One Fintech Company to rule them all

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I bet very few people have heard of Ant Financial Services Group. I guarantee everyone in the financial services industry should know about Ant. Ant has recently been valued at a piddly $45 billion. How can a company few know, that is not a household name, be valued at such a astronomical level? Easy answer in one word: Alibaba – read this.

Alibaba spun Ant as its fintech arm and Ant started operating Alipay, one of Alibab’s crown jewels focused on payment processing. Alipay processes over two thirds of all payments transactions generated from Alibaba’s e-commerce platforms and marketplaces – Alibaba sports hundreds of millions of users as well as millions of companies as its clients. A nice little niche market to start with.

Wait, that is not all. Ant is now expanding its fintech activities. It added a money market mutual fund business, Yu’ebao, in 2014 – that sold to all Alibaba users – a credit scoring company called Sesame in 2015 – which mines user data from all Alibaba sites and provides cues on consumers behaviors – has started a lending arm to both consumers and SMBs in 2015 – helped in no small part by transactional data from Alipay, credit scoring output from Sesame and behavioral data from all users. For futuristic views on Alibaba’s lending prowess read one of my previous posts here. Wait, that is not all: Chinese banking regulators have just given Ant the green light to start a licensed bank, a digital one.

Payments +lending +banking + investments + hundreds of millions of consumers + millions of companies + a total addressable market that is huge and growing = the Fintech company to rule them all.

Arguably Alibaba is mostly a Chinese company and Ant can only thrive where Alibaba is operating. Only to a point at this stage I think. First Alibaba has started expanding outside of China. Second, as some aspects of fintech benefit from size and network effects, as Ant matures, learns from operating ever more complex products and services in China, it will over time be more active and influential in other jurisdictions. More data, more transactions, more capital, more processing, more lending, more users.  All that “more” translates into something else which we in the Western world cannot quite grasp yet.

But wait, there is more – yes I know I am being repetitive. What Alibaba does, Tencent does too as a fast follower. Double the fun or double the trouble depending on your point of view…

At this stage several questions pop in my mind:

1) Can other fintech companies compete against Alibaba/Ant? How?
2) How does one take advantage and benefit from Alibaba/Ant’s growth?

1) It is difficult to compete against size and velocity of such magnitude. Delivering consumer experience excellence rooted in specific consumer behaviors and cultural traits can be a strong differentiating vector. Going for size, enabled by technology is another valid competitive vector: Amazon + Facebook or Google + eBay are more effective competitor vs Alibaba than Amazon or Google alone for example. For such combinations to happen antitrust regulators would need to bring an open mind to the table. Expanding into financial services and products is another viable option which is why I am not surprised with the early moves of US tech giants into p2p payments, lending, credit (with a friendly regulator they could push the boundaries faster and farther but I doubt this will happen). Regulatory protection is an effective defensive tool too. The Chinese regulators want to shake the stodgy Chinese financial services sector which is why they have been so friendly to Alibaba. It is doubtful European or US regulators would be as friendly to a Chinese operator – there is a limit to free markets ideology.

2) Were I to take advantage of Ant’s might I would study what it does, find the gaps and offer products or technology to fill said gaps. Alibaba needs richer credit scoring technology? What about know-how and technology to underwrite insurance products? What about more sophisticated investment products or broker/dealer capabilities which would complement nicely the current money market mutual fund offering. I bet there are literally hundreds of applications Ant and its parent Alibaba will be interested in. If you have found one gap build the app. If you have already build the app, prove its usefulness. If you have proved its usefulness, call your friendly banker – make sure he does business in China and knows Alibaba – and you are in business.

Rumors are Ant will IPO soon, when I have no clue. I strongly believe we are in the early innings of Ant’s build up and as such we will witness many more product or service launch announcements and also heavy acquisition and partnership activity.

Exciting times for sure, unless you do not believe Ant can be a dominant force in financial services on the global stage. Care to share your thoughts?

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Pascal Bouvier

Life and work experiences have given Pascal an unmatched vantage point, seeing things as both venture capitalist and aspiring entrepreneur. He currently is a Venture Partner with Santander Innoventures – Santander Group’s Global Fintech fund.

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