CONNECTING THE DOTS

Ping An’s digital journey

To have a conversation with Jessica Tan, group co-CEO of the Chinese juggernaut Ping An Group, is to speak in terms of multiples and scale.

Take, for example, the launch of a digital platform by the Chinese insurance and financial services group for small and medium enterprises (SMEs) in Guangdong. There are 11 million SMEs in the southern province alone.

That platform is meant to eventually link to businesses in the Greater Bay Area — connecting the cities in the Guangdong province to Hong Kong and Macau — with the bay area already contributing more than 10% of China’s gross domestic product (GDP). It is projected to be the world’s largest bay area in GDP terms by 2030.

The digital platform is fronted by the Ping An unit OneConnect, a technology service that sells its expertise to Chinese banks and, increasingly, financial institutions in the rest of Asia and the Middle East. Recently listed in the US, OneConnect is also a business spinoff that never would have been born had Ms Tan had her way originally.

Five years ago, Ms Tan was tasked by Ping An founder Peter Ma to look into building a technology business that would cater to large financial institutions. The cold, clinical assessment that she brought to the table, based on the discipline formed in her 13 years at McKinsey & Co, was that it would not fly.

“When he asked me to put (together) OneConnect, I spent three months doing my usual analysis, to tell him that OneConnect would never work. And that people won’t use our stuff, and I said, ‘Look, we shouldn’t do it,’” she confesses.

But Mr Ma, who built the business from scratch into China’s largest insurer, insisted, pointing to the megatrend of Chinese growth, and how some 62,000 financial institutions in China will need digital services. “I’m so glad he overruled me. He said, ‘Look, just listen to me, and just do it,’” Ms Tan recalls.

“That’s why very few consultants are entrepreneurs, we tend to see a lot of problems,” she says. “I’ve really enjoyed working with Peter and learning, because he teaches you to see possibilities, and that’s what entrepreneurs have.”

Today, OneConnect alone is working with some 600 banks that process about 90 million loan applications every month. OneConnect earns fees on a transaction-based pricing model.

OneConnect is also expanding into markets beyond its home turf. In its first year of expansion outside of China, it is working with more than 30 financial institutions in 10 countries and regions, with Indonesia being one market of interest. The financial services group of the Indonesian conglomerate Sinar Mas is one noteworthy partner.

OneConnect allows banks to use data from mobile phone bills to shopping records for credit-scoring purposes, and can add further layers of digital verification, such as using micro-detection of facial expressions to determine if the person is lying about his identity.

OneConnect’s selling point is also in offering banks access to its platform that extracts real-time data such as sales and tax receipts of SMEs, providing a new way of assessing creditworthiness beyond the traditional ways of lending against collateral.

As with most technology companies, OneConnect has yet to turn a profit. It widened its net loss to 1.19 billion yuan (US$160 million) in 2018, compared with a net loss of 607 million yuan in 2017. Full-year revenue in 2018 more than doubled to 1.41 billion yuan, its IPO prospectus showed.

Ping An itself — Thailand’s CP Group is the largest single shareholder with a 9.19% stake — is highly profitable. Its nine-month net earnings in 2019 were up 63% from a year earlier to 130 billion yuan. It is also big on tech investments, committing to invest 1% of its revenue in research and development (R&D). Over the past five years, Ping An has invested US$15 billion in R&D.

GREAT OPPORTUNITY

In searching for growth beyond China, Southeast Asia presents a “great opportunity”, says Ms Tan, a Singaporean who flies back to Singapore most weekends.

Singapore today is OneConnect’s regional base, and the place where the firm has filed technology patents, contributing to the group’s portfolio of some 20,000 patents.

Only 47% of Southeast Asian adults have a bank account, data from CB Insights showed in 2018. That translates into about 350 million adults who do not yet have any relationship with a bank. Meanwhile, only a third of SMEs in the region have access to bank lending. “Clearly, the opportunity is huge,” says Ms Tan.

“If you look at some of the fintech companies in the developing markets right now, there have been very few that can make it scale,” she says.

“I think that really depends on two things. The first is that if you look at SMEs, it’s really about getting them digitising first. I think in the past people tried to get the SMEs to digitise themselves, but it’s quite difficult to do so. They lack the people and the resources … (and) it’s not something that a bank, on its own, can solve”

By working with the Chinese government to build a platform for Chinese SMEs, the impact comes from building a brand-new credit bureau record. Given the added layer of blockchain technology offered on the platform, some 20% of the SMEs would also volunteer further information that would provide real-time details about their financial data or supply chain.

This is unlike working with traditional banks, Ms Tan suggests, as the lenders typically work with anchor clients, and serve another one to two companies related to the anchor client. “They are not able to do seven tiers,” she points out.

