The Story of Ant Group: Part I

1. Who is Ant Group?

Ant Group(formerly known as Ant Financial), is the mother company of Alipay, a unicorn company of the Chinese fintech industry. Its businesses have two main focuses: finance and technology. The finance sector can be subdivided into two areas: Alipay-associated services, which are known as Alipay payment, and the financial management business, such as Yu’ebao and Ant Fortune. The financial technology is mainly divided into five categories (collectively referred to as BASIC)

• Blockchain
• AI
• Security
• Internet of Things
• Cloud

Each area has corresponding branches. See the picture below for details.

As a fintech unicorn with strong financial services and technical services, Ant Group has been attracting wide attention. On July 20th, Ant Group announced its plan to list on the SSE Science and Technology Innovation Board and the Main Board of the Hong Kong Stock Exchange. Before the IPO, Ant Group conducted three rounds of financing, and its current valuation has exceeded $150 billion. This extraordinarily high valuation is the reason why there are 58 billionaires related to Ant Group. The details of each round of financing are listed below:

Round A financing took place in July 2015 and raised $1.85 billion(approximately $14.4 billion HKD). The market value estimation exceeded $450 billion.

Round B financing was conducted in April 2016. The total amount reached $4.5 billion with an estimated total market value of $60 billion(about HK$468 billion).

The pre-IPO financing round took place in 2018, increasing from the initial $5 billion to $10 billion, and finally reached $14 billion, creating the world’s largest private equity financing with a post-investment value of $155.6 billion.

The three rounds of financing not only reflected the finance industry’s confirmation of Ant Group’s success, but demonstrated Ant Group’s marketing and strategy progress in the last few years.

2. How did Ant Group develop over time?

People are often curious about how Ant Group developed after learning its background, so let’s dig into it and find out!

The development of Ant Group can be divided into four main stages. They are the birth of Alipay in 2003–2004, the upgrade and iteration of Alipay’s financial services in 2007–2013, the preliminary exploration of financial ecology in 2013–2014 leading to the establishment of Ant Group, and the strategic shift of Ant Group from financial services to technological output from 2017 onwards.

The Rise of Alipay from 2003–2004

Alipay was created due to Taobao’s demand for online electronic transactions. In the early stages of Taobao, there was no reliable third-party payment platform in the domestic market. Many buyers and sellers needed to conduct transactions through offline or remote methods, which indirectly led to lower transaction volumes. In order to solve the online payment trust issue, Taobao launched a secured transaction system of its own that served as the third party to ensure the smooth progress of the transaction. Specifically, the payment by the buyer is transferred to Alipay first. Then after the buyer confirms the receipt, Alipay transfers the payment to the seller, thus protecting the interests of both parties. In the first year of its launch, Alipay helped Taobao obtain 70% of the payment market. However, Alibaba was not satisfied with the status quo, so in 2004, Alipay launched a new plan to extend to external markets. In the gaming field, Alipay provides online recharge services for online games such as World of Warcraft, Miracle Universe, and others under The9 Limited. It also expanded its business to tourism, transportation, insurance, and other technological industries.

Alipay’s Group Services Update from 2007–2013

After three years of development, Alipay has a relatively high market share in the Chinese electronic payment market. However, consumers are still unhappy about Alipay’s complicated payment methods. In 2010, Alipay held the “Camel Conference” and announced that it will further enhance the payment performance.

On Taobao’s “Double Eleven” holiday event, the transaction volume surged drastically in 2009–2013. This led Alipay to start explorations of financial technology improvement.

From 2010–2013, Alipay encountered another major challenge — the mobilization of the Internet. By June 2012, mobile devices surpassed computers to become the largest online terminal. In response to this change, Alipay has developed online app payment and QR code payment functions, pushing the potential of online payment to the extreme.

Exploration of the Financial Ecology from 2013–2017 and the Establishment of Ant Group

Following the outstanding achievements of Alipay and the steady progress of other Alipay projects, the Small and Micro Financial Services Group was officially renamed to Ant Financial Services Group in 2014.

But Alipay’s ambitions were not limited to online payments only. It wanted to build its own financial ecosystem. In order to be able to deposit funds, Alipay and Tianhong Asset Management Company formed cooperation and began to provide financial services for stored funds, increasing the flexibility of Alipay. In addition, Alipay expanded its business by establishing ZhongAn Online P&C Insurance, introducing insurance technology. Starting from 2014, Ant Group had completed up to 130 strategic mergers and ventures, including sectors such as the catering business, export industry, and corporate services. All of this has helped Ant Group to continue its influence and stabilize its position as a financial technology unicorn.

