ADVANCE OF THE ANT
Chief of Alibaba finance and services flagship lays out plan to fend off Tencent. By Lulu Yilun Chen in Hong Kong
Billionaire Jack Ma’s newest chieftain is accelerating the evolution of Alipay into an online mall for everything from loans and travel services to food delivery, in a bid to claw back shoppers lost to the Chinese rival Tencent.
Ant Group chief executive Simon Hu is aggressively pitching digital payment and cloud offerings to the local arms of KFC and Marriott International among others, expanding the firm’s focus from banks and fund managers on its ubiquitous app.
The Alibaba affiliate’s strategy is two-pronged. It halts the runaway success of Tencent and the food delivery giant Meituan Dianping in attracting local merchants to their platforms, eroding Ant’s dominance of China’s US$29-trillion mobile payments space. It also diversifies Ant’s business into less-sensitive areas after the company drew regulatory scrutiny for its blistering expansion in financial services with in-house products.
“We want to help digitise the services industry,” said Hu in his first interview with foreign media since taking on the CEO role in December. “We’ve been pursuing the strategy to evolve Ant into a tech company, with an open-platform strategy for many years.”
Hu wants users to think of Alipay not as a niche provider of financial services and the payments gateway for the world’s biggest e-commerce platform, but as the go-to app for a wide array of needs from groceries to wealth management, and hotel booking to loan applications. He aims to simultaneously peddle technology solutions like artificial intelligence, blockchain and risk control to the businesses that use the platform.
His goal is for more than 80% of Ant’s revenue to come from local merchants and finance firms in five years, up from about half at the end of 2019. The contribution from proprietary services, such as Ant’s own money market fund and loans, would shrink as a result.
“We want to share the technology and resources we’ve developed as an online financial platform with more companies in finance, local services, public services and other countries,” he said.
The shift doesn’t hinder any initial public offering plans and the company is still open to listing, he said, declining to provide a time frame.
To mark the transformation, Ant changed its registered name to Ant Group Co from Ant Financial Services Group at the end of May. Alibaba owns a 33% stake in Ant.
The focus on everyday consumer services puts Ant in the unusual position of underdog, despite its reach into the spending patterns of 900 million users. While Alipay still controls more than half of all mobile transactions in China, it’s been late to so-called mini-programs, an innovation championed by Tencent three years ago.
The small-scale apps have allowed the gaming and social media giant to host more than a million service providers in its WeChat environment, with 400 million users a day tapping in to rent bicycles, order food, pick cinema seats and even buy apartments through a single interface. Their popularity has swelled Tencent’s share of mobile payments and ad revenue.
Hu’s most important task has been to fend off competition from players suck as Tencent. But companies like Meituan and the live-streaming site Kuaishou have added to the challenge, encroaching on the greater Alibaba ecosystem, chipping away at e-commerce and payments.
“Ant and Alibaba are battling companies traditionally not even operating in their fields of payments and e-commerce,” said Mark Tanner, founder of the Shanghai-based research and marketing company China Skinny.
The Alipay platform offers some natural advantages to make up lost ground, Hu said. Its interface lets users personalise and pin frequently used services and the company plans to use algorithms to further customise Alipay’s landing page.
Ant currently has about 600 million monthly users for its 2 million mini-programs after two years. Hu didn’t provide a forecast for its expansion.
For the first time, the app has elevated local neighbourhood services to the same level as its finance vertical. Its moved services such as Ele.me and Fliggy, Alibaba’s food delivery and travel units, to Alipay’s front page. Alipay will also enhance the importance of its search function, so people can find the mini-programs of local services more easily, Hu said.
“Alipay is weaving the advantages of a super app with that of mini-programs, so users can have faster access to services via our platform compared with WeChat,” he said.
Such efforts are showing results. Alipay’s share of mobile payments has increased for three consecutive quarters, rising to 55.1% in the fourth quarter, according to iResearch. Tencent has 38.9% of the market.
Hu, who joined Alibaba in 2005 after working at China Construction Bank, has built a reputation for innovations such as using data analytics to offer collateral-free financing services to small businesses and helping Alibaba beat Amazon.com to build Asia’s largest cloud business.
His experience will help Ant target small companies in the consumer services sector looking to digitise, said Michael Norris, research and strategy manager at the Shanghai-based consultancy AgencyChina.
Hu must also navigate Ant through a coronavirus-induced economic downturn, which will test the resilience of the lending portfolio it has built in the past decade along with about 200 partner banks in China.
Its Huabei business, which means “just spend”, is on track to help banks issue 2 trillion yuan ($283 billion) worth of consumer loans by 2021, according to Goldman Sachs analysts. The online lender MYbank, in which Ant is the largest shareholder, has helped banks issue 600 billion yuan in credit to 10 million small and medium businesses as of the end of May.
So far, the company’s risk controls have held up, Hu said. The bad loan ratio for Huabei and MYbank rose to about 2% compared with about 1.5% before the virus outbreak, the company said. By comparison, Fitch Ratings estimates that the non-performing loan ratio for Chinese banks may rise 2 percentage points to 3.5% compared with the first half of last year.
“We’ve seen a slight uptick in non-performing loans among our SME and young credit borrowers after Covid,” said Hu, adding that he expects the bad loan ratio to drop to pre-Covid levels by March next year.
“Alipay is weaving the advantages of a super app with that of miniprograms, so users can have faster access to services via our platform compared with WeChat”
SIMON HU Ant Group CEO