Series Report on Ant Financial, Part I
COVID-19 and China
The inclusiveness in the finance industry is still an ideal. Photo: Credit to Unsplash official website

Globalization should always be the strategic focus of companies in the current and future generations. Though some may say the cross-border integration is close to complete no matter in geography or in linguistics, the world is not even close to flat.

According to Professor Pankaj Ghemawat from NYU Stern, being accurate about how limited globalization levels are is critical to even being able to notice that there might be room for something more that would contribute further to global welfare.

If you look at the OECD countries and how much they spend per domestic poor person and compare it with how much they spend per poor person in poor countries, the ratio by World Bank calculations turns out to be around 30,000 to 1.

Chen Long, the Chief Strategy Officer of Ant Financial, gave a speech on Aug 18, 2016, saying that the inclusiveness in the finance industry is still an ideal out of reach for many. According to his speech, it was estimated that in developing countries around the world, 2 billion people do not even have a bank account, only 10% of the population have credit cards and a 21% among those with financing needs can obtain loans from financial institutions.

This series report is focused on Ant Financial, a fintech giant in China with the mission of "bring the world equal opportunities", who aims to bring accessibility, affordability, comprehensive and quality, sustainability and customer suitability to people around the world in the financial area and in life. The report will cover the industry overview, the brief on Ant Financial’s history, and then go through its products and services, its core BASIC technologies, key counterparties and their comparisons, and finally a prediction or expectation in the future.

Industry Overview

According to a report from the Bank of China, the assets of the five major banks in China account for 55% of the total bank assets across the country. While the majority of China’s banks are state-owned, the capital naturally flowed to large state-owned enterprises, leaving a conundrum of funding for the small and medium enterprises (SMEs). SMEs were struggling in financing in order to grow big or even to survive however lack the direct funding channels from the capital market.

These problems were further compounded by the lack of an appropriate system-wide credit-profiling mechanism. A well-built social credit-profiling system will assist banks greatly in risk control and the whole business ecology. However, the coverage and information sufficiency are much below the developed countries. In the U.S., only 14% of the population lacked a credit score, while in China, 66% of the population is being “credit invisible”.

With the fast development of Internet technology and the popularity of the internet, especially mobile users, the problems of underserved SMEs and individuals who are not qualified for banking loans, are being noticed by fintech firms.

Fintech is short for “financial technology” and refers to the application of technology within the financial services industry. Mobile payments constitute one of several key markets for China’s booming fintech industry. Other areas include online lending, consumer finance, online money-market funds, online insurance, personal financial management, and online brokerage etc. (The graph below shows the current businesses distribution of China's fintech market, it shows that the third-party payment business still counts for the largest proportion with a nearly 90% market occupation, followed by wealth management sector with a share of 4.9%.)

These firms stepped in this void and brought a great revolution to traditional China’s financial market. The fintech industry has soared in recent years, enables Chinese fintech start-ups to occupy almost one-fifth of the total venture capital raised worldwide. The leapfrog of this industry are contributed by, first of all, the advances in technology, then an underdeveloped banking industry, and an initially relaxed policy and regulatory environment.

Ant Financial is one of the most representative fintech companies. Counting from its predecessor Alipay, its development story is also a history of China's fintech development. Before going to a detailed Ant Financial story, we can first have a glance at the global fintech companies (comparison between parent companies) and their current market capitalization for future comparison.

Company Profile

Back in 1999, Jack Ma found Alibaba, the world’s most prominent e-commerce companies, providing B2B, B2C, C2C services through its platform. The transaction volume increasing in a dramatic magnitude, especially after the Single’s Day online shopping festival. To facilitate these transactions, Alibaba developed Alipay, an online payment platform staring in 2004. 

Originated from Alipay, Ant Financial is now a technology company that brings inclusive financial services to the world.

With the mission of "bring the world equal opportunities", Ant Financial is dedicated to creating an open, shared credit system and financial services platform through technology innovations, and to provide consumers and small businesses with safe and convenient inclusive financial services globally.

Ten years ago, Alipay was just a rapidly growing online payment service. Today, Ant Financial is the modern gateway to an ecosystem of financial services.

