Ant Group: What is behind the success of the most valuable FinTech in the world?

27

September

2020

5/5 (1)

The Chinese FinTech Ant Group has been in the headlines lately due to its IPO filing in the Shanghai and Hong Kong stock exchange. The parent company of Alipay is aiming at a staggering valuation of above 200 billion USD, which could potentially be the biggest public filing in history.  Just to put it under perspective, this valuation would make Ant Group more valuable than the iconic American investment bank Goldman Sachs. But how did this 6-year company rose to this status so quickly? Notably, the fact that it is a spin-off of Chinese e-commerce behemoth Alibaba has definitely played a key role. Nevertheless, its data intelligence powered business model has been of equal importance.

It all started in 2004 when Alibaba launched Alipay, which back then was an escrow account system, whose underlying goal was to provide security and trust in the still novel online marketplace. Propelled by innovation and the underdeveloped financial infrastructure in China, Alibaba quickly saw the opportunity and turned Alipay in a digital finance super-app, offering services ranging from digital payments and investments to instant credit applications. To support their new banking capabilities Alibaba launched MYbank, one of the first private banks in China.

Screenshot 2020-09-27 at 10.04.49

Figure 1: Alipay’s user interface (Ant Group, 2020)

Fast forward a few years and Alipay is now a fully-fledged payment network, handling a volume of 17 trillion USD in transactions between June 2019 and June 2020 in China. Yu’e bao (‘leftover treasure’ in Chinese) – Alipay’s deposit/money market fund- was, at some point, the largest fund of its sort having over 200 billion USD in Assets under Management. Powered by their Zhima credit score, Alipay enabled about 300 billion USD in consumer and SME credit. Moreover, Alipay also offers its proprietary state-of-the-art cloud-based core banking system as a platform to other financial institutions.

So what was Alibaba’s contribution to all of this? Well, naturally it is easier to market services to an established customer base. On top of this, the e-commerce platform also presented the perfect initial uses cases, that have now long left the boundaries of the digital world and are as well ubiquitous throughout daily life in China (see Figure 2). Most importantly, as Alibaba has evolved into a “hub firm”, the enormous amount of data collected about customers has shaped much of the services at Alipay. Taking SME lending as an example, Alipay started providing microloans to sellers at Alibaba’s marketplaces relying on a credit assessment which was not based on the borrower’s credit history, as most traditional banks do. Instead, as small businesses in China are often informal and do not have a well-documented credit history, Alipay based their metrics on factors derived from their behavior at Alibaba’s marketplaces. These could be for example the seller’s reputation or how long the seller spends on the business. The outcome and repayment behaviors could then be used as real-time feedback to improve the accuracy of the credit assessment. Moreover, as the service grew, more data points could be integrated, polishing the algorithm in a never-ending feedback loop.

Screenshot 2020-09-27 at 12.25.02

Figure 2: Alipay use cases (Ant Group, 2020)

With this in mind, although Alibaba played a key role, the capabilities developed turned Ant Group into a data powerhouse and ecosystem of its own. For instance, Ant financial’s algorithms incredible accuracy even enabled them to redefine the lending business: Unlike traditional lenders, Ant Financial does not underwrite any of the loans it originates. Instead, it only focuses on assessing borrowers’ credit risk and connecting them to loans provided by third parties. By doing this, it outsources all the related risks and can still capture significant value by becoming the banking marketplace in China.

As discussed, Ant Group has risen to a giant in the financial ecosystem in China by making intelligent use of Alibaba’s vast amount of data to develop its own business model. Today the synergies among the two “hubs” are still ever reinforcing, but as Ant Group’s technology and capabilities continue to grow, other markets and revenue opportunities might arise.

What are your thoughts? What do you think will be Ant Group’s next big strategic move?

 

References

Ant Group, 2020. Application Proof (Prospectus), Hong Kong: Ant Group.

Hansen, S., 2020. What We Learned From Ant Group’s New IPO Filing. [Online]
Available at: https://www.forbes.com[Accessed 26 September 2020].

Iansiti, M. & Lakhani, K. R., 2018. Managing our hub economy. Harvard Business Review, September-October, pp. 17-17.

King, B., 2018. Bank 4.0: Banking everywhere, never at a bank. Kindle Edition. Marshall Cavendish International (Asia) Pte Ltd.

Zeng, M., 2018. Smart Business. 1st Edition ed. Boston: Harvard Business Review Press.

