Chris Skinner was invited to join Alibaba’s annual Netrepeneurs conference in Hangzhou, China, for star sellers on Alibaba’s Taobao platform. He reports on Ant Financial, the Alibaba spin-off that operates mobile payments app Alipay.

Ant Financial

As Americans struggle with the pains of chip and PIN and Europeans embrace contactless payments, China has leap-frogged everyone when it comes to digital payments. In 2016, Chinese consumers spent $5500bn through their mobile apps. That is more than any other economy, and many predict that China will be first major economy to be completely cashless.

The chosen mobile payment system for most Chinese citizens is Alipay, and Ant Financial, the company than runs it. The firm has recently started to expand its footprint globally. So where is it going next?

Ambitious plans

Many in the West will have heard of Alipay, but it is not the Chinese version of PayPal, as is commonly perceived. In fact, the company bears no relationship or resemblance to anything seen in Europe or North America. It is distinctly Chinese and, having been born out of a need to trade, is now moving towards global dominance. Few would have imagined this a few years ago, and yet Alipay’s ambitions are immense, as are those of its spin-off Ant Financial. As Eric Jing, the CEO of Ant Financial, announced at Davos in January, its ambition is to reach 2 billion consumers by 2025. That is some ambition for a firm that began as an offspring of Alibaba in 2003.

Back then, Alibaba had just launched Taobao, an online platform to enable small businesses to sell their goods direct to consumers in China. Taobao was essentially a mixture of eBay and Amazon. However, there were greater trust issues to overcome in China than there were in the US. It meant very few people were willing to order anything online as they did not believe they would receive it. Equally, the sellers would not send anything to a buyer until they had their money.

The problem was solved by telling sellers to fax their orders to Alibaba’s offices, and Alibaba would take the money in escrow. This meant that sellers could trust they would get the money, so they would send the goods. Buyers knew that their money was being held safely until they told Alibaba it was ok to pay. Somehow this system worked. Taobao’s sales grew steadily in spite of the fax escrow service, and Alipay was launched. No one has looked back since.

This system, with its fax machines and reliance upon Alibaba setting up links with the banks to transmit the monies manually, was archaic. Yet today Alipay monitors every transaction from its 450 million users in real-time with artificial intelligence monitors constantly searching for potentially fraudulent transactions. However, the company has refreshed its systems architecture four times in the past 12 years and has just embarked on another refresh.

Alipay has moved from basic escrow services to real-time payments to cloud to microservices, and is now working on new machine learning and a super intelligent structure. This structure can process 120,000 transactions per second and is being designed to scale to more than 10 billion transactions per day when needed. To put that in perspective, Visa and MasterCard handle just over 60 billion transactions per year combined, and average near 2000 transactions per second.

This is some operation, as it is new and designed totally for customer need. There is no traditional payment or bank thinking in Alipay and Ant Financial, just a technology firm that wants to enable the best customer experience.

Putting the customer first

Customer experience is a key part of Alibaba and Ant Financial's thinking. For example, Western media is very excited about Ant Financial’s money market fund called Yu’e Bao (Hidden Treasure). This is because it is the biggest money market fund in the world, exceeding $165bn in assets under management in February, to race past JPMorgan’s US government money market fund, which has $150bn of assets under management and was previously the largest global fund of its kind.

However, Yu’e Bao is not really a money market fund. It is a method for consumers to store a balance to spend on Taobao, and earn some interest. It is also a micro savings tool in a mobile wallet that gives rural Chinese consumers a place to save their renminbi. Most of these people had previously found accessing banks inconvenient, as there were none present in their village, meaning there were few options to accrue interest on their idle funds.

Financial inclusion is a critical part of Alibaba and Ant Financial’s story. Most of their customers are tiny businesses that can now sell across the world. Most of their Taobao entrepreneurs are young people with bright ideas, who can go from selling a few items online to becoming a megastore with the right levels imagination and application. All this in an economy that just 20 years ago required bank tellers to take a proficiency test in using an abacus before they got the job. 

A bank threat?

But does Alipay threaten the Chinese banks? The general feeling is 'not really' as there is some overlap but its customers are not the traditional customers of banks. They are the unbanked and underbanked. This is why Ant Financial is now stretching its muscles overseas, with a wave of impressive joint ventures, investments and agreements over the past year. Ant is the majority shareholder of Paytm in India, serving 235 million citizens today with an ambition to double that by 2020.

Ant also acquired Lazada’s payment service, called Hellopay, in Singapore in April 2017. Lazada is the Amazon of south-east Asia, serving Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. A deal between Ant and Ascend Money in Thailand was agreed in November 2016, rapidly followed by a partnership with Globe Telecom’s GCash in Indonesia and Mynt in the Philippines in February 2017.

Meanwhile, Alipay has signed deals with Ingenico, Wirecard and a series of other acquirers to allow their customers to use its mobile app in Europe, and has signed a similar deal in the US with First Data. Finally, there has been a big scramble to acquire MoneyGram, the global remittance service provider, which spawned a head-to-head battle with Euronet.

From the top

Alibaba’s flamboyant chairman, Jack Ma, understands the technology platform revolution that has seen the rise of the likes of Uber, Airbnb and Facebook, which sees the largest taxi firm in the world own no cars, the largest hotel group own no hotels and the largest content firm create no content. This is because Uber, Airbnb and Facebook provide the platform that connects those with cars to passengers, those with rooms to tourists and those with stories to friends. This is what Alibaba is doing to commerce and Ant Financial to money. Alibaba does not do commerce; it just provides the platform.

In an interview at the annual Netrepeneurs conference in Hangzhou, Jack Ma said the following: “Management. The word is there for regular companies. At Alibaba, we treat it more like governing an economy, as we have to manage so many companies dependent upon us as partners. Any small and medium-sized enterprise with an idea now has a way to realise that idea. Alibaba marketplace can find you buyers and sellers; we can provide you with computing through cloud; we can distribute and deliver your products. By 2036 we will have built an economy that can support 100 million businesses for billions of users. We won’t own that economy. We will just govern it.”

He went on to talk about the idea that things being 'Made in China' or 'Made in India' will soon become redundant, as there are just things that are 'Made Internet'. Everything will be digitally distributed and managed, with a few key platforms providing the services. Alibaba and Ant Financial will be those key platforms for money and commerce across the world, not just in China.

Ant Financial does not intend to create and launch services everywhere in the world; it wants to take their experiences globally and partner locally to share that knowledge and their technologies. It does not impose an Ant Financial way of doing things on its partners in India and elsewhere in Asia, but offers access to all of their technologies and services to those third parties, to get them up and running quicker.

That is what a platform player does, and it strikes at the heart of the comment from Mr Ma about Alibaba having a complex network of companies that it manages as an economy. It is not a company. It is an ecosystem. It is also a fascinating firm to watch that is already the largest payment processor in the world by volume and, if it gets its 2 billion users by 2025, may well be by value too.

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