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Print Edition> Business
UPDATED: July 13, 2015 NO.29 JULY 16, 2015
Little Name, Big Value
E-commerce leader Alibaba's financial arm hopes to share the benefits of growth with the public
By Wang Jun

Offering Internet-based financial services, Ant Financial aims at connecting various occasions in daily life and benefiting as many people as possible (CFP)

Ant Financial Services Group (Ant Financial), a leader in China's Internet finance sector, announced on July 3 that it had completed its first round of fundraising; notably, however, it did not disclose the exact amount. The company, an affiliate of China's largest e-commerce business Alibaba Group, is devoted to inclusive finance and serving small and micro enterprises.

According to updated business registration data, Ant Financial introduced eight strategic investors in this funding round, including two Chinese private equity firms. The National Social Security Fund of China acquired a 5-percent stake. China Development Bank Capital Co. and four large Chinese insurance companies, namely China Life Insurance (Group) Co., People's Insurance Co. (Group) of China, China Pacific Insurance (Group) Co. Ltd. and New China Life Insurance Co. Ltd., each bought 0.5 percent in Ant Financial.

Industry analysts estimated the private placement at about $45 billion, as much as those of the U.S. online taxi-hailing company Uber and China's smartphone maker Xiaomi Technology. They said that it marked that Ant Financial came closer to its goal of going public with a value more than 100 billion yuan ($16.34 billion).

Jing Xiandong, President of Ant Financial, said in a statement that the company will use the money to improve its services and better serve customers.

Robust growth

Established in October 2014, Ant Financial runs Alibaba's online payment platform known as Alipay, giving it access to China's huge user base. Alipay, which is the world's largest online payment platform, contributes 70 percent of the company's operating income.

According to China Business News (CBN), Ant Financial has a total of 400 million active users, more than 80 percent of whom are mobile users. Although Ant Financial has never disclosed the timetable of its initial public offering, industry analysts believe that with a growing number of users and more offline business coverage, the company will have a multiplied valuation when it goes public in one or two years.

When online payment service Paypal announced its plan to split from U.S. e-commerce giant eBay in May, the market offered it a valuation of $40 billion. But last year, Alipay had processed money three times of the volume done by Paypal, said a CBN report.

Ant Financial is also engaged in other fast-growing businesses. For instance, Sesame Credit, a branch of the company, runs a nationwide consumer credit rating system. Ant Financial said in June that it has reached an agreement with Luxembourg and Singapore embassies in Beijing, under which Sesame Credit's consumer ratings will be accepted as proof of solvency or used to replace furlough when applying for visas for the two countries.

CBN reported that Sesame Credit now has 20 million users, and when the number of users surpasses 100 million, it will remarkably push up the valuation of Ant Financial.

Besides businesses in China, Ant Financial is extending its reach to overseas markets. Jing said that by mid-October, the company had more than 17 million active users outside China, and it is investing in emerging markets such as India.

At present, there is no foreign company in the Internet finance sector that operates the same businesses as Ant Financial does, and the industry itself is in an initial period of high-speed growth. "However valuation will not be too much for Ant Financial," said an anonymous industry analyst.

Inclusive finance

The idea of opening a bank first occurred to Jack Ma, founder and chairman of Alibaba Group, in 1992.

"At the time, I wanted to open a translation studio, but it was hard to get a loan as I had no mortgage," Ma told the media when MYbank, the Internet-based bank under Ant Financial, opened for business on May 25. "Then it occurred to me if I opened a bank, I could help more people achieve success."

Including the Internet-based bank, all the businesses of Ant Financial mainly serve small and micro businesses and individual customers. At its inception, Ant Financial's CEO Peng Lei said that the company will satisfy customers with microfinancial needs who account for up to 80 percent of the total.

In the past five years, Alibaba Group's microfinance business has offered more than 400 billion yuan ($65.36 billion) of loans to 1.6 million small business owners, said Yu Shengfa, President of MYbank.

Ant Financial is planning to extend its services to more offline businesses with the advantages it has gained in sales channels, technology and the application of Big Data, so that they can be used on various occasions of daily life.

For instance, with more than 270 million active mobile users, Alipay has promised opportunities to become a major means of payment for public services and in hospitals, supermarkets, convenience stores, restaurants and entertainment venues.

Ratings of Sesame Credit have also been more widely accepted. Besides applying for visas, the ratings will soon be used as deposits for car rentals and hotel reservations as well as in buying air tickets on credit, verifying identification in job-hunting and obtaining loans. This will help increase users' awareness of credit and then establish a social credit system like the FICO Score in the United States.

When Internet finance becomes part of people's daily life like online shopping and social networks do, Ant Financial will have a much larger value.

Copyedited by Kylee McIntyre

Comments to wangjun@bjreview.com

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