Ant Financial as one of the favorites of the global mobile payment race

In April 2016, during a round of financing, the size of the market capitalization of Ant Financial, a subsidiary of Alibaba group, increased to $ 60 billion. At the end of 2016, according to estimates by the Hong Kong investment company CLSA, this figure rose to 75 billion. For comparison, the capitalization of American Express is the same $ 75 billion, Discover - 26 billion, Mastercard - 121 billion, PayPal - 53 billion, and Visa - 221 billion

Lucy Peng, one of the founders of Alibaba, once said: "The power of the small is in one movement towards a common goal." This statement well characterizes the strategy that Ant Financial is now guided to grow and expand its business globally.

Alibaba and Ant Financial Approach

1. Find several emerging markets with relatively underdeveloped online payments and a financial services delivery system.
2. Focus on the bulk of mobile phone consumers who are interested in using online transactions to receive financial services.
3. Invest in leading players in the mobile payments and commerce markets, or acquire them immediately.
4. Add to this the ability of Chinese consumers to make purchases around the world with the help of the most familiar to them billing information - Alipay.

This is the essence of the Ant Financial approach in the global mobile payment market.

In 2015, Alibaba and Ant invested $ 680 million in the Indian payment company Paytm , increasing its share in it to 40%. In the past months, they made another cash injection of $ 177 million into the company, bringing the share of Chinese shareholders to 50%. It is also known that last week the largest shareholder of Alibaba, Softbank , was considering the possibility of investing $ 1 billion in Paytm, which, according to some sources, may allow the creation of a new subsidiary within the Paytm brand. The audience of the Indian platform today is 200 million users, and in December, the company's vice-president said that over 7 million transactions go through Paytm every day, which is more than the total number of all debit and credit day operations in the country. In the light of these data, experts believe that such a large investment of Softbank in Paytm can reduce the concerns of regulators about the increased interference of China in the Indian market.
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Indian history is becoming even more interesting because of rumors that some of Softbank’s investments can be used to finance the Paytm acquisition of Snapdeal, a large Indian online marketplace , which, according to some sources, is also considering a similar deal with Flipkart . In 2015, Alibaba, Softbank and Foxconn invested $ 500 million in Snapdeal.

In 2016, Ant invested in the Thai commercial group Ascend Money . Ascend digital payment technology is used in the online markets of Thailand, Vietnam, Cambodia, the Philippines and Myanmar. The amount of the transaction was not disclosed.

In February of this year, Ant Financial made another transaction (the amount of which was not disclosed), which allowed it to become a full-fledged minority shareholder of Gcash - the leader of the mobile payments market in the Philippines with a base of 3 million users. Like Alipay, Gcash provides its users with a range of services - payments, direct payments, payment of bills, online shopping. The owner of the service, the company Mynt, in turn, provides loans to individuals and merchants.

Also in February, Ant invested $ 200 million in South Korean mobile payment service Kakao Pay , installed on 95% of all smartphones in the country. Its user base has 48 million people. This investment is related to Kakao’s plans to expand its financial services portfolio and find new clients among offline merchants.

In early April, Ant acquired helloPay , the operator of the largest mobile payment network in Southeast Asia, and immediately re-branded all names, replacing them with AliPay Singapore, Alipay Malaysia, Alipay Indonesia, and Alipay Philippines. Even before the transaction, helloPay was the most popular payment method on the Lazada market - the largest e-commerce platform in Southeast Asia, serving 8 million regional users, whose total number of consumers is 600 million.

Last week, Lazada hit the headlines on another occasion, after it announced a partnership with Netflix and Uber to compete with Amazon, which recently entered the Philippine market. Now Netflix broadcasting and Uber VIP services are available through other offers of the Lazada electronic platform. Last year, Alibaba invested $ 1 billion in the company to improve logistic and operational efficiency - a measure designed to positively affect the company's competitiveness in the region.

In August 2016, Alipay and Ant signed an agreement with Ingenico, which makes it possible to conduct offline payments for merchants serving 10 million Chinese tourists visiting Europe. According to Ingenico, the addition of Alipay support to its payment gateway allowed merchants to easily connect the payment service to POS terminals.

In October 2016, Verifone and Alipay announced a similar transaction that simplifies the integration mechanisms of Alipay into the payment terminals of all 150 countries served by Verifone, including the United States.

Separately, it should be noted that Alipay is also actively making deals with merchants aimed at satisfying the shopping habits of Chinese consumers: accepting payment at extremely popular with Chinese travelers "duty free" shops at airports, as well as in a number of websites for booking accommodation and travel.

All these actions are closely related to the launch of the proprietary ePass system announced in 2015, which made it much easier for merchants to add Alipay as a payment method.

If Ant succeeds in winning trades for the right to acquire MoneyGram , she will have access to MoneyGram's consumer base, its digital assets, an international network of 350 thousand physical agents and 2 billion bank accounts that a US company uses to send money and hold funds. The deal was approved by the MoneyGram board, but the parties still have to get permission from the Foreign Investment Committee and the US Department of Justice to make it.

Anyway, a persistent feeling arises that Alibaba’s subsidiary’s similar activity is aimed at organizing a single international network of mobile financial services aimed at serving residents of countries with a high threshold of access to traditional banking products. Those 2.5 billion people, for the sake of work with whom the card systems transform their assets and infrastructure. This is exactly how she described the company's plans to Lucy Peng during her December visit to Silicon Valley, saying that Africa and Latin America are the next ones on the list of markets that the company is seriously considering at the moment.

If everything done by the company earlier is only a prologue, it means that soon we will be waiting for news about new partnership deals or acquisitions of existing players in these regions who can provide the Chinese financial group with access to their clients.

What will happen next?

