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Briefing Aug 4, 2020 05:27 pm EqualOcean

Alibaba's Ant Group Plans to Raise USD 30 Billion Through Dual-Listing

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Analysis · 2
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Analysis EO
Sep 28, 2020 10:10 am ·

Ant Group's Crossroads: Opportunities and Threats for the Digital Giant [1/2]

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.)

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Analysis · 2
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Analysis EO
Sep 28, 2020 10:07 am ·

Ant Group's Crossroads: Opportunities and Threats for the Digital Giant [2/2]

In the first part, we focused our analysis on the risks presented by competitors domestically. Here, we discuss other perils Ant Group is facing.  Challenges come from PayPal's competition and political issues Ant Group is expecting to invest 10% of the IPO offerings in the global business. But with it stepping into more regions globally, it is facing more international competitors and issues.  PayPal, the global counterpart of Alipay, has been deploying in the payment industry for over 20 years. Though it has been beaten by Alipay from the perspective of transaction scale and total users, it has certain advantages. Alipay mainly focuses on the Chinese population that it aims to help in overseas online shopping and international traveling. Within the 1 billion users globally, over 70% of them are in mainland China. PayPal, on the contrary, has a more balanced structure, with 43.86% of the users from the US, 17.61% from Germany, and 14.39% from the United Kingdom. Therefore, in exploring the overseas market, PayPal is indeed more competitive than Alipay, which might impede the latter's global development. What is more, Venmo and Xoom, PayPal's US-domestic and international P2P money transfer platforms, offer similar functions with Alipay. PayPal Credit, a consumer credit product that can be used on online shopping and personal transfer, also competes with Alipay over global users, especially in the powerhouses with the highest growths in mobile payment, like Vietnam and the Middle East.  As we can see, China's mobile payment market has almost reached its ceiling, which means the overseas market is one of the third-party payment agencies' development emphasizes. As WeChat Pay gains more recognition domestically, it is also a large competitor of Ant Group in deploying global payment services for the Chinese population.  Some other risks, such as geopolitical issues, will also influence Ant Group in taking its overseas business forward, stunting its investments and therefore putting the company at a disadvantage when competing with local players. One example is the failed acquisition of the US money transfer company, MoneyGram, after of the intervention of the US state to prevent it, as well as the timing consideration in matter of the capital raising for the Indian food delivery company, Zomato, after changed regulations on foreign investment.  Regulations are impeding its credit business Financial-related companies are always under the government's close surveillance. Although Ant Group repositioned itself as a technology company, it is still operating closely with financial services.  In 2019, the central bank of China released its 'FinTech Development Plan for 2019 to 2021' and stated that a standard system for payment QR codes would need to be addressed in years. The uniform standard will enable the merchants and individuals to each have their single codes despite the payment agencies, which means customers can choose third-party payment providers, like Alipay or WeChat Pay or even China Union Pay, by scanning that single code when purchasing. It is still unclear when the new project will be officially launched, but it is probable that significant negative effects will be put on Alipay and WeChat Pay as many currently unpopular payment methods may be welcomed in the future.  What is more, the state is keeping its eyes on the micro-credit market as it has high importance for the economy – but also high default risks. The Supreme People's Court cuts the higher limit of judicial protection for private borrowing rates in August of 2020, which is calculated as four times of the one-year Loan Prime Rate (LPR) every 20thof each month. Based on the LPR released on September 20 of 3.85%, the protection ceiling is addressed at 15.4%, which is significantly lower than 36%, the figure it used to be. Ant Cash Now (Chinese: 借呗), therefore became the most-affected product of Ant Group as its highest estimated annual interest rate can reach 23.73% – calculated from the daily limit base of 0.065%. This new regulation has no doubt dramatically affected the large number of non-banking agencies that are not yet to be reclassified as financial institutions. If Ant Group isn't recognized as a financial institution, its profitability will be significantly influenced.  And by the same logic, as Ant Group serves as the agent of selling financial services products, it is constrained by certain related regulations as well. As the state is still improving supervision, it is still unclear what new rules will be implemented on the company and how they will damage its business. Also, when regulation comes to the financial institutions that cooperate with Ant Group, the services of the company will be limited as well, especially for MYbank, the most important partner of Ant.  Financial institutions are getting more independent Financial institutions (FIs) themselves are raising their investment in fintech, which might weaken the dependence on the technology providers, such as Ant Group. The main sectors that Ant Group provides support to – areas like consumer finance, insurance and wealth management – have been increasingly funded.  FIs are spending money on cloud computing and big data that enable them to analyze the borrowers' credit performances, insurance situation, and the investment appetite. Along with AI, they can build intelligent risk management systems for supervision, and some innovative products can be developed, such as smart financial advisors and smart loan collection. Many of these are used to be the solutions provided by companies like Ant Group. As fintech becomes trendier among FIs, Ant Group is losing its advantages – it can only keep them if it stays at the top constantly. A dubious journey: The aggressive expansion In order to explore more fields, Ant Group announced that it would upgrade Alipay from a payment tool to a life platform, which was an unpredictable move for many observers. By teaming up with Ele.me, it is now taking on Meituan Dianping (03690:HK) within the digital life service area. In the prospectus, Ant Group also states that this is a “dubious journey with an unclear future to generate profits.” What is more, the company is aggressively investing and exploring new fields to build itself into a versatile fintech firm. Before all these developments are successfully transferred into mass products, risks abound. But Ant, as usual, looks set to continue to be a regular and powerful presence, no matter what.

