When Chinese regulators torpedoed the $37bn listing of Ant Group in 2020 to rein in billionaire entrepreneur Jack Ma’s financial empire, the future of his lending and payments business was thrown into doubt.
Four years later, Ma has relinquished control of Ant after Beijing ordered a painful restructuring of Alibaba’s fintech affiliate and fined it Rmb7.12bn ($984mn). Ant’s value has fallen about 40 per cent below its proposed listing price, based on the price offered in a share buyback last year.
But after years of lying low, Ant is embarking on a global expansion drive as it appears to be nearing the end of its “rectification campaign” following the overhaul of its business to satisfy regulators. The company made an unexpected bid for Credit Suisse’s Chinese securities unit in February and is working to rapidly expand its international payments business in search of growth in the post-Ma era.
“Ant may try expanding its financial business again. At the end of the day, finance is in its DNA,” said Tilly Zhang, an analyst at research firm Gavekal Dragonomics. “As long as there is a way in front of you, it is understandable that you are willing to try.”
Ant is operating in a vastly different landscape from that of 2020, when 35 Chinese companies raised $13.8bn through initial public offerings in the US, according to Deloitte. It was hailed as a player set to revolutionise the country’s banking sector and was benefiting from a surge in online sales at parent company Alibaba, then the country’s largest ecommerce operator.
Since then, geopolitical relations between Washington and Beijing have frayed and Chinese authorities have launched a crackdown on technology companies with the goal of breaking down a “monopolistic” business landscape controlled by internet platforms.
Alibaba is no longer China’s most valuable ecommerce company and has restructured its business to catch up with rivals such as Pinduoduo, while Ant and its subsidiaries are subject to more stringent financial regulation.
“Things have dramatically changed,” said Zerlina Zeng, a senior credit analyst at CreditSights, adding that Ant’s expansion into the traditional financial services sector had been curbed. “Going forward, these internet financial services platforms [including Ant] will be a supplementary part to the overall banking and financial services industry.”
According to the figures in Ant’s 2020 listing prospectus, the majority of its Rmb72.5bn in revenues in the first half of that year came from its fintech business, led by online consumer loans. This loan business has since been subject to greater regulation while Ant has also reduced its overall exposure to the business, leading to a big drop in profits.
Alipay, the ubiquitous payments app in China, which was the second-largest contributor to Ant’s revenue in 2020, remains part of the group.
While Ant does not publish its own financial data, its annual profits fell by more than half to Rmb30.9bn in 2022 after the regulatory crackdown, according to Financial Times calculations of earnings reports from Alibaba, which holds 33 per cent of the company’s shares. More recently, Ant’s third-quarter profits in 2023 slid by more than 90 per cent year on year to Rmb240mn. Despite the drop in profit, Ant still earns more than some regional banks.
In search of growth, Ant is turning to its international payment division, which accounted for less than 1 per cent of Alipay’s mainland China payment volume four years ago. The app allows Chinese or international users to pay for goods offered by merchants in Ant’s global network using local currency.
Eric Jing, who was named chief executive of Ant for a second time in 2021 to oversee the regulatory revamp, has been on a global roadshow to promote the company. On March 19, he signed off on a structural change to the overseas payment business, allowing it to operate independently and giving staff a stock incentive programme, according to an internal email seen by the FT.
The month before, he appeared in Beijing for a People’s Bank of China event to talk about digital payment services for foreign visitors to China, signalling how the company is trying to engage with a government hoping to revive tourism, said analysts. Foreign travellers often struggle to pay in China because merchants only accept Chinese digital payment apps.
“When we go to a new market, it is not about making quick profits or taking money away,” Jing said at an event in Singapore in November. “For us, it is always about making an enduring commitment and sustained contribution to the local economy.”
In a document detailing its progress released in January, Ant said its payment network now connected more than 88mn merchants to 1.5bn consumer accounts on over 25 apps in 57 countries and regions, but it did not give a growth target. Ant did not respond to a request for comment.
“Global expansion is Ant’s top priority this year and the sole engine for its future profit growth,” said Liu Meng, an analyst with consultancy Forrester. “But Ant and other Chinese peers need to offer a much better product to grab market share in the . . . global arena of fintech software.”
One unanswered question is how Ant fares without Ma as the company’s controlling shareholder and ultimate decision-maker. While his exit has eased tensions with Beijing, it may also leave the company without a clear strategic vision.
“[Ant’s] corporate governance is 1712283582 more balanced and optimised,” said Dong Ximiao, a senior researcher at Merchants Union Consumer Finance. “Of course it also has disadvantages . . . the group might lose its efficiency and may be acquired by other institutions or individuals easily.”
Another question is how Ant funds its business transition now that the regulatory crackdown has hit its profitability. Other lenders are set to come under similar pressure after the National Financial Regulatory Administration rolled out stringent capital requirements for all consumer lending companies in March.
Ant’s consumer loan business, formerly the group’s most profitable unit, has nearly halved from a peak lending book of Rmb2.2tn, sources familiar with the size of the business said, and is set to shrink further. A leverage ratio cap imposed by regulators in 2021 is squeezing its size and profitability.
The unit relied on earning fees by attracting young online clients to take out loans from smaller Chinese banks. But some of these banks are still being forced by regulators to reduce their exposure to Ant and other online platforms, two of the banks’ managers said.
“Nothing yet has shaken its leading position as a payment service, but it’s very hard to predict how the group will be positioned in China’s financial landscape going forward,” said Dong. “Ant cannot grow as fast as it used to, that’s for sure.”
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