“Small is beautiful, small is powerful“
– Jack Ma
I had heard about Ant Financial before coming to Alibaba. I knew Ant managed one of the world’s largest payment applications, Alipay, and I knew it powered Alibaba’s e-commerce platforms. When I arrived in Hangzhou, I was excited to learn more about how Alibaba brings technology to bear in financial services. And that’s exactly what I did with 31 other AGLA Associates when we spent a day visiting the Ant Financial offices in downtown Hangzhou. Here I have summarized what we learned while speaking to senior leaders at Ant Financial.
AGLA members learning intently about Ant Financial’s business
Started in 2004 by a Taobao engineer with no financial services experience, Alipay was originally founded to solve a problem on Taobao, namely that buyers and sellers did not trust each other and hence transactions didn’t happen. To solve the problem, Alipay was created to hold the buyer’s funds in escrow until he or she confirmed satisfaction with the product, at which point, the funds would be transferred to the seller. Ant Financial was spun off from the entire Alibaba operation to avoid it becoming a pure support business and to allow it to focus on providing services and products to its users. Based on the range of products now available to users of the Alipay application, I would say this has been highly successful. Below I will outline some of the products and services that can now be accessed through the Alipay app.
The Alipay App
First and foremost, there is Alipay itself. Alipay is the core product of Ant Financial and allows users to pay merchants both online and offline, around China and abroad. Alipay also allows users to transfer money to each other, split bills, pay for utilities, mobile phone top ups and a host of other services within the app. In certain cities, including Hangzhou, there is no need to carry a wallet or cash since all daily expenditures can be carried out through the app. It is estimated that Alipay now processes over 200m transactions a day, although the majority have a small ticket size, representing the typical user base of Alipay as being Chinese consumers and SMEs.
Secondly, there is Zhima Credit. A credit scoring system akin to Experian or Transunion. Ant Financial uses data collected from Alipay user and their behavior in the app, to calculate a credit score ranging from 350 to 950. The score can be used, for example, to avoid deposits at hotels or to access credit. My score is currently a measly 564, meaning I will be paying hotel deposits for some time to come.
Thirdly, there is Yu’E Bao or leftover treasure, an online investment platform that now hosts the largest money market fund in China. Yu’E Bao allows Alipay users to invest their leftover money into a range of money market and mutual funds. Within one year of its inception, Ye’E Bao became the third largest money market fund in the world. It is estimated that Yu’E Bao has over 250m users with many coming from communities that were traditionally underserved by the financial system, such as rural China and young people. Other wealth management products are available, such as fixed income investments, and crowdfunded investments.
Fourthly, there is a lending business that has disbursed over RMB 781bn to SME borrowers, including RMB 170bn to rural businesses. The lending business also allows consumers to access either a term loan or a revolving credit facility, similar to a credit card. The key idea of the lending business is to simplify the credit application process and provide credit to consumers and small businesses who previously may not have had such access. Combined with the Zhima Credit scoring system and big data collected from Alipay, Ant is able to more effectively allocate credit and also reduce fraud, a big concern in China. The current fraud loss is only 0.1 basis points. Ant Financial also lends directly to consumers, either through a term loan or through a revolving facility similar to a credit card.
Finally, I would like to talk a little about Ant Financial’s international business, the reason why we are here. One form of the international business is to serve Chinese travelers abroad. This can be seen in recent partnerships that allow Chinese shoppers to use Alipay in major international retailers, such as Harrods. I recently used Alipay to pay for flights on Qatar Airlines. Added to this strategy, Ant partners with overseas payment wallets, such as PayTM in India and Ascend Money in Thailand, to provide mobile payment solutions in those markets. Finally, Ant Financial supports cross border transactions on Alibaba’s e-commerce platforms, such as Aliexpress and TMall. The scale of these opportunities mean that internationalization is one of Ant Financial’s critical strategies as it seeks to serve 2bn consumers globally.
The AGLA group and senior Ant Financial staff
A proud Yorkshireman, Gary is currently immersing himself in Chinese language, history and culture. An avid reader, traveler and tea drinker, he is passionate about the taking the opportunities provided by Alibaba’s businesses to serve people around the world.