquired US companies at a staggering rate. Last year marked a record—Chinese companies funneled $45.6 billion to buy stakes in American companies in 2016, with technology a particularly hot sector. Many Chinese companies, some with direct ties to the government, have invested in or attempted to acquire American chipmakers, sensor makers, or artificial-intelligence companies.

The Committee on Foreign Investment in the United States (CFIUS), the inter-agency group under the US Treasury Department which examines overseas acquisitions in the US, has quietly killed a few of these deals in the past over national security concerns.

In 2016 a deal between state-affiliated Tsinghua Unigroup, a chip maker, and California-based hard-disk maker Western Digital collapsed in the face of a CFIUS investigation. Around the same time, California-based Fairchild Semiconductor announced it had turned down a purchase bid from China Resources Microelectronics, citing worries that CFIUS would not give its approval. For tech acquisitions, concern often stems from fears that China will acquire technology that could bolster its military.

In this case, the concern is not about military technology, but that Ant Financial will get access to a massive trove of US data. At a minimum, that will mean the names, phone numbers, and addresses of MoneyGram users. But if Ant Financial turns MoneyGram in the US into something as big as Alipay in China, it would then have a larger amount of information about its users—where users send money from and to whom, how much they transfer and for what, and so on.

The precedent for these concerns is China itself. There, the internet and surveillance go hand-in-hand. Its largest internet companies comply with the government’s policies, including Ant Financial. Ant Financial’s Sesame Credit, for example looks eerily poised to realize the Communist Party’s goal of building an invasive “social credit system.”

On its website, in a statement discussing the pending deal, Ant Financial attempts to allay fears about data breaches, subtly nodding to China’s own policies requiring foreign companies to store user data in China. “Protecting user data and information is of paramount importance to us. Any data collected on MoneyGram users in the U.S. will continue to reside on the same ironclad U.S.-based servers that meet the high security standards your customers trust today,” the site reads.

Republican senators Pat Roberts and Jerry Moran have written letters to US treasury secretary Steve Mnuchin calling for the deal to be blocked, citing “national security” concerns (paywall). Rival bidder, Kansas-based Euronet, said Ant Financial’s bid is unlikely to succeed due to to “broad concern raised over Chinese based acquirers.” MoneyGram and Ant Financial did not respond to Quartz’s inquiries for this piece.


Donald Trump entered the White House promising to crack down on “unfair” trade practices. Since then, he has softened his tone. Last week, he trumpeted a trade deal with Chinese president Xi Jinping promoting trade in beef, poultry, and liquid natural gas. Xi also promised Trump better access to US credit card companies and online payment services. 

That latter promise means little in actuality. It’s far too late for US-based financial services companies to make an impact in China. For old-fashioned credit cards, China’s UnionPay has carved out a monopoly. For internet services, Ant Financial and Tencent reign supreme.

The Trump administration has two options as it faces this deal. It can oppose it on grounds that a reverse acquisition would likely never receive approval in China, citing the “reciprocity” slogan. As senator Roberts said (paywall), Ant Financial’s acquisition of MoneyGram “should trigger no less concern than if a Chinese company were seeking to take control of a large, well-known bank,” and added “there is virtually no chance that a US financial services company would be permitted to acquire a Chinese [rival].”

But Trump might be keen to keep the positive momentum generated by last week’s trade deal going. If the acquisition gets blocked, particularly in an industry where China has offered an opening (however pointless right now), Trump risks ruining the appearance of making progress on trade with China.

Correction: An earlier version of this story erroneously described CFIUS as an inter-agency group under the White House. It is under the US Treasury Department.