How Ant Financial is transforming the Chinese payments industry

Alibaba’s financial affiliate group is reaching out to the under-banked in China.

Alibaba’s Ant Financial Services Group has brought people with low income and limited to no credit history onto the financial grid by incorporating digital payments into existing e-commerce and social media platforms — a feat by any standards, especially as other markets, like the U.S., lag behind.

By using the customer data from those transactions, Ant has been able to give them access to other financial services its created that look a lot like typical core banking products — savings accounts, credit assessment and loans for consumers and small businesses — according to a report released Wednesday by the United Nations Better Than Cash Alliance.

“That Ant Financial is now able to analyze all that data and leverage the platform to extend loans to companies or individuals has had a big impact on how they produce new businesses,” said Camilo Tellez, head of research for Better Than Cash Alliance and the lead author of the report.

Ant Financial has basically found a way to scale financial access and wellness tools similar to existing apps in the U.S. either struggling to take hold or not really integrating with the other existing offerings – like the savings app Digit or micro investing app Acorns. But U.S. customers still largely pay with plastic, whereas mobile payments are so big in China that Ant can use transactional and other alternative data to create a true financial ecosystem. Friction around customer data is one of the biggest things in the U.S. keeping financial services siloed.

Ant Financial launched in 2014 and as of September 2016 had loaned $107.3 billion in loans to more than four million small businesses over its Alipay platform to date, according to the UN report. Grameen Bank, the Nobel Peace Prize-winning microfinance organization and community development bank, has lent $17 billion since its inception in 1976.

In China, 79 percent of adults have had a bank account at some point, according to the UN research, but only 10 percent of them have borrowed in the formal financial system and for them, their digital footprint of transactional data and payment behavior can add to their credit histories. The same is true of small businesses, which historically have had difficulty accessing credit or taking out loans because China’s major banks are so heavily focused on lending to state-owned enterprises. Sesame Credit, Ant’s social credit scoring system, now has more than 350 million registered users and 37 million small businesses that buy and sell on Alibaba Group marketplaces. Sesame examines customers’ credit history, financial behavior, contractual capacity, identity and users’ social networks.

There are also accessible ways for people to save and invest their money. Alibaba’s Yu’e bao lets customers invest the money “left behind” on digital wallets into a money market fund, earn interest on that spare change daily and still have the freedom to withdraw the funds when they want. Alipay effectively acts as a fund manager but is treated as a distribution service from a regulatory perspective. Customers can also use Yu’e bao funds to make e-commerce purchases. Yu’e bao, which now serves more than 152 million customers, grew its assets under management to $117 billion in 2016 from $29 million in 2013.

“You have all these different opportunities being created through these messaging platforms for younger entrepreneurs for small and medium sized enterprises,” Tellez said. “Hopefully some of that impact will be found in other markets and similarly be able to provide SMEs better access to capital.”

In China, merchants are required to accept mobile payments — each point-of-sale terminal needs to have near field communication technology built in — so they’re more accessible, user friendly and more people can take advantage of the opportunity, which allows more data to enter and flow through the system.

The closest thing to a social payments platform in the U.S. is Venmo, which stops at peer-to-peer money transfers. But Tellez says he sees Venmo 2.0 bringing the money transfer capability to merchants. While the U.S. has so far missed out on a lot of mobile payments opportunity the China has been using to the advantage of its financially excluded consumers, it’s possible merchant partnerships with Venmo or something like it could be how we actually start integrating mobile payments.

“As companies are leveraging more data analysis and they start looking at how to integrate wallet functionality into everyday activities, the wallets will become like silent pipes through which payments move,” he said. “We’ll see more partnerships happening where you don’t even recognize that you’re using Venmo to pay for things, it’ll be more seamless.”

Ant Financial’s Alipay pursues a tourist-centric payments strategy

It’s not everyday that a Goldman Sachs partner jumps ship to join a startup. It’s also not everyday that said startup has 450 million users. That’s exactly the situation Douglas Feagin found himself in when he joined Ant Financial earlier in 2016 as head of the firm’s international operations.

China’s Ant Financial, the financial arm of Alibaba, powers payments for the online retailer and other internet properties it owns. It currently processes 180 million transactions every day. As more Chinese consumers travel abroad, Ant Financial wants to support them wherever they go and that’s what Feagin intends to do.

“We started by looking at what we do with Alipay in China,” Feagin said to a packed room at the Money 20/20 conference held this week in Las Vegas. “We see payments for online services evolving to support a global lifestyle.”

That global lifestyle is codeword for lots of travel. So, Ant isn’t going after global customers. Yet. But it is pursuing a tourist-centric payments strategy that makes it easier for Chinese consumers traveling abroad to buy things. Feagin and Ant Financial are quickly growing its merchant network stateside, working with a variety of merchant acquirers to get there. Chinese tourists can use their Alipay accounts to shop at Duty Free Stores in San Francisco, for example.

The company also just announced partnerships with Verifone and First Data, a move it believes will help it to expand its retail presence in the U.S. Ant Financial is working with Ingenico and Wirecard in Europe to execute its expansion strategy.