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Sep 24, 2020 10:09 am · Sina

Ant-included Funds Sold 10 Billion in One Hour

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Analysis EO
Sep 22, 2020 08:10 am ·

Business Dissection of Ant: One-Seventh of Global Population Uses Alipay [2/2]

In the first part, we introduced Ant Group's digital payment services, here we discuss its digital financial service business.  Digital financial services Ant Group provides financial technology support to FIs and helps them to reach clients, including micro-credit companies, wealth management and insurance. The partners, including commercial banks, asset management companies, insurance companies, trusts, securities companies and other FIs, provide financial services to clients through the Alipay platform. The revenues are generated from the fees charged from the partners' interest income in credit services, assets under management (AUM) in wealth management services, and premiums in insurance services. The company also directly provides such services through its subsidiaries. The users on Alipay that used more than one kind of financial service reached 729 million by the end of the second quarter of 2020, whose figures of money spent have surged 10 times since 2015. Within the sector, wealth management and micro-credit lending services dominate the business.  Micro-credit platform  Ant Group cooperates with FIs to offer credit lending that targets unserved consumers and unbanked SMBs. The micro-credit platform provides FIs with innovative product developments, customer reaching and risk management. Now Ant Group is the largest online consumption and business credit service provider. During the LTM at the end of the second quarter of 2020, the company helped over 500 million individuals and 20 million small merchants through cooperation with over 100 banks.  Ant CreditPay (Chinese: 花呗) and Ant Cash Now (Chinese: 借呗) are the two main products that focus on individuals. The intelligent business decision model that can assess the credit performance of customers gives corresponding credit amounts to them immediately, which conveniences the customers, especially those with no credit cards, and helps them to build credit records. The credit given by Ant CreditPay can be used on applicable purchases both online and offline. The money cashed from Ant Cash Now can be withdrawn immediately after requests are issued to the Alipay account or bonded debit card.  MYbank is the most important partner of Ant Group in offering business lending services, as the latter is the originator of MYbank with 30% of the shares held. The company focuses more on the clients' reaching and some technology supports, MYbank runs the credit assessment system independently and prices credit products. Both of them also offer third-party FIs with credit assessment system building.    Now the sector accounts for the largest portion in the digital financial service sector, taking up 62% of the total revenue, and has been growing steadily. Wealth management platform  In 2013, Ant Group launched Yu'E Bao (Chinese: 余额宝), which is a basic asset management product for customers, and also the largest money market fund globally based on the AUM. What’s more, it cooperates with over 170 asset management companies to provide precise and varied products over 6000 different kinds to clients. In the twelve months through the end of June 2020, over 500 million users invested in the products through the Alipay platform.  In order to recommend most suitable products to clients and better supervise their accounts' risk situation, Ant Group developed an intelligent financial advisor to simplify the matching process between products and clients. Along with the AI and big data technologies, the company offers customized investment courses and market information, as well as risk alarms on accounts to help them manage their wealth better. Also, through the company's platform, asset managers directly communicate with clients.  Insurance platform Ant Group helps insurance companies to offer innovative insurance products with lower price barriers and easier application processes. Through the Alipay platform, customers can access over 2000 insurance products that cover life, health and property insurance, and also some new products such as a 'mutual plan' that enables the users to invest and help others in advance, just like insurance. In the twelve months through the end of June 2020, over 570 billion users were covered in insurance plans through Alipay, which are provided by both Ant Group and over 90 third-party insurance companies. 

