As Ant Group prepares for its double-IPO, it has been the focus of a particular point of contention. The prospectus first revealed the company's outstanding financial performances, business structure and future projections. With this information coming to the light, many problems have come to the surface. Here we list and discuss the key risks associated and why they are impeding Ant Group. 

► The high user base of Tencent's WeChat fuels its future expansion in the payment market

► WeChat's creativity has brought pressure to Alipay, such as its innovative products, red packets and mini-programs. 

► The digital currency electronic payment in China is considered to erode the third-party payment agencies' market. 

► Overseas' competitors, represented by PayPal, are impeding the Ant Group's international business expansion. 

► Regulations, especially some limits on private lending, will negatively impact Ant's credit businesses.

► As its client companies, the financial institutions, increasing developing on technologies themselves, they might be less dependent on Ant Group. 

► From financial to technology, Ant's reform has an unclear future yet. 

More intense competition both on and around its main battleground

China now has one of the most prosperous mobile payments markets, with a penetration rate of over 86% as of 2019. The dominant position of third-party payment agencies has created a greater level of competition in the domestic market. WeChat Pay, which is the largest competitor of Alipay, has seen its market share continuously increase since it was introduced in 2013. Also, the digital currency electronic payment (DCEP) developed by the state will almost certainly challenge the industry status quo. 

Domestic pressure from competitors and the state

The central bank of China started to issue third-party payment licenses in 2010, with the accumulated number hitting 272 as of 2019. As the government has been increasing supervision in the payment industry, the market has been cleaned up, with only 237 licenses still invalid. Those remaining are all high-quality companies recognized by the state, which is biting the market and might shake the position of Alipay. 

WeChat and others

WeChat Pay, without a doubt, is the nemesis of Ant Group. The biggest difference between Alipay and WeChat Pay is the 'social' nature of the latter. Tencent's WeChat is the most used communication tool for both young and aged people, with over 1.2 billion monthly active users globally, significantly surpassing Alipay with 700 million as of June 30 of 2020. Although we don’t have specific figures for WeChat Pay users, as one of the largest social media companies, WeChat has a large user base that was easily transferred to the payment service. Alipay, on the other hand, as a payment tool from the very beginning, had to attract new users from scratch. As we can see, since WeChat Pay was introduced in 2013, its market share has been growing, from 8% in 2014 to 39% in 2019. Despite the fact that Alipay is still ruling the payment market, Tencent seems to be a challenger that can’t be ignored.

The ‘red packets’ (Chinese: ‘红包’) are traditional cash gifts popular among Chinese society, especially during the spring festival. WeChat first launched a digital red packet in the lunar year of 2014, which ate into the market rapidly and transferred a large amount of the WeChat users to the payment services, achieving the success that Alipay spent years pursuing. A year later, official cooperation between WeChat Pay and China Central Television’s (CCTV) New Year's Gala enabled the entire public to participate in the festival with virtual red packets. WeChat Pay saw increasing users from the aged population. It is a certainty that Tencent is more innovative to some extent. 

The mini-program, another star application developed by Tencent in 2017, launched WeChat as it created support for its social and payment function. Through the mini-programs, over 1 million service providers and merchants offer life services such as food delivery, movie tickets purchase, bike-sharing, and small games. The creation also pushed up advertisement income to Tencent. Alipay debuted mini-programs a year later than WeChat.

In 2019, WeChat Pay achieved 550.8 billion transactions, which is 2.4 times larger than Alipay with the number of 229.8 billion. So far, the transactions made through mini-programs have reached CNY 800 billion in total. Admittedly, WeChat focuses more on small-amount payments with a social nature, but as Ant Group is upgrading Alipay to a comprehensive life platform, it lacks some social functions. 

Other small third-party payment agencies, such as Ping An Pay, JD Pay, Union Mobile Pay, China Union Pay, and Suning Pay, are the players following Alipay and WeChat and have their share of the industry. Even though they are too small for Ant Group to worry about, they are considered strong enough to take some profits of the payment market from Ant Group as they grow stronger. 

DCEP will reform the payment market

The DCEP, the Chinese government’s new project, will digitalize cash in circulation, becoming an alternative to the local tech giants’ payment products – Ant Group’s Alipay and Tencent’s WeChat Pay. DCEP is to be introduced to cover the concept of electronic payment in general in China – the name hints that DC represents the new form of cash, and the EP is to be the new payment. This naming approach is therefore broad and ambitious, and both builds upon and may occlude the developments of the digital giants. The digital yuan is designed to partially replace the M0 that represents the cash in circulation, the digital payment services now provided by third-party payment agencies. Unlike Alipay and WeChat Pay, DCEP is a complimentary and legal tender that can never be rejected by any merchants.

DCEP is considered to be likely to be used more widely as it can work without the Internet, which is detail more friendly to older people, especially those over 60 years old, who accounted for 18.1% of the total population in China by end of 2019. The transaction can be done easily by the physical touch between two devices. Also, it is entirely free for the public to transfer money between their bank accounts and withdraw to the DC wallet without transaction fees, which is a paid service in third-party payment platforms.

Therefore, DCEP is likely to hurt Alipay and WeChat Pay to some extent, since the latter have cash depositing functions as well, letting them function as an e-wallet. The same smartphone-based paying method means fewer users will be left on the third-party payment agencies, with more people using DCEP. It is still unclear whether the third-party agencies will be included in the issuance structure yet.

(This is the first part of the series article. In the next part, we will continue to discuss the perils of Ant Group.)