Chinese payments and fintech giant Ant Group is expected to IPO in October at a valuation exceeding US$200 billion. Being investors in Alibaba Group, which owns 33 per cent of Ant, it was imperative for us to form a view on the Ant business. This also marks the first time a large Chinese payments platform has filed standalone financials publicly, which should provide investors with some interesting insights.
Ant Group separates its operations into two broad segments – digital payments and digital finance. The digital payments business is comprised of the main Alipay consumer payments business. Alipay is a ubiquitous mobile payments platform with over 1 billion annual users, 711 million monthly active users, and accepted by over 80 million merchants in China. The platform processed RMB 118 trillion in total payments volume in the twelve months to June 30, 2020 and held 55 per cent market share of the China mobile payments market, with Tencent-owned WeChat Pay holding substantially all the remaining share in a duopoly market structure.
Nearly 730 million Alipay users also make use of Ant’s digital finance businesses – CreditTech, InvestmentTech and InsureTech. The CreditTech business is the largest online consumer and SMB credit services provider in China and leverages Alipay’s extensive consumer payments data to originate loans that are underwritten by approximately 100 partner banks. Ant doesn’t use its own balance sheet for these loans and generates revenue as a percentage of banks’ interest income on loans enabled by its platform. The InvestmentTech business is the largest online investment services platform in China by AUM distributed and provides money market funds and other investment products to Alipay users. InsureTech is the largest online insurance services platform (see the pattern here?) in China as measured by insurance premiums, providing a wide-ranging online distribution platform for over 90 insurance partners. Where Ant and Tencent are similarly-sized in payments, Ant is 2-4x larger than Tencent in fintech.
In a sentence, Ant’s business model can be summarized as leveraging vast volumes of proprietary consumer payments and behavioural data to feed asset-light credit, investment and insurance platforms. Superficially, this sounds like an amazing business – the holy grail of payments and fintech, where once money enters the ecosystem, there is no need for it to exit. However, there are several key considerations that potential investors must understand, not only to determine Ant’s value, but what it is that investors are buying in the first place. We will cover these in Part II.
Montaka Global Funds own shares in Alibaba Group. This article was prepared 09 October with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Alibaba Group you should seek financial advice.
Chinese payments and fintech giant Ant Group is expected to IPO in October at a valuation exceeding US$200 billion. Superficially, this sounds like an amazing business, but do investors need to take a closer look? Click To Tweet