The Biggest Fintech Company in the World
In our recent article on the 10 Biggest Artificial Intelligence Startups in the World, we noted that half were from China and three out of ten were fintech startups. The large number of fintech startups cropping up in areas such as cross-border payments, retirement planning, and investing platforms, are threatening the traditional banking system as it has existed for decades. Considering that almost one out of every five people on the planet live in China, we can expect to see fintech companies that target the Chinese demographic grow very quickly. That’s exactly what’s happening with a Chinese fintech firm called Ant Financial.
If you want proof that hard work and dedication pay off, look no further than Jack Ma, the richest man in China.
This man has a ferocious tenacity, having been rejected at Harvard Business School ten times in a row (he never managed to get in). He had similar success looking for a job, and was rejected 30 times in a row, even when he applied for work at Kentucky Fried Chicken. It gets even worse. Out of the 24 people who applied to KFC alongside him, he was the only one rejected.
While Jack Ma had every right to be discouraged, he didn’t get on Twitter and start pissing and moaning about how unfair the system is. Instead, he bought his first computer at the age of 33 and proceeded to start a business. When venture capitalists didn’t throw buckets of money at his unbridled genius, he didn’t talk about how “broken venture capital is” but instead bootstrapped his business with $20,000 that his wife and friend helped him raise. Fast forward to today and Mr. Ma is worth a cool $42.6 billion. Back of the napkin math shows a return of +212,999,900% on his original investment. The company he co-founded, Alibaba (BABA), is now worth $526 billion. One of the people who co-founded Alibaba with Jack Ma was Peng Lei.
In her mid-forties, Peng Lei is one of 49 Chinese women on the global list of self-made billionaires. (You rarely hear Chinese women complaining about how they can’t get ahead in the workplace because they’re too busy working. Incredibly, 63% of all self-made billionaires are Chinese women.) Following a successful stint at Alibaba, this tenacious woman then spearheaded the controversial spinout of Ant Financial from Alibaba back in 2014. She certainly made isht happen, because less than four years later, Ant Financial became the biggest fintech company in the world. It’s also the most highly valued startup there is today with a valuation of $150 billion. (To put that number into perspective, it’s more than twice Uber’s valuation of $68 billion.)
The Biggest Fintech Company in the World
While Ant Financial was founded in October 2014, it originated from Alipay, which was founded in 2004 within Alibaba. Ant Financial has now taken in $18.5 billion in funding, the majority of which was announced just days ago in the form of a $14 billion Series C funding round, one of the largest ever made. Following that round, Ant Financial is now worth more than Goldman Sachs and Barclays combined, with a valuation of $150 billion. Investors in the latest round included a large number of institutional investors from all corners of the earth including the Canada Pension Plan Investment Board, the Singapore sovereign wealth fund (and the Singapore government investment company Temasek), The Carlyle Group, Baillie Gifford, the Malaysian sovereign wealth fund, and T. Rowe Price (TROW). That money will be put towards the “globalization” of Ant Financial, which is a good segue into talking about what they do.
Ant Financial and the “Ant Model”
“Ant Financial is a technology company that brings inclusive financial services to the world”, says the company’s About Us page, and with 870 million annual active users on their platform, they’ve already managed to capture 11% of all the people living on our planet. Here’s their target demographic:
That’s the first part of their “Ant Model” which is “inclusive finance”, meaning that everyone should have access to basic financial services like credit and the ability to pay for something easily. The second part of the model is “green”, and this excerpt from Wikipedia explains how they’re using gamification to promote good behavior:
Ant Forest, the world’s largest platform for tracking individuals’ carbon footprints. Ant Forest allows users to collect “energy points” through their actions in the real world that can be used to grow virtual and ultimately real trees, with 230 million users of Alipay activating Ant Forest accounts.
The third part of the “Ant Model” is of course technology, and the company refers to themselves as a “techfin” company as opposed to a “fintech” company.
Ant Financial and Technology
Here are the four main areas of technology that Ant Financial focuses on:
- Big Data – Ant Financial developed “3-1-0” online lending, that is, a service standard characterized by a 3-minute application process, and 1-second loan decision, all with zero manual intervention. This is the backbone of their “Zhima Credit Score”.
- Facial Recognition – Facial recognition is a huge thing in China, and the Ant Financial facial recognition algorithm achieved 99% accuracy in the international face photograph database LFW, exceeding the human eye’s rate of recognition accuracy of 97.2%. It powers Alipay’s “Smile to Pay” functionality.