The Chinese tourism industry is booming as 120 million people traveled outside the mainland, a 17 percent increase over 2015. Chinese tourists’ average spend is among the highest in the world. “Luxury tax is pretty high in China, so you get people buying things abroad that they wouldn’t normally buy at home,” he said.

Domestically, Ant Financial keeps rolling out new services. Consumers can use Alipay to split bills at restaurants, order and pay for healthcare, and even to make an appointment to get married. Ant’s Alipay was also behind turning an obscure holiday, Singles Day, into an ecommerce bonanza. 11/11 easily surpassed the Black Friday in the U.S., and Alipay alone processed $14.3 billion just on that day in 2015.

Feagin’s ambitions are also large in scale. The Ant Financial executive set a high-water mark of expanding his firm’s merchant network to 1 million over the next few years. He also intends to increase Ant’s 450 million users to 2 billion worldwide. Globalization should play a big role in that through an in-country partnership strategy.

“In India, Paytm went from serving 35 million customers to 150 million over the course of our partnership in 1 year,” he admitted.


The Startups: Who’s shaking things up (Week ending March 13, 2016)

fintech startups shaking things up

[alert type=yellow ]Every week, Tradestreaming highlights startups in the news, making things happen. The following is just part of this week’s news roundup. You can get these updates delivered direct to your inbox by signing up for the Tradestreaming newsletters.[/alert]

Startups raising/Investors investing

Alibaba’s Ant Financial raising new funding at $60b ahead of IPO (TechCrunch)
Ant Financial, the Alibaba affiliate that manages hugely popular payments service Alipay, is raising a new round of financing that could value the company as high as $60 billion ahead of a much-speculated public listing.

Property Partner lands £15.9m to scale up real estate crowdfunding platform (TechCrunch)
The online real estate investing market is getting more competitive every month.
In any conversation I have about London’s fintech space, property crowdfunding platform Property Partner is almost certain to come up. The startup which lets you invest from as little as £50 in residential property — or the so-called ‘buy to let’ market, as it’s called here in the U.K. — has, by all accounts, been growing at a clip.

Launched just over a year ago it claims more than 6,200 customers who have collectively invested more than £24 million across 166 properties. To further scale up the platform, including increased marketing spend, new products, and growing the team, Property Partner has closed an investment round totaling £15.9 million.

Citi leads $4.2m Selerity funding round (Finextra)
Selerity, a startup that monitors unstructured data and delivers personalised alerts to investors and traders, has raised $4.2 million in a funding round led by Citi, which is also using the firm’s algorithms to provide recommendations to clients through its Citi Velocity platform.

Solar crowdfunding investment platform, Wunder announces $3.6m round (Medium)
Wunder Capital, an online lending platform that connects investors with large-scale solar projects across the United States, announced today a $3.6 million investment round led by Techstars Ventures, Fenway Summer Ventures, and FinTech Collective, alongside existing seed investors.

Online insurance manager CoverWallet raises $2m (Finextra)
CoverWallet announced it received $2 million in seed funding from Two Sigma Ventures, Highland Capital Partners, Founder Collective and a list of strategic angel investors.
The startup, which was in stealth mode until this week, provides small businesses with a concierge-like service that helps businesses deal with the complex, and often confusing, intricacies of commercial insurance.

Former Thomson Reuters chief Glocer invests in Algomi (Finextra)
Former Thomson Reuters CEO Tom Glocer has invested in, and become a strategic advisor to, fixed income liquidity discovery start-up Algomi.

The Startups: Who’s shaking things up

Meet Forcerank, the FanDuel for stocks (WSJ)
The set-up is similar to FanDuel and DraftKings, which let people bet real money with fantasy sports line-ups. Estimize’s new app, called Forcerank, allows players to rank a group of stocks in the order of how they expect them to perform.

But the real reason for the app is far more interesting: the data. Leigh Drogen, chief executive of Estimize, said in an interview with Moneybeat that the idea for Forcerank was inspired by a profitable hedge-fund data program that was shut down by the New York Attorney General several years ago.

Online lender SoFi to run its own hedge fund (MarketWatch)
The unusual move by SoFi is an attempt to get around waning investor interest that is threatening online lenders’ growth. The sector lacks the deposits needed to fund its loans like traditional banks, so it relies on being able to sell the loans to investors to free up capital to make new ones.

Bloomberg’s Matt Levine has his own interpretation on SoFi’s move:
SoFi’s name is “Social Finance,” not, like, “Captive Hedge Fund Securitization Finance.” Lending Club is a “club.” You can witness ontogeny recapitulating phylogeny. A social club for regular people to lend money to other regular people becomes a securitization platform with its own in-house hedge fund while you watch. The whole history of modern finance recurs, sped up, right before your eyes. It is kind of beautiful.
Turns out, SoFi is looking at various ways to ensure capital formation and that is has enough dry powder in the future to keep funding loans. Bloomberg reported that the firm was also sketching out plans to start a real estate investment trust that would buy the mortgages the startup lender makes.

Roofstock is a marketplace for investing in leased single-family homes (Crowdfund Insider)
Just launched this week, Roofstock claims the title of the first marketplace for investing in single-family rental homes. Roofstock matches buyers with sellers in a completely digital transaction. Roofstock states it offers a proprietary inventory of leased, certified, professionally managed homes that generate immediate cash flow.