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Cringle: The Money Message

9

October

2016

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Picture this: It’s a Saturday night, you’re out on a date with this lovely woman and the two of you just enjoyed a meal at that cute little place down-town. The two of you have really hit it off and after dinner you want to invite her to your apartment for some drinks. However, as you reach for your wallet, you notice it’s nowhere to be found – you must have left it in the other jacket you were wearing the other day. Oh boy, no sugar tonight for you my friend!

With all that is going on in our busy lives nowadays you might leave the house without taking a shower, brushing your teeth or putting on make-up, but the one thing you will never forget, is your smart phone.

While this showcases how attached we have become to our mobile devices, and one can argue that is not a good thing, in the above situation, your smart phone can be your lifesaver.Why you ask? Because the “Cringle” app in da house yo.

What is it, and how does it work?

Cringle was developed in year 2014.The app allows the smart phone user to transfer money between bank accounts, without the need of IBAN or TAN information.(Cringle GmbH,2016)

Cringle is a payment system that can be explained in 4 easy steps:

1.Download your Cringle-app
2.Set app login
3.Add your bank account
4.Start transacting using Cringle

How different is the Cringle app from mobile wallets?

Cringle is a system that transfers money directly form one bank to another. In contrast, mobile wallets act as an intermediary between two bank accounts. Cringle is directly linked to your bank account and you can send money without entering debit/credit card details or even knowing the receiver’s account number.

Cringle´s functionality can be explained by comparing it to “WhatsApp” because money transactions become like messages. People can send you money by using your phone number as a reference. If you want to make  a payment, just enter the number on the payment page of the vendor and you will receive an alert on your mobile asking you to authorize the transaction.

Indeed, Cringle change the way how we receive and pay money. Whether you have to pay your electricity bill, school fee or a slice of a pizza. Cringle is an efficient alternative to mobile wallets and make cashless payments faster and easier.

However, due to the fact that you always need a mobile number to transfer money is not very suitable. For instance, in the case of the above mentioned scenario, I need the mobile number of the restaurant and vice versa. Who wants to give his or her private number to a guy from a kebab or chicken curry restaurant?

I suggest Cringle to have a look at the Unified Payment Interface (UPI) system, which has been developed this year in India. Basically, it’s the same idea like Cringle, but instead of using mobile number to transfer money, one can create a virtual ID, which connects with your bank account.

Reference

Cringle is the best way to send money. Secure, easy, free. – Cringle. (2016.). Retrieved from https://cringle.net/en

New to UPI? Here’s how to navigate through it – The Economic Times. (2016.). Retrieved from http://economictimes.indiatimes.com/markets/stocks/news/new-to-upi-heres-how-to-navigate-through-it/articleshow/53955317.cms

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The Future of Fintech – Collaboration or Cannibalization?

29

September

2016

4.92/5 (12)
Fintech Investment Financial Internet Technology Concept
Source: Fintech Investment Financial Internet Technology Concept

 

According to M. Porter: “the “new economy” appears less like a new economy than like an old economy that has access to a new technology” (Porter, 2001). While this statement may be true for some industries, it is not entirely valid for the banking sector which got completely transformed through IT advancements during the last 30 years.

Before the advent of digital computers and the rise of the Internet, employees in financial firms had to keep record of all transactions on paper. Job hunting and advertising efforts were being conducted through newspapers. Nowadays every single bank department is transformed – through the introduction of various software programs, the Internet and IT enhancements in general (both software- and hardware-wise). Consequentially, new processes, jobs, and business models are continuously emerging.

Fintech

IT has helped financial institutions offer higher quality services and convenience, creating a potential for collaboration and mutual profit. There is a buzzword to describe the phenomenon – fintech.

But what gives fintech companies an advantage over traditional market players? The trick is that IT companies can engage in the banking business without having to go through strict regulations and complex processes. Exactly this window of opportunity threatens the old-fashioned and traditionalistic banks and favours technology firms.

So what new business models will emerge from the recent technology disruption? There are two major scenarios: banks will get stronger and improve their reputation through collaboration with tech companies or technology companies will get greedy and eventually start eating up bank’s market share.

Scenario 1: Collaboration

The sweet spot called fintech offers new opportunities for collaboration between fin and tech companies as the fin part (financial sector) is highly regulated while the tech part (technology sector) is not. Currently, tech firms are mainly concentrating on providing complementary products and services that do not require banking license. In the future, as they exhaust growth opportunities, tech companies might lose interest in entering the complex areas (products and services) of the banking sector, which require proper infrastructure, processes, and sufficient capital. On the other hand, banks enjoy a good reputation in the financial world and possess a valuable know-how. Thus, a future collaboration between financial and technology companies seems like a profitable opportunity for both sides.

