Are you following the giant Ant?
Lessons in FinTech, partnerships and the secret sauce to success in financial services
Ants hold the record for the fastest movement in the animal kingdom. They’re also found in every continent except Antarctica (ironic really, when you consider the name).
Fascinating creatures, no? Its namesake is just as fascinating. I’m talking about the Chinese conglomerate Ant Group. Earlier this year it launched Alipay+, a suite of cross-border digital payments and marketing solutions that enable merchants, including SMEs, to better serve their customers globally. And a couple of weeks back, it announced that it will expand its destination to Mainland China in preparation for the upcoming Asian Games in Hangzhou, China. This is a first of its kind, specifically because Kakao Pay of South Korea and the Touch n’ Go e-wallet of Malaysia users will be able to pay in their home currencies in Hangzhou.
This got me thinking - I mean, Ant’s story is definitely a compelling one - but also, to think about how insanely fast they’ve grown and how far and wide they’ve spread (Not very different from its namesake) is staggering.
Ant group, the parent company that runs Alipay, serves over 1.3 billion users and 80 million merchants, with total payment volume reaching ¥118 trillion RMB ($16.7 trillion) across more than 2,000 partner financial institutions in June 2020. Let those numbers sink in -
1.3 billion users
80 million merchants
Processing ¥118 trillion RMB ($16.7 trillion)
Over 2,000 partner financial instituions
Just to think about the tech stack needed to create an Ant-like ecosystem, and then to think about this not just being used by Alipay, and neither just in mainland China, is inspiring. For example, Alipay+ has been implemented in Japan - it allows over a million merchants to take payments and seamlessly from international tourists; similarly, users of e-wallets like AlipayHK, GCash (Philippines), Touch ‘n Go eWaller (Malaysia), and TruMoney (Thailand) can pay over 1,20,000 merchants using local payments apps when traveling in South Korea.
Much like most payment fintechs, Alipay has been trying to replicate the success of its QR-code enabled payments solution overseas. And its finally cracked the code - instead of going after end-users, Ant has been quietly forming partnerships with local payment providers in Asia. And there’s the key to success like Visa/Mastercard - partnerships and creating networks. Given that the likes of Visa had a first mover advantage, but Alipay has done it, allowing customers to travel easily with their mobile wallet from home.
To further this network effect, Alipay+ has onboard billions of merchants, supporting over 2.5 billion businesses around the world. A Filipino tourist visiting Japan for can pull out their GCash wallet and pay at a store that supports Alipay+ by scanning a QR code; A South Korean tourist can pull out Kakao Pay, a Malaysian tourist can pull out Touch ‘n Go. All the while, Alipay+ has automatically calculated and done the currency conversion part - infrastructure!
And how do people discover Alipay+? China’s internet giants are never short of customer acquisition tactics. And this is built on the back of solid technology - for example, when a customer is passing by an Alipay or Alipay+ merchant, merchants can make dynamic offers in real-time and the customer can pay via QR codes. Customers can also pay in-app and get rewards and discounts.
And how does it keep merchants hooked? I was reading an article in The Business Times that said a Deloitte report found that SMEs account for 85% of cross-border payments in the Asia-pacific region. It further added “Digital payments are the key to driving the digitalisation of business activities, as the last mile of a consumer purchase journey,” [Angel Zhao, president of Ant’s International business group] said, adding that fintech innovation could address the specific needs of SMEs.”
Alipay’s strategy has been on how customers shop, rather than how they pay. Its open platform is very strongly geared towards loyalty and increasing sales. Apart from being able to broadcast offers to nearby customers in real-time, the business times report further adds -
Ant sees potential for SMEs to take a step further in the way they reach out to consumers. The group believes businesses can capture more revenue opportunities through digital marketing, by engaging digital wallet users from the very beginning of the customer journey – what it calls the “brand discovery” stage.
“For example, if you are buying a cup of coffee at a coffee shop, you only decide how to pay for it at the cashier. For online, people often only decide which payment methods to choose at the checkout page,”
The group developed Alipay+ to go beyond payments, Zhao noted. It created digital marketing tool Alipay+ Rewards in either mini-programme or landing page format to allow e-wallet users to redeem or purchase vouchers from merchants.
With mobile wallets emerging as a dominant payment method both online and offline, the frequent “sticky” user behaviour makes e-wallets a “valuable and effective” channel for digital marketing, in turn driving online to offline conversions”
The solution then for SMEs isn’t JUST facilitating payments, it’s about actually helping them grow their business. And Ant seems to have clued in to it.
Alipay is plopped right in the middle, from discovery to checkout. It amasses far more data from the course of the purchasing journey since it owns the full stack. It draws crucial insights into user behaviour, which can then be shared with brands, manufactures and even the central bank of China (this is a topic for another day).
At the core, Ant is a technology company and tech companies don’t need to make money on payments, but they need (read: want) the data on consumer habits and purchasing decisions. But Ant is more than that - they’ve developed an array of open financial technology capabilities over the past 15 years. Their platforms can process 250,000 transactions per second today, and Ant is architecting systems that will scale to over 100 billion transactions per day. To put that in perspective, Visa and MasterCard handle just over 60 billion transactions per year combined, and average near 2,000 transactions per second.
What’s more? The company has refreshed its systems architecture over and over again in the last decade alone - it moved from basic escrow to real-time payments to cloud to microservices to cross-border transactions. They’ve been building and re-building every few years.
But it isn’t just about technology, but strategy for Ant. For instance, credit is provided by about 100+ banks on its platform, but Ant doesn’t carry the consumer credit on its balance sheet. 98% is held by banks. It is asset light lending. It is even better because since its not taking on underwriting or disbursement risk, it’s doing the best part of the job - designing products, controlling users, taking a service fee that is a percentage of the interest paid on the loan. Their balance sheet looks like a service company, not a lender.
Source: Ant Group
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The TL;DR of lessons from Ant we can all learn -
Ant is the poster child of ‘data is the new oil’. It has leveraged this data to become the behemoth that it is. I mean, it could potentially challenge and replace Visa and Mastercard, at least in the Asia Pacific.
Partnerships are key to creating the network effect
Being an infrastructure player is just as exciting (and probably more beneficial) as being in payments. (Just ask me!)
Customer acquisition is still a funnel and to succeed, you must be present at every step
The key to cracking SME lending isn’t just about facilitating payments and loans but to help grow their businesses with marketing tools. I mean, the data is all there, right?
Technology isn’t easy and so it needs to be the layer that needs the most resources and attention.
Focus on the technology strategy just as much as you would on the technology itself
Double down every couple of years to learn and relearn everything to build and rebuild new systems.
What’s your takeaway from the giant Ant? I’d love to hear your thoughts.
Cheers,
Rajat