China has leapfrogged the payment industry. Most people pay by phone – and the majority are customers of Ant, a local firm with global ambitions.
Spun out of China’s goliath Alibaba Group in 2014, Ant Financial is the world’s most valuable fintech firm, worth $60 billion. Its core business is internet payments. About 520 million Chinese customers and some 10 million merchants use its Alipay service on Alibaba’s e-commerce sites. Mobile commerce dominates. In addition to being the biggest mobile phone market, China is the world’s biggest internet-payments market. Ant controls 51% of it, according to Goldman Sachs, with $11 trillion in transactions last year. This is twice the size of America’s credit and debit card industry.
Now Ant is pursuing large-scale expansion outside Asia. Earlier this year it penned a deal to install payments systems in US retail stores. It is also in the process of buying MoneyGram, an American money-transfer firm active in over 200 countries. Ant’s ultimate goal is to replicate its model in China around the world. This will require building relationships with local banks and firms, which takes time. Posing a further hurdle, most people in developing countries do not have bank accounts to connect to mobile accounts.
In the meantime, Ant is expanding through its network of local affiliates, mostly in Asia. It has made solid progress in this area, owning about half of Paytm, India’s largest mobile commerce platform. It also has stakes in fintech firms in Thailand, Singapore, Indonesia, the Philippines and South Korea, The Economist reports. Its primary purpose in acquiring MoneyGram is to gain licences abroad and access to potential customers for its digital services.
A bigger challenge could be Ant’s growing competition, at home and elsewhere. Domestic rival WeChat, owned by Tencent, has bolstered that company’s share in the digital payments market from 15% in 2014 to 33% last year. Several e-commerce and ride-hailing firms in South-East Asia are adding payments to their mobile apps. Regional lender DBS is leading in digital banking. In the US, Apple Pay is accepted in 4.5 million locations and has plenty of growth potential.
Ant may also run into difficulties with foreign governments not wanting Chinese firms elbowing into their financial systems. The pending MoneyGram deal is under review by America’s national-security review panel, CFIUS. But welcoming Ant may not be a bad idea in countries, including America, with old financial systems in place. Ant has evolved much more recently and differently, on a digital platform, making it more efficient and in sync with the present day. To gain a foothold, Ant will have to convince other countries that its system is safe – before home-grown tech firms develop solutions of their own.