In those old days, when Alipay was still only a payment method inside Alibaba, serving Chinese consumers coming to the online market for shopping, the struggle for customers took place at a different level - inside China, for the right to be accepted among local merchants. Global card networks could participate in Alipay only if they could put their cards in the wallets of Chinese consumers. However, until recently, they were virtually excluded from the competition in the Chinese market.

Banks could only issue cards within the state-owned Union Pay payment network. Some Chinese consumers had MasterCard and Visa cards, but they could only use them outside of China, not inside the country. Theoretically, barriers to work in the market were removed as a result of a WTO resolution adopted two years ago, but international card networks still do not have a work permit. Once they receive it, they will have to go a long way from issuing new cards by local banks to their distribution and use by Chinese consumers.

This means that international card networks, most likely, should not expect a large increase in their share in processing Chinese transactions in the near future, including even though their cards are now available in Alipay wallets.

All this indicates that in the next few years, the field of the global game will be the markets of all developing countries, where all international networks have recently been striving to reach. And of course, we will see more and more attempts to invent a way to “get” mobile payment systems in such markets.

As it happened in India with its major local player Paytm.

Without effort, you can not catch a fish from the pond

Multi-billion dollar Ant investments outside of China could help the company overtake global card networks by creating a single international network of mobile financial services that allows consumers to pay merchants and accept merchants this payment without having to issue branded cards or buy POS terminals. This approach will also provide interested local players with access to all the services that Ant Financial offers to Chinese consumers today - lending, banking and investing. This network will be supported by 450 million Chinese users who have become its customers due to the closed nature of China.

However, all this does not mean that Ant will easily succeed.

First of all, we should not forget that in China there are quite a few other players with similar ambitions, who, however, have not gained the same success outside their domestic market. For example, Xiaomi, Tencent, and Baidu, or others that previously received Alibaba financing for enterprises — ShopRunner and 11 Main electronic market, which closed a year after launch.

The largest and most successful Chinese companies are owned and operated by the state, which makes the state their largest shareholder. This kind of control opens up unlimited access to capital and a financing mechanism, which, on the one hand, nourishes their growth, and on the other hand, holds back internal competitors at a certain level. However, the advantage inside China does not necessarily flow into such outside.

According to Interbrand, consumers outside China are still skeptical of Chinese brands that are reputed to be cheap to produce and sometimes dangerous, low-quality products. It is generally accepted that Chinese companies lack a strategic understanding of the needs and desires of consumers from other countries.

And it seems that the desire to avoid these errors is one of the priorities of the Ant Financial team.

Alibaba’s IPO has given the company funds to invest outside of China, and their financial reporting allows them to get even more credit for their plans. Ant's planned IPO this year will add even more money to the piggy bank.

To avoid the “Made in China” syndrome, Ant decided to act by acquiring their native brands in the target countries. This will give the company access to reputation and good relations with customers, which it will be able to effectively use and bring to a new level.

Before making a deal with Paytm, Ant first of all considered the possibility of opening its own company in the country, later, however, rejecting this idea. This is one of the reasons why the deal with MoneyGram now looks even more attractive in the eyes of the company. MoneyGram will give it a global asset and a worldwide recognizable brand that can be used for other purposes as well. If the deal goes through, Ant is unlikely to rebrand the MoneyGram, and if that happens, then certainly not immediately.

However, Ant’s success, and with it, the company's ability to operate globally, will also seriously depend on another very important point: the economic viability of emerging markets, which it will include and how soon these countries will be able to generate There was a significant amount of transactions.

In this regard, India is a good indicator of the effectiveness of Ant Financial’s efforts to create a global network of mobile payments and financial services, where thanks to the demonetization initiated by the Prime Minister in November, right now, in real time, the emergence of a mobile payment system and economics of financial services.

India in the limelight

Paytm and Ant Financial make serious bets on the Indian market. However, the same can be said about card networks funded and running a QR code-based solution compatible with other tools - BharatQR, which makes it easy to accept payments from offline merchants and direct transfers between RuPay, MasterCard, Visa and American Express cardholders.

As soon as a consumer downloads a banking mobile application, he has the opportunity to make a payment by scanning QR codes in the merchant’s shop. The funds are transferred from the consumer’s bank account to the merchant’s account without the need to use a terminal for accepting cards and without using plastic cards as such. Fourteen banks are already working to include support for BharatQR, and many of their other colleagues in the sector are going to join the pioneers in the next few months.

At the same time, Paytm pours millions into its own system based on QR codes compatible with BharatQR. According to the company, its QR code platform will soon reach the level of 1 million participating merchants and the company has already hired 10 thousand “field agents” to attract offline merchants. It seems that this Paytm strategy is aimed at attracting merchants, and above all those of them, the majority of whose buyers actively use Paytm services and have corresponding accounts in the system.

Obviously, the stakes for global networks in this game are high, and their life would be much easier in the absence of Paytm plans and their solid financial support from Ant Financial / Alibaba.

They are also high for others who wish to break into the highest echelon at any cost.

New Ant CEO Eric Jing in November 2016 said that in the next 10 years his company will create an open ecosystem aimed at providing financial services for more than two billion users.

As events develop in India, it will be very interesting to observe which partnerships will be born on this basis and under what circumstances this will happen. And will there be a place in this “open ecosystem” for card networks whose account details can also be stored in Alipay / Paytm wallets. What about paypal? Or Amazon, which, according to some data, invests about a billion dollars annually in order to become the leading online marketplace in India? And besides, there is Facebook, its Messenger and various commercial opportunities that both companies are working on.

In addition to the opportunity to observe how a system of mobile payments is being created and growing in this country from a clean slate, we will probably also have a good view of the global battle of giants in India and in other world markets.