On March 10, Alibaba's fintech arm Ant Financial announced an ambitious three-year development plan: the company intends to take on Tencent (0700:HKEX) and Meituan (3690:HKEX) in the ample Chinese consumer market. It will also be devoted to helping over 40 million businesses complete digital upgrades; the Coronavirus outbreak is a catalyst driving this digital transformation faster. In this article, we look into the company's business once again, dissecting its 1.2 billion-user ecosystem.

Established in 2014, Ant Financial mainly focuses on serving small and micro enterprises and ordinary consumers. It also provides services for government and State-Owned Enterprises (SOEs). As a result of at least eight capital injections, it was valued at USD 160 billion in 2018. Its pre-IPO round funding of USD 14 billion is still the largest single private equity financing in the world to date.

As a vital part of Alibaba Group, Ant spans the huge customer base initially generated from Taobao and Tmall. The company has 1.2 billion users worldwide in 36 countries. It currently targets emerging markets where decent financial services are lacking, through tailoring of products and direct investment into local startups. According to EqualOcean's Ant Financial case study, from 2014 to 2018 the fintech giant pumped venture capital into more than 120 companies in 19 sectors. Nearly 31% of those recipients were from the financial industry. In 2020, it has invested in Indian delivery company Zomato and Swedish payment startup Klarna.

In Ant Financial's ecosystem, Alipay is the standing point and open platform of  'to C' business; personal micro loans and online asset management are profitable points. Meanwhile, its own credit system supported this ecosystem and provided credit information to users and merchants.

Ecosystem

Ant Financial has a sound ecosystem, with technology applied to various financial products to attract customers in many scenarios. As we see above, the whole ecosystem has four layers – the basic layer is five technologies opening strategies named, quite ironically, BASIC: Blockchain, AI, Security, IoT and Cloud-computing. The basic layer, together with the support system layer, supports the supply chain and also provides API (Application programming interface) interface products to clients. The third layer is supporting systems such as credit systems and risk control systems. The second layer is financial products including funds, insurance, micro loans and so on, as well as famous products like Ant Credit Pay and Yu'e Bao. On the top is Alipay, regarded as a connection between products and clients, connected to scenarios such as hospital visits, cinema, phone recharging and so on. With this interface, all the products and services can be present and available to clients. It has rapidly become an important part of daily life for many in China and beyond.

Big data is like blood going through this giant's body. It is first gathered by Alipay, then sent to the basic layer and fed into algorithms and models and stored in the cloud. The analysis results generated by algorithms and models will be used in the other three layers, such as risk control ability, financial solutions and API data interface. Then customers will give feedback, such as whether to buy it or not. Also, since clients' data and feedback are updated live, the new analysis results will be updated automatically. This whole process is automatic, data-driven, with feedback improving the results generated by models and algorithms.

Alipay's open platform

Among Ant Financial's products and whole ecosystem, Alipay is the initial business and also the 'flagship' in its fleet of financial service menu. Its first was a single payment tool based on Taobao, and nowadays it has grown into the biggest open platform in the Internet finance area.

1. Payment service

Alipay is an initial payment tool that aims to solve trust problems between businesses and consumers during the online payment process. In Alipay's growth history the years 2008, 2013 and 2015 were critical. In 2008, Alipay first located its office in Shanghai and launched a public utility payment business. This was the original consumption service Alipay let users connect to, allowing them to pay through mobile phones. In 2013, users could purchase train tickets on Alipay, another important milestone. At the same year, Alibaba announced that Alipay would be mostly focused on 'to C' products. In 2015, Alipay updated and positioned itself as a service platform. After the updated version, this fintech unicorn just became larger and larger. Its connection to customers and businesses increased in the China mainland and overseas.

In the 2019 Q3 payment market share, Alipay occupied 54.5% of the whole market, following the second player Tenpay. For the payment industry sector, personal applications such as mobile transportation and games remain the biggest part – but its percentage is decreasing. Mobile consumption and mobile finance are increasing, indicating that demand for digital finance is rising slightly.