Start-up Programs

Banks have shown great interest in start-ups by attending entrepreneurship- focused events or even sponsoring fintech start-ups. Examples are Fintech Innovation Lab, Startupbootcamp and other. Some banks take part in programs that allow them to benefit from IT developments by getting involved in various types of agreements.

Partnerships

Banks are also interested in partnerships with established IT companies. Such partnerships allow financial firms to buy services and/or products and implement them under their own brands. Additionally, by participating in business networks, banks and IT organisations can provide complementary products and services that better meet consumers’ needs. Examples are online and mobile banking platforms which are often not developed by banks themselves.

Scenario 2: Cannibalization

Cannibalization is the perfect term to describe the other option for fintech’s future. The term refers to the process of one kind eating species of its own kind. Since technology companies have started offering financial services and products, they have been eating up the profits of banks.

Banks – too big to fail?

A comparison of the Fortune 500 firms from 1995 and 2015 shows that only 12% of the largest corporations still exist (Perry, 2015). This means that the largest banks of today might not exist in 10 or 20 years. On the other hand, tech companies have been very successful in offering better financial solutions that are time-saving, convenient and correspond to the latest customer preferences shifts. The tech giants have sufficient capital, human resources and the advantage of technology know-how so one could argue that they have the capacity to replace the traditional banks.

Financial products and services offered by tech companies

Customers no longer need debit/credit cards to make payments and execute financial transactions. Mobile payments have become easier with the recent hardware and software advancements. Companies such as Alibaba (its affiliated company Ant Financial Services Group), Google Wallet, Paypal, etc. offer mobile payment services, without keeping customers money under custody (in their own premises). Ant Financial Services Group sells insurance products online and provides small loans to business owners that use Alibaba’s retails website. As tech companies continue to offer convenient financial solutions, banks might abandon less profitable products and services, and focus on highly complex solutions.

Conclusion

In order to keep their market shares and for some – to survive, banks need to consider new business models that involve collaboration with IT companies. The future of banks depends on their adaptability as well as on their willingness and success in embracing new technologies. On the other hand, technology companies should as well evaluate the pros and cons of entering new areas of the financial industry.

In the long term, I expect the financial industry to go through continuous transformations in terms of hardware and software. My personal predictions are that robots will replace bank tellers, programs will completely replace financial advisors and mobile payments will make money obsolete.

What do you think – what does the future of fintech hold?

If you are interested in additional fintech analysis and prognosis, you can find more information on Deloitte’s Banking Industry Outlook.

 

References:

“Banking Industry Outlook | Deloitte US | Center For Financial Services”. Deloitte United States. N.p., 2016. Web. 29 Sept. 2016.

“Fintech”. Investopedia. N.p., 2015. Web. 29 Sept. 2016.

“Fintech’S Golden Age: Competition To Collaboration – Accenture”. Accenture.com. N.p., 2016. Web. 29 Sept. 2016.

“Future Of Fintech And Banking – Accenture”. Accenture.com. N.p., 2016. Web. 29 Sept. 2016.

Group, Ant. “Ant Financial Services Group: Private Company Information – Businessweek”. Bloomberg.com. N.p., 2016. Web. 29 Sept. 2016.

Perry, Mark and Mark Perry. “Fortune 500 Firms In 1955 V. 2015; Only 12% Remain, Thanks To The Creative Destruction That Fuels Economic Prosperity – AEI”. AEI. N.p., 2015. Web. 29 Sept. 2016.

Porter, Michael E. “Strategy And The Internet”. Harvard Business Review March 2001 (2001): n. pag. Print.

“The Challenges And Pathways For “Fintech” Companies To Break The Traditional Financial Model”. Centrodeinnovacionbbva.com. N.p., 2016. Web. 29 Sept. 2016.

“Traditional Banks And Fintech Firms: New Collaboration Models”. ICAR. N.p., 2016. Web. 29 Sept. 2016.

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Get Your Cash in No Time with Stripe

25

September

2016

5/5 (1)

Last week Stripe launched their latest feature: Instant Payouts.

Stripe is a tech company that is on a mission to make digital payments as simple as possible for all businesses. It started in 2010 when the brothers Collison founded /dev/payments. After some misspellings and confusion by outsiders the competitor of PayPal renamed itself to Stripe; now worth $5B.

This new feature.

