Back in university, I often heard from my Chinese classmates about how fintech and online payments were rapidly transforming the Chinese payment industry. Wanting to experience this first-hand, I travelled from Hong Kong to Shenzhen to meet a few ex-classmates while on vacation in 2017.
In Shenzhen, I observed and experienced how easy it was to make payments by scanning the QR code with a smartphone. I was amazed that even street food vendors and the mom and pop shops in Shenzhen accepted cashless payment such as Alipay.
Fun Fact: Ant Group is one of the contenders for the wholesale digital banking license in Singapore. It was also amongst the 8 licensees granted a digital bank license in Hong Kong! 
Ant Group runs Alipay, one of China’s most popular mobile payment apps. Did you know that Ant Group does more than just mobile payments? It is an entire giant Fintech ecosystem that could be potentially valued between $150-$200 Billion USD. 
Ant Group is looking for a dual listing IPO in Shanghai and Hong Kong. Alibaba has a 33% stake in Ant Group. This article will examine the history, development, and business model of Ant Group, after which, we will analyse this Fintech behemoth, and find out how we can subscribe to Ant Group.
Origin of Ant Group – Alipay
4 April 1999, Founder of Alibaba Jack Ma, and his team gathered and founded Alibaba.com in Jack Ma’s Hangzhou apartment. Their intention was to create an e-commerce platform that could help Chinese small medium enterprises export their products to the global markets.
However, in the early 2000s, e-commerce was still in its infancy stage in China. Buyers and sellers doubted the credibility of each other. To solve this problem, Alibaba invented Alipay which started off as the payment intermediary for Taobao, a China online shopping website and subsidiary of Alibaba.
Once Alipay received the purchase amount from a buyer, it would instruct the seller to ship the goods. After receiving confirmation of a successful delivery to the buyer, Alipay would release the funds to the seller. Much like PayPal, Alipay gets a processing fee for acting as an intermediary.
Alipay helped solve these trust issues in China and was the main contributor for e-commerce growth in China. Figure 1 shows the growth of online shoppers in China YOY.
Given Alipay’s initial staggering success as a payment intermediary service for Taobao.com, it was able to expand its ecosystem by accepting offline partnering stores to accept payments via Alipay Wallet. Due to its accessibility and convenience, Alipay attracted 200,000 offline partnering stores and 500,000 taxi partners. By 2016, Alipay had 450 million verified users with mobile payment accounting for 71% of total payments.
According to Analysys, as of 1Q 2020, Alipay contributed 54.9% of China’s total digital payments market. Tencent Financial Technology ranked second on the list.
Ant Group’s Business Model
Ant Group is more than just an online payment service. It is an entire giant Fintech ecosystem! Besides online payment services, Ant Group offers services such as microfinancing, peer to peer lending, credit scoring, wealth management and even insurance.
Table 1 presents the breakdown of Ant Group’s business model.
As mentioned above, Alipay was originally created to solve e-commerce trust-related issues. It soon expanded its ecosystem to include other services. In June 2013, Alipay officially published its Wealth Management arm, Yu’ebao. Yu’ebao lowered the investment amount criteria for the general public. One could start from one yuan and may withdraw anytime. Yu’ebao, promoted China’s Money Market Fund to the general public. Now, it has become the biggest money market fund in China with 4.1 trillion yuan AUM. This strategic change transformed Alipay from a mere payment tool to a financial platform.
In October 2014, Ant Financial was founded together with Alipay, which was then already independent from Alibaba. Besides Alipay and Yu’ebao, Ant Finance also launched Yulibao, Mybank and a series of financial products including loans, funds and insurance.
In June 2020, Ant Financial officially changed its name to Ant Group, indicating Ant Group’s future direction. Instead of focusing on retail finance products, Ant Group started to expand its outreach towards B2B offering financial inclusion services and fintech solutions.
Analysis of Ant Group
Due to the complexity of Ant Group’s business model, it would be ideal to break down their revenue, Gross Profit and EBITDA margins by business segment and see how each of them synergises with the entire ecosystem. Compare these margins with the company’s users and transactional volume. Determine their main revenue and margin drivers. Do these drivers of earnings and margins mainly come from growth in users, growth in transactional frequency or size of transactions?
For Fintech companies, one of the most crucial metrics to track is their customer acquisition costs. Start by analysing and comparing their marketing and promotional strategies to their customer acquisition costs. Compare these metrics with their peers in the same industry.
Additionally, track the mobile penetration rates and the type of peer to peer (p2p) lending/ financing demographics of the region that the Fintech company is operating in. For the Fintech company’s lending/financing services, analyse whether the company is competing against its traditional competitors (banks and payment services) or serving a demographic that was ignored by traditional Banks.
Lastly, compare the deposit rates of the regional banks to the Fintech company and understand how conventional banking regulations will affect their revenue streams. Ant Group’s money market fund Yu’e Bao had about $173 billion yuan in assets. However, Chinese regulators stepped in and limited how much money each investor could put in the fund. 
A company’s future growth is a function of its return on invested capital and the rate of reinvestment. Therefore, after analysing the metrics above, move on to analyse their capital expenditures and working capital. This will give you an indication about how much cash they are able to retain in their business. After which, track their merger and acquisition records. For each investment, analyse how much shareholder value was created via these acquisitions.
Potential Future Risks
Without a doubt, Fintech has challenged conventional business models, services and products in the Banking and Finance industry. In China, the financial industry has always been strictly regulated by the People’s Bank of China and three sector-based regulators; CBRC, China Securities Regulatory Commission and China Insurance Regulatory Commission. 
The Chinese Central bank has also expressed its intention to launch the Digital Yuan. As mentioned above, Ant Group’s money market fund Yu’e Bao had about $173 billion yuan in assets. However, Chinese regulators stepped in and limited how much money each investor could put in the fund.  How will all these regulations and structural changes in the banking industry impact the Fintech Giants? Will they be frenemies of the traditional ecosystem or will they complement one another? Only time will tell.
Another potential risk would be the current global tensions. In Ant Group’s prospectus, it warned about how rising political tensions could affect Ant Group’s businesses in the United States, India and Southeast Asia.
The rise of Fintech giants reminds me of the conglomerates of the yesteryears. They started off with a single business entity and then expanded their ecosystem to other segments which they could synergistically integrate. Ant Group started off with Alipay, whilst Square Inc started off by providing payment solutions for Mom and Pop businesses and both grew its ecosystem to synergistically integrate credit solutions, banking solutions and potentially cryptocurrency payments via their cash app platforms.
The future seems bright for these Fintech giants. However, it is also crucial to manage risks and understand the various challenges that these Fintech giants will face going forward.
Till next time folks!
-  https://fintechnews.sg/35820/virtual-banking/digital-bank-singapore-list-applicant/
-  https://www.cnbc.com/2020/07/21/alibaba-ant-group-ipo-hong-kong-shanghai-explained.html
-  https://www.statista.com/statistics/277391/number-of-online-buyers-in-china/
-  https://www.fomopay.com/2017/07/10/alipay-versus-wechat-pay-a-battle-between-chinese-payment-giants/
-  https://www1.hkexnews.hk/app/sehk/2020/102484/documents/sehk20082500535.pdf
-  http://www.xinhuanet.com/finance/2018-06/28/c_1123047049.htm
-  https://www.investopedia.com/articles/economics/11/chinese-banking-system.asp
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