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Understanding Ant's Business

Have been looking at Ant’s business and its evolution to get some perspective on mobile money business. Here are few notes.


  • Ant's Alipay took advantage of banks' inefficiency in penetrating large section of retail and small businesses market.
  • The company started as a trusted payment option for shoppers and merchants of Alibaba. It worked as an escrow account, transferring money to sellers after buyers had received their products.
  • Later Alipay app was launched, introduced QR code for payments.
  • Alipay earns ~0.1% per transaction which is less than what banks earn on debit-card swipes. The company plays the volume game here. But the growth in payment business is slowing.
  • Because of Alipay's sheer volume in payment business, it found advantage of key resource "DATA" to drive its other businesses.
  • Alipay app started as mere payment app but expanded its branches to different segments namely credit, asset management and insurance.
  • Recently its credit wing overtook its payment business. 

Ant Taking over Consumer Loan Market

  • Alipay began consumer lending in 2014. Soon it captured 15% share of China's consumer lending market.
  • Initially, it made the loans and then packaged them as securities, sold to other financial institutions. Regulators imposed restriction on the securitization.
  • Later, Alipay changed its credit business model. It now identifies and assesses borrowers, but passes them on to banks which extend the loans. Alipay collects a technology service fee.
  • More importantly, Alipay takes cut of as much as 40% of loan interest by taking almost no credit risk. Only 2% of the loans Ant had facilitated as of June 2020 were on its balance sheet.
  • Credit is Alipay's most profitable business.  
  • Alipay gave banks access to small businesses that otherwise would have been a costly operation if banks did it by themselves. Credit scoring through daily flow of funds at Alipay and purchase history in Alibaba also provided banks respite from costly credit risk grading process. Such analytical advantage helped Alipay secure a good bargain in this arrangement. Average Annualized lending rate from Alipay platform is ~11% for small business which is lower than small loan companies but higher than formal banking channel which is ~6%.

Third and Fourth Leg of the Ant

  • Ant's third and fourth revenue stream is its asset management and insurance business.
  • Third Leg (Asset Management): Merchants or shoppers with cash in Alipay could get small return by parking it in a money market fund. Later Ant broadened its offerings turning it into China's most powerful distribution channels for investments.
  • Fourth Leg (Insurance): Partnering with insurance firms, Ant is collecting fees as a distribution platform.

Regulatory Landscape

  • Ant has been facing regulatory hurdles as the regulators deem such dominance of Ant threatening.
  • Recent suspension of Ant Group's IPO is one of them.
  • Prior to the IPO, China’s top financial regulators published a consultation paper to require online lenders to provide at least 30% of any loan they fund jointly with banks, making it more difficult for Ant to lend money.
Alipay is indispensable in China. However, recent suspension of its IPO and antitrust investigation into Alibaba brought new regulatory challenges for the company. 

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