http://www.sapidaily.com/alibaba-history-vision-destiny-strategy-scheme-chapter-4/

Alibaba history, vision, destiny, strategy, scheme? Chapter 4

An ant on the move does more than a dozing ox.  –from Lao Tzu

In China, 1.3 billion population, nonetheless more than 90% of households are considered lower wealth and “underbanked” (according to BCG 2014). Such customers represent the largest segment of the financial service market, however they are the most underserved. On the other hand, if you are a small merchant who would like to loan money for commercial expansion from the bank, notwithstanding sound business track and cash flow, it would still require entrepreneur’s hard collaterals, like real estate, thus many probably need resort to shadow banking system. There exists the mismatch between financial supply and demand. And Alibaba decided to seize this opportunity and embodied their financial ambition in the name of “Ant”, a metaphor supposedly referring to millions of micro consumers and merchants out there.

The official corporate name of Alibaba Ant Financial is registered as “Zhejiang Ant Small And Micro Financial Services Group Co., Ltd”. It was renamed after “Zhejiang Alibaba E-Commerce Co Ltd”, the original parent company of Alipay, established in October, 2000,.

As of September 2015, there are 6 core business divisions under “Ant Financial”.

• Alipay: the most dominant escrow, 3rd payment system in China

• Sesame Credit: specialized in consumer credit rating and management based on transaction data from Alibaba’s e-commerce ecosystem
• Ant Micro Loan: provides micro loan, less than RMB1 million to SME and individual
• Ant financial cloud: cloud computing services and big data analytics
• Yuebao: mutual fund money market investment product
• Zhaocaibao: an open financial investment platform targeted at individual and SME, offering on average 4-7% annual returns with complete liquidity，at the moment covering 3 major products:

1. P2P lending product
2. Fund Investment product
3. Universal insurance product

Aside from these core entities, Ant Financial also co-invested with partners in below entities:

• Mybank: a pure internet bank in which Ant Financial holds around 30% equity share
• ZhongAn insurance: China’s very first pure internet insurance company, co-founded with Tencent and PingAn
• Hundsun: financial technology company in IT infrastructure, hardware and software development, specifically serve for China’s financial institutions
• WJS：co-invested with Hundsun and China National Investment & Guarantee corporation. It is also an open investment platform, though local media commented that at this stage it is a bit P2P products oriented. It actually received the approval license of launching Zhejiang internet financial assets trading center from the provincial level regulator. Its current product offer requires minimum investment amount RMB1,000 or RMB5, 000 and claims it can generate up to 18% annual return. Many experts perceived it should be a competent rival against Lu.com (Shanghai Lujiazui financial assets trading co.) powered by PingAn Insurance Group.

So why is Ant Financial launching all these entities? It might have below image in mind when sketching its financial blueprint.

The all time centerpiece of Alibaba is its core e-commerce business, B2B, B2C, or C2C which connects buyers and merchants. The large volumes of online transactions are processed via Alipay escrow payment system and this is the building block of Ant Financial Ambition. To support the operation of Alipay, Alibaba would have to engineer its own II infrastructure and cloud, for instance:　Ant Financial cloud, Hundsun technology.

For the buyer side, leveraging the big data of their online shopping behavior and consumption ability, Alibaba would push the services of consumer finance, such as consumer loan based on its own credit rating system, virtual credit card, installment. To make Alipay more adhesive and attractive to users during mobile age, its mobile wallet is integrated with money market investment product(Yuebao), O2O payment features, value added services, for instance repay your credit card bill, pay your utility bill etc.

For the merchant side on Alibaba’s e-commerce platforms, Ant would need to put its tentacle deeper into the area of corporate finance, for example SME loans, Guarantee services etc. SME loan has been the strong expertise for Alibaba for a long history and it has 3 main evolutionary phases:

Phase I: year 2002-2007 “data accumulation”

It was the period when Alibaba accumulated its merchant data and hired a 3rd party company to setup a rating system to evaluate merchants’ trustworthiness and performance.

Phase II: year 2007-2010 “learning experience”

Alibaba tried to partner with China Construction Bank (CCB), Industrial and Commercial Bank of China(ICBC) to offer small loan products for the SME merchants from its e-commerce platforms. Alibaba mainly acted as bank’s sale distributional channel and assisted bank assess the loan risks. But such partnership fell through quickly because the majority of Alibaba’s online merchants still failed to meet the minimum yet hard requirements of a bank loan.

Phase III: 2010 to the present“Go Independent”

In 2010, Alibaba established its own micro-loan company to offer the services to its online merchants. It was said that 80% of the loan needs were from its B2C & C2C end while the 20% from its B2B end. Alibaba, collaborated with equity firms or fund companies, would often repackage these loans via securitization and sell them to institutional investors or high net-worth individuals.

Nevertheless Alibaba, as a company innate with “platform” genetics, it also realized it needs to provide a direct link between buyer and seller for financial investment purpose. Many customers in China are usually unable to meet high investment threshold for wealth management services offered by banks. Therefore Ant decided to launch open investment platform, lowering the entry bar for the mass market while promoting all kinds of P2P/bond/Fund investment products. If small investors are concerned about their potential loss, insurance products designed by ZhongAn would come into the scene to play the role.

Overall, a bird’s eye view of above financial ecosystem indicates it has laid the ground work of a prototype of internet bank/direct bank in the making in China, hinging on regulators to be less rigid in implementing its financial policies.

JunHan and Junao, both formed in partnership, are in fact controlled by Jack Ma and Alibaba high level executives, and hold 76% of the Ant stakes. Surprisingly the shareholder structure told us some key state owned enterprises and investment firms, albeit as minority equity holders, have been behind Ant Financial. 

See table 1:

In September 2015, China Post Capital purchased a minority stake in Ant Financial as well. The total registered capital of Ant Financial increased to RMB1352 million. Under the assumption that the other share holders have not changed their part of the investment, China Post Capital should contribute about RMB14 million, holding around 1% of the equity control of Ant Financial.

See table 2:

Apparently Ant is trying to strut toward success in full speed.