Coming from 2011 from Chinese giant Alibaba Group Holding Ltd., the company defined and dominated the Chinese payments market through its ubiquitous Alipay app. It also manages the giant Yu’ebao money market fund and the Huabei and Jiebei consumer credit units.
Based in Hangzhou, a sprawling metropolis south of Shanghai, its ambitions go far beyond mere finance. Here is an overview of the business units and the challenges the company faces.
Alipay: a $ 17 trillion machine
The world‘s largest digital payment platform was established in 2004 as an escrow service for Alibaba to secure transactions on the e-commerce site. For consumers concerned with online payments, the service was a success and quickly spread to other platforms.
The mobile version, launched in 2009, once held 75% of the market, but has seen its share drop to around 55% in competition with WeChat Pay from Tencent Holdings Ltd.
Alipay has 711 million active users, mostly in China, who use it to buy everything from fast coffee to even property, generating $ 17 trillion in payments in the 12 months through June. But he’s also becoming less and less important to Ant and contributed 36% of his revenue in the first half of this year, up from over 50% just two years ago.
Losing ground in the payments market was one of the reasons Ant had canceled a previous IPO plan as early as 2017, people familiar with the time said. It is now a much more diverse business.
Huabei and Jiebei: a loan feast
For those who don’t have cash to spend through Alipay, Ant offers services that distribute small unsecured loans: Huabei (Just Spend) and Jiebei (Just Lend). The former focuses on quick consumer loans for purchasing iPhones and refrigerators, while the latter funds everything from travel to education.
Ant uses some of its capital for these loans, but most of the money comes from banks, with the company acting as a gateway. The platforms made loans to around 500 million people in the 12 months through June, charging annualized rates on its small loans of around 15%. Their loans could reach nearly 2 trillion yuan by 2021, according to Goldman Sachs Group Inc.
The Company’s CreditTech business, which includes Huabei and Jiebei, is its main revenue generator, accounting for 39% of the total in the first six months of the year.
The company is currently seeking a license to create a consumer finance company. The new entity would strengthen Ant’s lending capacity since consumer credit companies are allowed to lend 10 times their capital, far exceeding the leverage two to three times the existing micro-credit companies of Ant.
Yu’ebao: the great reserve
With hundreds of millions of people flocking to Alipay, Ant set up a money market fund in 2013 that allowed people to earn interest on the money they parked in the app, investing as little as 1 yuan. The Tianhong Yu’e Bao money market fund is one of the largest in the world with assets of approximately $ 173 billion. But it passed from its peak after regulators stepped in to limit the amount each investor could invest in the fund.
In 2018, Ant opened the platform to third parties. It now offers fund options from over 20 asset managers. He’s partnered with companies like Invesco Ltd., which saw a fund grow 300 to 400 times its size in March. This year, Ant teamed up with Vanguard Group to offer a robotics advisor to help the American giant move forward in China.
The unit Yu’ebao is part of in Ant accounted for 15% of sales this year, which is roughly unchanged over the past three years.
Taking advantage of the large amount of data he gleaned on spending and lending habits, Ant launched a credit scoring service in 2015 called Zhima Credit. If users opt for the service, Ant checks transaction history and also uses data from third-party providers to check creditworthiness. Ant charges a fee to companies that use the service, and if customers score high enough, they can avoid paying deposits on everything from renting a bike to booking a room at hotels like Marriott. .
Xianghubao: insurance for cents
Many ants form a powerful colony. In 2019, the company entered the insurance market, creating a healthcare product called Xianghubao that allows people to pay a small monthly fee that is pooled to help cover the costs of treating affected members. diseases such as cancer, Alzheimer’s disease and even Ebola.
Ant’s Insuretech’s unit also sells insurance premiums to third party companies, and this requires a reduction. The unit’s revenue increased 47% to 6 billion yuan in the first half, accounting for 8% of total revenue.
Ant had big plans for the United States, but these have now been put on hold due to increased trade and political tensions between the two world superpowers. Ma in 2018 reneged on his promise to create 1 million jobs in the United States.
Instead, Ant has focused his offshore ambitions on strengthening his presence in the rest of Asia, where he works with nine payments startups, including the owners of Paytm in India and GCash in the Philippines, targeting billions. of people. It is also looking to get more overseas merchants to use Alipay, so its Chinese customers can use it on their travels.
Jack Ma transferred Alipay from Alibaba to a company he controlled in 2011, citing the risks of having a foreign stake in the highly sensitive payment systems industry due to its impact on financial stability and data collection . Yahoo! Inc. and SoftBank Corp. owned the majority of Alibaba at the time. Yahoo challenged the move and before Alibaba’s record $ 25 billion IPO in 2014, the companies struck a deal that gave Alibaba a share of Ant’s profits.
That deal was terminated when Alibaba bought a 33% stake in Ant in 2018. Ant now has other foreign investors, including Warburg Pincus LLC, Carlyle Group Inc., and Silver Lake Management LLC.
Ant closed its Zhao Cai Bao platform after Cosun Group, a Chinese telecommunications company in Guangdong province, defaulted on the bonds sold through the platform. When Zhao Cai Bao was founded, the vision was to create a platform for small businesses and individuals to borrow directly from investors.
Ant’s rise and dominance over the Chinese financial landscape has not gone unnoticed by the country’s regulators. One imminent threat is the creation by the Chinese central bank of a digital yuan, which is part of a campaign to control the stability of its payments system. Ant has been subject to regular review by authorities, looking at everything from its escrow service to loan risk.
Ant has warned in its prospectus that rising trade tensions between the United States and China could threaten its business as it prepares for the IPO. If the United States imposed certain sanctions, it could affect Ant’s business in Southeast Asia and India, for example.
In 2018, Ant’s attempt to acquire MoneyGram International Inc., a US-based money transfer company, failed. A change in the regulation of foreign investment in India prompted it this year to halt further investments in Zomato, a restaurant aggregator and food delivery start-up.
Who owns the ant?
The IPO is expected to make a lot of people very wealthy and Jack Ma even richer. He holds 50.52% of the voting rights in Ant, through his control over the shares held by Hangzhou Junhan and Hangzhou Junao. Ma said he intends to reduce his economic interest in Ant to no more than 8.8% in the future and also donate 611 million shares to charity.
Other people who want to bundle up include Ant chairman Eric Jing and 17 other current and former executives from Alibaba and Ant will join the billionaire ranks.
But the full scope of those who support Ant is unclear, as Junhan and Junao do not disclose inclusive lists of people who receive economic interest through direct actions or proxy contracts.