As for the traditional finance industry, Alipay became a new voice and entered into cooperative relationships with banks. Before Alipay, banks only focused on big clients and large amounts of settlements, while this fintech company focused on the long tail customers and transfer of small amounts of money.

As for business partners, Alipay helps traditional financial institutions transform digitally.For Alipay's new three-year plan, this open platform will attract more businesses, and will not be limited to financial institutions. Relying on Alipay's ecosystem, businesses can use its target marketing ability, small programs, payment process, location services and many other tools. Businesses can act together with the Alipay ecosystem, covering the whole consumption process for customers and tailoring presented contents to them.

2. Asset management service

In June 2013, Alipay brought out its significant financial product, Yu'e Bao, helping the company to expand its sales channel and begin to focus mostly on 'to C' mobile users. Yu'e Bao helps people who are blocked by high threshold financial products to manage their money with a CNY 1 initial investment. It has features of high liquidity, safety and relatively higher interests than banks. Money can be extracted anytime for consumption, transfer and payment.

Since established in 2013, the net assets scale of Yu'e Bao increases rapidly and hits record high in 2017. That is the year when the number of China's 753 million Internet users in the world ranks first, and online payments made by the mobile phone users increased from 50.3% at the end of 2016 to 65.5%. As well, Ant Credit Pay launched in the same period and revenue per 10,000 copies was nearly CNY 1.1 compared to nowadays 0.62. As these factors driven the record high in 2017 and since then, Yu'e Bao's scale began to decreased but still remains as the biggest national asset management product.

As of the end of 2018, Yu'e Bao's cumulative transacting users exceeded (in Chinese) 600 million, and the total scale of the six Yu'e Bao currency funds reached CNY 1.8 trillion (USD 260 billion). For Alipay's ecosystem, it is meeting its target – long-tail customers, for whom it provides the first scalable, easy-to-use financial product. This overall has improved user retention rate on Alipay platform. Besides, this product's targeted customer group caters to the Chinese government's supporting policy of developing inclusive financing recent years.

3. Ant Credit Pay

Ant Credit Pay is a micro consumption loan system with amounts between CNY 500 and CNY 50,000 (USD 71.34 to USD 7,134.5), with the money released pending approval, to be used in various consumption fields. In 2017, the hottest year of the Internet finance industry, Ant Credit Pay's net profit was CNY 3.4 billion (USD 340 million).

According to Ant Credit Pay's 2017 report (in Chinese), nearly 40% of the post-90s generations set this micro loan product as their preferred payment method. This loan caters to the consumption habits of the next generation, and enhances the status of Alipay's payment function to compete with Tencent's Tenpay. Relying on the big data of borrowers, together with the risk control system and Zhima Credit system (we elaborate on it below), the lending process goes through quickly – each repayment will be recorded into the credit system as evidence to support the next loan. After the latest update, customers will use Ant credit pay more frequently as intelligent marketing and expanded businesses will generate more consumption demands.

4. Credit system Zhima Credit

Zhima Credit is a credit system based on big data and evaluation of users' credit through five aspects: identity, credit history, behavior preference, performance capacity and networking. The credit score ranges from 350 to 950. Over 650 is deemed a good score. Its most welcome part is the 'No Deposit' factor applied to scenarios including house renting, bicycling renting and hotel deposits.

The development of Zhima Credit will fill the blank for the personal credit system in China and disrupt areas that need credit reference but haven't been covered by traditional banks yet.  Zhima Credit acts as support for Alipay's financial products and service, and is open to personal users and business owners to promote the development of a trusted business environment.  Zhima Credit takes advantage of its huge database, which gets information from Alibaba Internet and Ant Financial's financial data, then applies cloud-computing and AI to define the customer's credit situation.

One small step for ...

In the coming updated iOS 13 version, Apple Pay will integrate deeply with Alipay. In addition to the card package that is directly integrated in Apple Pay, the camera will be able to scan directly for payment without opening Alipay. This linkage is a step in its three-year plan to help businesses digitalize and improve customers' convenience of payment. In the future, Alipay will probably establish similar ecosystems in large markets such as India, and the ecosystems around the world may combine into a global mechanism providing comprehensive cross-border financial and lifestyle services.