“Small is beautiful, small is powerful” – Jack Ma
Ant Financial manages one of the world’s largest payment applications – Alipay. It powers Alibaba’s e-commerce platforms.
AGLA members learning intently about Ant Financial’s business
Alipay – created in 2004 by a Taobao engineer whom had no financial services experience, Alipay was founded to solve a problem specific to Taobao. Whereby buyers and sellers did not make transactions with each other as there was distrust between both parties. To solve this, the buyer’s funds would be held in escrow by Alipay. When the buyer has confirmed satisfaction with the product, the funds would be transferred to the seller. Ant Financial was spun off from Alibaba’s operations in order to avoid becoming a pure support business, allowing it to concentrate on providing services and products to its users. Today, the range of products and services that are available to users of the Alipay application makes it highly successful. Below are some examples that can be accessed through the application.
The Alipay Application
The Alipay application is the core product of Ant Financial and it allows users to pay merchants regardless whether they are online, offline, in China or overseas. It also allows users to send money to one another, split bills, pay for utilities and top up prepaid mobile phone plans. There are many more other services within the application. In some cities such as Hangzhou, carrying cash and a wallet around is now a thing of the past as all the daily expenditures can be done through the application. Alipay today processes over an estimated two hundred million transactions a day. A majority of these transactions have a small ticket size – representing Alipay’s user base which largely consists of Chinese consumers and Small Medium Enterprises (SME).
Next, they have Zhima Credit. Zhima Credit is a credit scoring system similar to Transunion or Experian. Using data collected from the Alipay user about their behaviour on the application, a credit score between 350 and 950 is calculated. This score can later be used to avoid deposits at hotels or to access credit, for example. A score of 564 may mean that the user will have to continue paying hotel deposits for time to come.
An online investment platform called Yu’E Bao – or leftover treasure that now hosts the largest money market fund in China. Alipay users can invest their leftover money into a host of money market and mutual funds. Yu’E Bao became the third largest money market fund in the world within a year of its inception and it is estimated that they have over two hundred and fifty million users – many of which come from communities that were traditionally underserved by the financial system like young people and rural parts of China, for example. Yu’E Bao also offers other wealth management products like income investments and crowdfunded investments.
Ant Financial’s Lending Business
In addition, a lending business that has disbursed over RMB781 billion to SME borrowers – of which RMB170 billion are disbursed to rural businesses allows consumers to access a term loan or a revolving credit facility, similar to a credit card. The main idea of this lending business is to simplify the credit application process and give access to credit to consumers and small businesses that previously had no access to credit. Using data from Alipay and the Zhima Credit scoring system, Ant Financial is able to allocate credit more effectively and avoid fraud – which is a big concern in China. Currently, the fraud loss is only 0.1 basis points. Ant Financial also lends directly to consumers through a term loan or revolving facility similar to a credit card.
Ant Financial’s International Business
Ant Financial also has an international business. One of its functions is to serve Chinese travellers abroad. An example of this can be seen with partnerships with major international retailers to allow Chinese shoppers to use Alipay. Qatar airways accepts payment for flights using Alipay. Furthermore, Ant also partners with overseas payment wallets such as Ascend Money in Thailand and PayTM in India to provide mobile payment solutions in those markets. Ant Financial also accepts cross border transactions on Alibaba’s e-commerce platforms like Aliexpress and TMall. Internationalization is one of Ant Financial’s key strategies as it seeks to serve 2 billion consumers globally.