Analysis EO
Analysis · 2
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Analysis EO
Sep 22, 2020 03:41 am ·

Business Dissection of Ant: One-Seventh of Global Population Uses Alipay [1/2]

Ant Group focuses its business on digital payments and financial services, which together make up over 99% of revenue.  The client base of the company includes almost all entities in society, including individual customers, merchants, companies and financial institutions.  Ant Group was established in 2004 when the e-commerce industry development was just getting started planetwide. The company launched the payment platform Alipay, which was developed to bridge the gap between customers and merchants. It is now the largest digital payment provider and the leading fintech platform in China, by total transaction volume. Helping to digitalize people's lives, Alipay is a platform that supports their most fundamental needs through an array of technological tools. Through Alipay, Ant Group provides: ►… consumers with a comprehensive menu, which includes financial services (digital payments, consumption loans, wealth management and insurance, among others) and daily life services, such as food delivery, traveling, and entertainment.  ►…merchants with payments services and financial services, such as credit lending to small businesses, the wealth management products. The mini apps embedded in the Alipay platform help merchants to reach more customers and link their offline and online services. ►…companies with intelligent business solutions on asset management, decision making and technology infrastructure construction.  ►…financial institutions (FIs) with technical support. They can reach more customers and even cooperate with each other through the Alipay platform, which supports both FIs and customers. By the end of the first half of 2020, the operation results of Ant Group showed that Alipay is not only a payment tool but an entire infrastructure layer embedded in people's daily lives now. The synergies of combining the payments and financial services on one platform are showing up.   Digital Payments  Ant Group provides payment services on commercial transactions, financial transactions and personal transactions. Through the Alipay app, payments can be processed among individuals and merchants, as well as financial institutions, and the service fees are charged from every payment. What is more, Ant Group also generates revenue by helping the merchants with the development of their unique mini programs. The app has gathered over 100 million users and 8,000 merchants globally. In the twelve months through the end of June 2020, it completed over CNY 118 trillion in transactions. Transaction services Transactions can be made through four tools that are divided by five types of accounts, as shown below. The payment scenarios include commercial, credit payment, transfers between individuals and other financial transactions. The independent-developed technologies support the platform to operate under large-scale and frequent transactions with the payment loss rate lower than 0.6 of billions, which ranked first in the global payment providers with a transaction scale larger than USD 500 billion.  Merchant services At the end of the first half of 2020, there were over 2 million mini programs on the Alipay platform. These give merchants access to techniques for attracting new customers and offering services, and binds the two sides closer. Through Alipay, the merchants can manage their customers and therefore develop strategies to maintain activity. Customers can easily order food on Alipay in advance and merchants can offer discount coupons through mini programs. What is more, the credit rating product, Zhima Credit (Chinese: 芝麻信用), which is similar to the FICO score in the US, enables the merchants such as hotels and car renting companies to access to users' credit performances and therefore waive the deposit in advance if applicable.  Cross-border services Though the main digital payment businesses are centering in mainland China, Ant Group is also promoting linkages between merchants and customers, banks and small to medium businesses (SMBs) in over 200 countries.  The services are provided through the cooperation between Ant Group and the local acquirer, banks, digital wallets and Independent Software Vendors (ISV). In the twelve months through the end of June 2020, the company had dealt with over CNY 622 billion transactions outside of China. Customers can easily purchase products both online and offline and exchange currency in other regions through Alipay. Also, Ant Group offers payment solutions to global merchants, such as AliExpress, a cross-border B2C online shopping platform, and Lazada, a large e-commerce platform in Southeast Asia.  (This is the first part of the series article. In the next part, we will discuss the digital financial service business of Ant Group.)

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Sep 16, 2020 09:36 pm · Sina

Ant Group Seeks Technology Analyst to Cover IPO Reports

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Ant Group Joins the Listing Committee Review

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Alibaba's DingTalk Re-Structures, CEO Leaves

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AI Unicorn Megvii to Resume IPO and Consider Dual Listing

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