Now, Ant Financial is entering its next stage of growth. This ranges from working with traditional financial institutions like China’s leading open platform, bolstering its strength as a technology and data company, and going global.

Shareholding Structure & Executives Background

The current shareholding structure is made up by76.4% of shares that belong to Alibaba partnership, including management and employees, and 23.6% of shares that belong to domestic China investors. The Alibaba Group retains a right to a 33% equity stake subject to regulatory approval.

Therefore, if Alibaba Group converts to a 33% equity stake, the original management and employee shares would turn to 51.2% and the domestic China investors shares would be 15.8%.

Mr. Jing is Chairman and CEO of Ant Financial. Mr. Jing joined Alibaba Group in 2007, where he was a Senior Finance Director and later Vice President. He was named Chief Financial Officer of Alipay in September 2009 and Ant Financial’s Chief Operating Officer in October 2014, before becoming President in June 2015. In October 2016, Mr. Jing was appointed Chief Executive of Ant Financial and in April 2018 he took on the additional role of Chairman. Prior to joining Alibaba, Mr. Jing was CFO of Guangzhou Pepsi Cola Beverage Co. He also held management positions in finance in several Swire Coca-Cola bottling plants or business departments.

Simon Hu is the president of Ant Financial. Mr. Hu joined Alibaba Group in June 2005 and held various key positions at Alipay and Ant Financial. In 2009, Mr. Hu started an internal venture called AliFinance within Alibaba, leveraging big data analytics to provide collateral-free financing services for small and micro businesses in China. Mr. Hu was appointed President of Alibaba Cloud in November 2014. Under his leadership, Alibaba Cloud grew rapidly and embarked on global expansion, becoming the largest cloud computing company in Asia and among the top three worldwide. Mr. Hu became President of Ant Financial in November 2018. Prior to joining Alibaba, Mr. Hu worked in financial institutions including China Construction Bank and China Everbright Bank.

Mr. Cheng is Chief Technology Officer at Ant Financial and Chief Operating Officer of its Global Business Group. Mr. Cheng joined Alipay in 2005 and was one of the early engineers who built Alipay's technology platform. He has led the design of every generation of Alipay's technological architecture. Mr. Cheng also designed and implemented a series of key Alipay business systems. He is committed to the technical research and design of Ant Financial's financial products, and to cultivating technical talents.

Business Ecology

Solving practical problems with technology has always been the product logic of Ant Financial. To deal with the mass transaction volume, it developed Alipay. After decades of financial trials using Alipay and direct involvement in the Chinese financial service market, Ant Financial built up its fintech ecosystem in two years, providing services such as Alipay, Yu’e bao, MY Bank, Ant Fortune, and Ant Insurance Service. Below are the main products and services of Ant Financial.

According to data from online disclosure, Alipay has annual active users for 850 million, compared with Paypal with 250 million active accounts. The Yu’e bao (the money market fund) and Ant Fortune (provide financial products like trust, equity, etc.), are the Chinese answer to Charles Schwab, they together serve for more than 600 million users with a more than 17% YoY AUM growth per active user while Charles Schwab, America's largest personal financial services provider, has 11.7 million active accounts.

The Ant Credit Pay and Ant Cash Now, which target to traditional credit card service and a bank loan for people, owns more than 100 million active users compared with China Merchants Bank (the largest bank in credit card service) who has 58 million credit card in circulation. Moreover, the Ant Insurance Service, which has been quite atopic from the end of 2018, has more than 500 million active users and a 45% YoY premium growth per user. Though the premium in total in no comparison right now with China’s insurance giant Pingan, the insurance users of Ant Financial are three times to that of Pingan Insurance.

In 2017, Ant Financial launched its technology-open "BASIC" strategy, which corresponds to Blockchain, Artificial Intelligence, Security, IoT (Internet of Things) and Cloud computing. With these five major areas on this basis, it extended the three capabilities including risk management, credit capability and connectivity with professional service.

In next week's article, we will continue on the Ant Financial topic to further illustrate its business ecology based on different technologies and capabilities, how it differentiates itself from its competitors domestically and globally in the future. After that, we would focus on Ant Financial’s internationalization initiatives, inclusive finance in rural areas and regulatory uncertainties.

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