OneConnect also decided against applying for a digital banking licence in Singapore. This differs from its move in Hong Kong, where it holds a digital banking permit, given that Ping An has a distinct foothold in Greater China.

Its decision to bow out of the digital banking race in Singapore leaves the door wide open for it to work with the incoming rush of digital bank aspirants in this region instead.

A senior executive from OneConnect said in January that OneConnect now earns about 7% of revenue from outside China, and plans to increase this proportion to 15% by 2022. The Asean operations are also targeted to break even this year.

To be sure, it hasn’t been all smooth sailing. The OneConnect listing in the US late last year came after a big reduction in valuations, with the company eventually settling on raising $312 million on a market valuation of about $3.7 billion.

The SoftBank-backed group went ahead with the IPO despite the sabre-rattling between the US and China amid trade tensions. Ping An declined further comment on the IPO in a follow-up query over valuations.

That being said, ahead of the IPO, Ms Tan had been asked about increased scepticism over loss-making technology firms that are heading for the public markets, given that the WeWork debacle had cast a big shadow on listings by tech-driven companies.

It would be fair to say Ms Tan is not too daunted by naysayers.

“Institutional investors are very sharp and astute investors. People still look at individual opportunities,” she says, pointing to the “short-term aberration” likewise inflicted on Ping An’s Good Doctor listing.

Today, Good Doctor — Ping An’s innovative medtech firm — is trading above its listing price set in 2018. “We look for more long-term investors who care more about intrinsic long-term value and less about the short term,” she says.

That said, she points out that not many analysts and investors are able to understand Ping An’s business. The problem, she says, is that analysts are less keen — or less able — today to measure the potential of the group’s staggering 4 billion users and how Ping An can layer on financing and other services.

Here, the multiples return as part of the conversation.

In the nine-month period ended Sept 30, 2019, Ping An had added close to 30 million new customers, of whom 39% came from the 594 million internet users derived from the group’s five “ecosystems”: financial services, healthcare, auto services, real estate services, and Smart City services.

These internet users include those who use their apps, and eventually become paying customers.

The crux — for a company that, on a group level, is still delivering a growing bottom line — is for investors to understand that the technology business is less about profit contribution as it is about growth opportunity, adds Ms Tan.

“I think that from a tech valuation, I’m less concerned about whether we are embedding it in our business, because that will eventually get done,” she says.

She also points out that many of the internet companies have seen most of the monetisation coming from advertising, rather than as an extraction of the value behind the data.

“That’s a very simple conversion of data, which is in fact only the beginning of the value, because most of it still works by clicks and referrals,” she says.

“It’s about thinking about the economic value behind it … so what if I have all your shopping records, other than using it for shopping? Does it mean that I now know your creditworthiness in other parts of your life? That’s not true. It requires domain knowledge for that.”

Ping An is one of eight groups holding a provisional credit bureau licence in China, and joins other tech giants that arguably have “a lot more volumes of data”, says Ms Tan. But few of them actually work with financial institutions to use that data for credit decisions, she adds.

CLIMBING THE LADDER

Ms Tan’s climb up the ranks of a Chinese giant came with a sense of purpose and adventure. After studying in the US — and rejecting the scholarship route — Ms Tan, whose parents came from Malaysia, stayed on in America to make up for lost time from having lived mainly in Singapore for most of her life.

Graduating at the time of the dot-com boom, her internships were “cushy jobs”, complete with helicopter rides, among the perks. Eventually she landed at McKinsey, where she worked in 15 different countries over 13 years — India, most of Southeast Asia, Germany and London, among others. It’s a sense of adventure that she would urge young Singaporeans to embrace.

“When you work overseas, you get to understand how people work, how people think. In Vietnam, for example, in actual meetings, people don’t really talk much,” she says. “In Vietnam, everybody has a gazillion jobs. Their job is not just their official job, (they) have many other personal businesses. And then you get to know them. You sing karaoke together.

“Ultimately, (leadership) is about people. How do you align interests, to work together? And I think that’s something that you cannot replicate from books,” says Ms Tan, who gets her teenage daughter to follow her to work during year-end school holidays to learn how technology is being used to transform the education and healthcare industries.

“These days frankly, if today you ask me to work on a formula, I’m embarrassed to say that even though I have an MIT degree, I can’t do it anymore,” she says. “But it’s about the concept and real-world problems. You have to have a passion to (solve) that and you cannot do it sitting at home, sitting in the classroom or just reading case studies. You’ve got to be there, and want to do something about it.”

If you look at some of the fintech companies in the developing markets right now, there have b een very f ew th at can make it scale

We look for more longterm investors who care more about intrinsic longterm value and less about the short term