Instant Payouts is a service that allows marketplaces to send payments to sellers or service providers within minutes. This way, marketplaces can give service providers a much better product experience by sending them their earnings faster than ever – and greater flexibility and control over when they get paid.
For several months Stripe has been testing this feature with platforms of all sizes, of which Lyft is the most well-known. In Lyft’s case, the new technology enables drivers to deposit earnings in the bank the second they finish a shift, while with traditional banks it can take several days to transfer the money. Since using the beta, Lyft has already sent over $500m to drivers this way.

So what makes this faster?

Most of today’s payment services use the automated clearing house network (ACH) to transfer money. This is quite an old-fashioned system where the money is transferred to Bank #1 after which the batch is electronically sorted by the clearing house (the middle man), and then sent to Bank #2.
Instant Payments skips the middle man and quickly sends the money from Bank #1 to Bank #2 using the debit card networks of Visa and MasterCard.

But ACH is fighting back.

In the hope of keeping up with the fast-paced developments in the FinTech-industry, ACH is now giving its customers the option of same-day processing to move payments faster. What makes this possible is adding an extra submission deadline for the payments, which makes 2 a day (morning and afternoon).
This sounds nice, but choosing this new option has (as you could almost have expected) a fee accompanied with it.

Banks and other financial institutions better be ready because companies like Stripe are coming in hard. Adding one extra admission deadline to your system will not cut it.

Sources:
https://en.wikipedia.org/wiki/Stripe_(company)
https://stripe.com/blog/instant-payouts-for-marketplaces
http://www.recode.net/2016/9/15/12927472/lyft-express-pay-500-million-cash-out-drivers
https://www.depositaccounts.com/blog/difference-between-wire-transfer-and-ach.html
http://bankinnovation.net/2016/09/mastercard-send-is-now-powering-stripe-instant-payout/
https://www.nacha.org/rules/same-day-ach-moving-payments-faster

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FinTech: How to get the best exchange rate when traveling abroad. 4/5 (4)

24

September

2016

FinTech, short for Financial Technology, is slowly revolutionising the banking and insurance business. The earliest and best known FinTech companies evolve around payments. One of these companies is TransferWise. TransferWise is an easy way to transfer money abroad at the mid-market rate and only pay 0.5% or 1€ (whichever is highest) fee for their service.

Say you have a friend in the UK and want to wire some money to him. The traditional way would be you sending money directly from your bankaccount denominated in euros to his bankaccount. Because his bankaccount is in GBP, his bank will then convert the euros into pounds at a hefty fee (sometimes up to 6%)¹.

hidden-fees

But their are of course also people who want to transfer money from the UK into accounts that are in euros. This is where TransferWise (and similar companies such as WorldRemit) step in. They help you to swap your euros into a different currency without incurring those fees. You wire your euros to TransferWise’s euro account and they will pay your friend from their GBP account. Because there are at the same time also people who do it the other way around, TransferWise has no trouble finding enough pounds or euros.

‘I would turn down £1bn for my company’

– Taavet Hinrikus, the co-founder and CEO of TransferWise²

Personally I used their service a lot when I was on exchange in Singapore back in 2014. Back then TransferWise was only a small startup, but in the past 2 years it turned into a £1bn company. I opened up a free bankaccount over there and wired my euros through TransferWise into my SGD account. At only 0.5% I would certainly recommend them!

Click here to get your first transfer (up to £500 or equivalent) for free.

revolut

 

But what if you’re on holiday’s abroad and want to avoid foreign exchange fees? There’s an app for that. Enter prepaid travel MasterCards. The most popular one (and cheapest one, because free) is Revolut.

With this free app and card you can pay in 90 currencies at the lowest rate they’re able to find. Most of the times this is the interbank rate, but for some illiquid currencies (such as Thai Baht) this is not possible and therefore slightly more expensive. The card automatically converts into the local currency at the time of purchase. This means that even if you hold euros but spend in Indian Rupee the card will convert from EUR to INR at the time of the transaction. The card will act like a local card everywhere and allows you to spend without fees and withdraw up to £500 (or equivalent) for free each month from ATMs all over the world (after the initial £500 they charge you at a 2% rate to prevent abuse, as ATM withdrawals are expensive for them).

 

You can download the app and use it immediately as it generates a card number for you to use directly online. If you also want a physical card you can order one for free from the app. Click here to download the app.

¹http://stophiddenfees.co.uk
²http://www.bbc.co.uk/programmes/p048c93g

TransferWise is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011, Firm Reference 900507, for the issuing of electronic money.

Revolut works with UK regulated entities to provide their platform such as Paysafe Financial Services Limited who are authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 (FRN: 900015) for the issuing of electronic money and payment instruments, pursuant to a licence from MasterCard International. MasterCard is a registered trademark of MasterCard International.

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