When the coronavirus paralyzed China’s economy last year, Rao Yong needed cash to bridge his online craft business. But he was afraid of spending long, boring hours in the bank.

The outbreak had messed up delivery services and slowed customer payments, so Mr Rao, 33, used an app called Alipay to get early payment on his bills. With his Alipay account already tied to his digital storefront in Alibaba’s Taobao Bazaar, getting the money was quick and painless.

Alipay had also helped Mr. Rao a few years ago when his business was just starting to expand and it took him $ 50,000 to build a supply chain.

“If I had gone to a bank at this point, they would have ignored me,” he said.

China has pioneered new ways to bring money to underserved people like Mr. Rao. Tech companies like the owner of Alipay, an Alibaba spin-off called Ant Group, have turned finance into a kind of digital plumbing: something so thoroughly and invisibly embedded in people’s lives that they hardly thought about it. And they did so on a whopping scale, turning tech giants into influential lenders and money managers in a country where smartphones became ubiquitous before credit cards.

But for much of the past year, Beijing has been building new regulatory walls around what is known as fintech, or financial technology, to contain the country’s internet industry.

The campaign ensnared Alibaba, which was fined $ 2.8 billion in April for monopoly behavior. It tripped Didi, the ride-hailing giant, who was hit by an official investigation into its data security practices just days after its shares were listed on Wall Street last month.

Around this time last year, Ant was also preparing the world’s largest initial public offering. The IPO never happened, and today Ant is reworking his business so regulators can treat it more like they believe it to be: a financial institution, not a tech company.

In China, “the reason fintech has grown so much is because of the lack of regulation,” said Zhiguo He, who studies Chinese finance at the University of Chicago. “It’s just so clear.”

The question now arises: what will regulation do to an industry that is thriving precisely because it has offered services that China’s state-dominated banking system could not?

With Ant and other major platforms cornering the market, investment in Chinese fintechs has declined in recent years. So chastising Ant could make the industry more competitive for startups. But if running a large fintech company means being regulated like a bank, will the founders of future Ants even care?

Professor He said he was mostly confident that Chinese fintech entrepreneurs would keep trying. “Whether it is enormously profitable,” he said, is another question.

For much of the past decade, if you wanted to see where smartphone technology made China look so different from the rest of the world, you would have looked inside people’s wallets. Or rather, the apps that replaced them.

The rich and poor used Alipay and Tencent’s WeChat messaging app to buy snacks from street vendors, pay bills, and zap money to their friends. State media hailed Alipay as one of China’s four great modern inventions, taking it and bike sharing, e-commerce and bullet train with compass, gunpowder, papermaking and printing to extremes.

But the tech companies didn’t get into the financial business to make paying for coffee easier. They wanted to be where the real money was: granting loans and credits, managing investments, offering insurance. And with all of their data on people’s spending, they believed they were much better at handling the risk than old-fashioned financial institutions.

With the blessing of the Chinese leadership, financial weapons began to sprout from Internet companies of all kinds, including the search engine Baidu, the retailer JD.com and the food giant Meituan. Between 2014 and 2019, online lenders’ consumer credit increased nearly quadruple on average every year, according to one estimate. According to iiMedia Research, almost three quarters of the users of such platforms were under 35 years of age.

When Ant went public last year, the company said it had provided more than $ 260 billion in consumer credit through Alipay. That meant Ant alone was responsible for more than 12 percent of all short-term consumer credit in China, according to research firm GaveKal Dragonomics.

Then, in November, officials torpedoed Ant’s IPO and went to work dismantling the lines that had connected Alipay to China’s banks.

They urged Ant to make it less convenient for users to pay for purchases on credit – loans largely funded by banks. They prevented banks from offering deposits through online platforms and restricted how much banks could lend through them. At some banks, deposits offered through digital platforms made up 70 percent of their total deposits, a central bank official said in a speech.

In a press conference last week, Fan Yifei, deputy governor of the central bank, said regulators would soon apply full ant treatment to other platforms.

“On the one hand, the speed of development was amazing,” said Fan. “On the other hand, the pursuit of growth has created monopolies, disorderly capital expansion and similar behaviors.”

Ant declined to comment.

As Ant and Tencent strive to meet regulatory requirements, they have scaled back credit services for some users.

A big blow to Ant’s bottom line could come from new requirements that it put more of its own money into lending. Chinese regulators have disliked the idea of ​​Alipay competing with banks for years. Instead, Ant played his role as a partner to the banks, using his technology to find and rate borrowers while banks staked the funds.

Now, however, this model in Beijing seems like a convenient way for Ant to place bets without facing downside risks.

“If problems arise, it would be safe, but its partner banks would take a blow,” said Xiaoxi Zhang, an analyst in Beijing at GaveKal Dragonomics.

When Chinese regulators think about such risks, they think of people like Zhou Weiquan.

Mr. Zhou, 21, earns about $ 600 a month from his desk job and wears his hair in a swaying auburn mullet. After he turned 18, Alipay and other apps offered him thousands of dollars in credit every month. He took full advantage of it, traveling, buying equipment and generally not thinking about how much he was spending.

After Alipay cut its credit limit in April, the first thing he did in panic was to call customer service. But he says he has now learned to live with his means.

“For young people who really like to spend too much money, this is a good thing,” said Mr. Zhou of the crackdown.

China’s brisk economic growth recently has most likely made it easier for officials to curb fintech, even at the expense of some innovation, consumer spending and borrowing.

“When you consider that household debt as a percentage of household income is currently among the highest in the world” in China, “then higher household debt is probably not a good idea,” said Michael Pettis, finance professor at Peking University.

Qu Chaoqun, 52, got hooked a few years ago when he had access to $ 30,000 a month through multiple apps. But he wanted more. He started buying lottery tickets.

Soon, Mr. Qu, a delivery driver in the metropolis of Guangzhou, borrowed an app to pay his bills with someone else. He borrowed money from friends and relatives to repay the apps and then borrowed the apps again to repay his friends and relatives.

When his loan was cut by nearly half in April, he fell into what he calls an “abyssal abyss” as he struggled to pay off his outstanding debt.

“People inevitably have mental fluctuations and impulses that can cause great harm and instability to themselves, their families and even society,” said Mr. Qu.

Albee Zhang contributed to the research.