- Cloud Computing – The Ant Financial cloud platform leverages the advanced technology and experience in cloud computing accumulated by Alibaba.
- Risk Management – Just over 20% of all employees at Ant Financial work in risk management. The capital loss rate of Alipay is lower than 0.001% – in other words, lower than the possibility of being hit by a meteorite.
- Artificial Intelligence – On China’s biggest shopping day in 2015, 95% of Ant Financial’s remote customer service was provided by artificial intelligence algorithms.
While listing out each of these focus areas, we touched on some of the main products being offered by Ant Financial. These include payments, wealth management, financing, insurance, and credit references:
Let’s look at each of these four areas a bit closer.
Ant Financial Products
Alipay is the world’s largest mobile and online payment platform with over 870 million active users and over 200 domestic financial institution partners. What started out as a digital wallet has now evolved into a platform where users can hail a taxi, book a hotel, buy movie tickets, pay utility bills, make appointments with doctors, or purchase wealth management products. One-third of Alipay users hail from outside China. Just to give you an idea of how fast they’re growing, here’s a slide from two years ago:
In two years, Alipay nearly doubled the number of accounts on their platform to 870 million, a number that is almost 5X the number of accounts that PayPal has, and about 61% of the way towards having as many accounts as Mastercard does. All these users will then be pushed towards using other Ant Financial Products, a strategy which seems to be working well:
Launched in August 2015, Ant Fortune is a comprehensive wealth management app which lets users do cool things like round up transactions to save lots of pennies over time. Users can then invest their pennies in the world’s largest money-market fund, Yu’e Bao, which was taking in so much money that the Chinese government identified it as a systemic risk. In response, Ant started curbing new funds flowing into their massive $251 billion fund (as of the end of 2017). According to an excellent article by the Wall Street Journal on the topic, Yu’e Bao has more than 400 million account holders. When you consider that Charles Schwab only has around 10 million accounts, you realize that Ant Financial is in a different league entirely.
We’ve written before about the “new credit score”, and what Ant Financial offers rings a lot of bells. In 2014, China first began talking about a “social credit score” and in 2015, Ant Financial was one of just eight companies given approval to build private credit scoring platforms. That’s according to a comprehensive article published by Wired late last year, which is so verbose, that only someone with the tenacity of Jack Ma would be able to finish it in one go. If you do manage to make it through, you’ll learn loads about Zhima Credit’s “opt-in” social credit score which (as of last year) had 257 million active users, a number that exceeds the number of people in the U.S. credit system (about 250 million.)
Finally we have MYBank, a private online bank established in June of 2015 with a mission to serve small and micro enterprises. They now have 100 million users on the platform, 73% of which use “Ant Credit Pay” six or more times a year. MYBank also provides unsecured loans to more than 5 million businesses, and cash management services to 1.4 million businesses. While we’re not sure if insurance falls under this umbrella, it’s worth mentioning how successful Ant Financial has been when it comes to selling insurance. We were able to get the below numbers from a deck the company published exactly two years ago:
This is incredible when you consider that according to an article by Asia Insurance Review, in 2016 China Life increased their sales agents by 52.7% to 1.5 million and Ping An expanded their sales force by 27.7% to 1.1 million last year. All that effort might be because they realize they’re getting owned by a 4-year-old fintech startup.
While we’ve looked at a number of distinct product offerings here, an article by Bloomberg offers up some insights on where the revenues are actually coming from for Ant Financial today:
In an article by Pensions & Investments, an Ant Financial company spokesman said that “the strategic partnerships established through the fundraising are more important than the headline fundraising figure” which implies that they have their eyes set on global domination as opposed to staying within China’s borders. By 2025, Ant Financial plans to have 2 billion users (a quarter of the world’s population) using their app in a myriad of different ways:
The Wired article we referenced earlier said it best – “It was as if Amazon had swallowed eBay, Apple News, Groupon, American Express, Citibank, and YouTube.” Jack Ma certainly sees the potential here, as Alibaba Group purchased a 33% equity stake in Ant Financial this past February. Then of course there’s the planned IPO in Hong Kong which is coming up.
If you’re wondering why the biggest fintech company in the world is named Ant Financial, we’ll leave you with this answer from the horse’s mouth:
The ant is a symbol of a small but tenacious force in the natural world. Ants may be small, but they have limitless strength when they work together. The ant also symbolizes our trust in and reliance on small and micro enterprises.
A tenacious force indeed.