Definancialization

This strategic shift will be discussed in detail in the next issue of Ant Group, but in simplicity, financial risk policies have become stricter and internet finance is under strong supervision recently. This increase in the cost of compliance operations has also restricted Yu’ebao. Some core businesses like cash loans grew. In order to gain more room for development, Ant Group decided to expand its external business in financial technology. This decision also takes into account that previous attempts at providing services for its own financial products have created progress in the fintech field, such as the establishment of the OceanBase cloud database for Alipay’s “Double Eleven” event. Therefore, in October 2017, Ant Group announced its BASIC technology strategy in five areas: Blockchain, Artificial Intelligence, Security, IoT, and Cloud to provide services for small and medium business enterprises.

3. What the main driving force behind Ant Group’s rapid development?

There are four perspectives to discuss:

I. Innovations that completely change the traditional industries

II. Control of opportunities and initiatives

III. Strong technical background

IV. Alibaba’s reputation and external resources

Innovations that Completely Change the Traditional Industries

Innovation is the key to Ant Group’s competitiveness. Successful financial services companies are always the ones that provide the most trustworthy and convenient services, and Alipay matches the standard.

As a third party. Alipay provides guaranteed secure transactions. The specific method is that the payment from the buyer is transferred to Alipay, which transfers the payment to the seller after the buyer confirms the commodity is received, protecting both sides’ interests. This secure transaction mechanism has delivered convenience for its users, and the long-term excellent service has obtained the users’ trust.

Therefore, the incomparable determination in revolutionizing the technology and the goal to provide its users with the most accessible transaction mechanism have guaranteed Alipay’s dominance of e-payment.

Control of Opportunities and Initiatives

Alipay’s grasp of opportunity and activeness is the basis of Ant Group’s success. As the pioneer of China’s third-party payment field, Alipay successfully detected the market needs and provided the corresponding services. This need could be implemented in many ways, for example, cooperating with banks for service guarantee and extending e-commerce. These options are simpler and solve the problems to some extent. However, Alipay chose to start its own online banking services. Besides, Alipay does not stop as a complementary service for Taobao.com. Rather, the company envisions to dominate the entire e-payment market.

Alipay’s timely operations in transforming its services based on shifts in the objective environment are the most impressive. This characteristic is represented by Alipay’s service range updates based on market needs. From the “Camel Meeting” in 2010, in which Alipay announced to return to its original e-payment businesses and enhance payment performances, to the mobile internet era beginning in 2012, Alipay has been promoting new generations of technology to ensure that they offer the most cutting-edge products and the most convenient services. This determination has been the foundation of Alipay’s success. Another exhibition of Alipay’s timely operations is that Ant Group transformed from financial services to financial technology services in order to further expand. Yu’ebao, Cash Loan, and other core businesses’ expansions have been limited and costs have increased in recent years due to the government’s stricter regulations of financial risks reflected by the People’s Bank of China’s Trial Measures of Supervision of Financial Holdings Companies (Draft for Comments). This experimental law indicates that non-financial enterprises that hold two or more financial institutions should establish financial holdings companies when they operate banks and the total assets of the financial institutions are greater than 500 billion RMB, or when the total assets are greater than 100 billion RMB without operating banks. Ant Group’s successful predictions and ambitious vision have set up the foundation for its success.

Strong Technical Background

Alipay’s third advantage is its technical strength. Alipay’s development in financial technology began with the “Double Eleven” event of 2009–2010, which forced Alipay to employ cloud technology. Under the traditional system structure, an increase in payment demands need to be satisfied by implementing servers, but there are two shortcomings: the high cost of servers and inflexibility that resulted in the closure of non-essential applications during peak payment intervals. And therefore in 2010, Alipay gave up the open-source database and chose to develop its own cloud database. After three years of hard work, Alipay successfully launched the OceanBase cloud database. In terms of performance, this financial cloud database set a record of 420 million processings per second, ensuring the stable operations of the Tmall system and Taobao.com during the “Double Eleven” event. Thus, Ant Group started its financial technology research and development with five core concentrations: blockchain, artificial intelligence, security, the Internet of Things, and cloud computing, while expanding its services from only supporting Alibaba’s businesses to other financial industries, monopolizing the Chinese financial technology market.

Alibaba’s Reputation and External Resources

The last strength is Alibaba’s own prominence. Alibaba’s own e-commerce platforms including Taobao.com, Tmall, 1688, and Xianyu only allow transactions through Alipay, and cooperation with other platforms such as Weibo, UC Browser, and Gaode Map guarantee Ant Group’s advantage in transaction volumes. This advantage aided Ant Group by offering protections over the initial weak links, offering a market, and reducing competition. The advantages enabled Alipay to develop rapidly and update constantly in short periods of time, outcompeting other e-payment products on the market. Even now, the influence of Alibaba in online transaction volumes is substantial. For example, the financial performance of the 2020 fiscal year and the fourth quarter indicated that Alibaba’s e-commerce’s consumer business transaction value exceeded $1 trillion, which greatly secured Ant Group’s transaction quantity advantage and protected its partial monopoly. In addition, the connection to Alibaba has greatly aided Ant Group’s reputation, rapidly gaining the trust of users and investors. This is another feature that substantially assisted the company’s development.