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IN1667
Case Study
Ant Financial and Tencent:
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A Tale of Two FinTech Unicorns in China
07/2020-6588
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This case study was written by Kuangzhen Wu, Research Associate at INSEAD, under the supervision
of Guoli Chen, Associate Professor of Strategy at INSEAD, and Tony Tong, Professor of Strategy at
University of Colorado at Boulder. It is intended to be used as a basis for class discussion rather than
to illustrate either effective or ineffective handling of an administrative situation.
To access INSEAD teaching materials, go to https://publishing.insead.edu/
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Executive Summary
In China’s internet and mobile market, Alibaba Group (NYSE: “BABA” and HKEX: 9988) and
Tencent (00700.HK) are the two biggest, most fast-growing and important companies. By the end
of 2019, the market value of Alibaba, the e-commerce giant, had grown to US$570 billion, making
it the most valuable company in Asia and seventh globally. It had overtaken Tencent, which
dropped to No.2 in Asia and No.9 globally, and was worth US$459 billion1 (see Exhibit 1).
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From e-commerce – Alibaba.com (阿里巴巴) in 1999 and Taobao.com (淘宝) in 2003 – Alibaba
expanded into adjacent categories such as digital payment processing services with Alipay (支付
宝) and a wealth management platform Ant Fortune (蚂蚁财富), both operated by Ant Financial
Services Group (or “Ant Financial” 蚂蚁金服), an affiliate of Alibaba Group. In this way an entire
infrastructure ecosystem was built around the e-commerce core. Ten years after Alipay was
founded in 2004 as an online payment platform to support Alibaba’s e-commerce portal
Taobao.com, Ant Financial was launched. Within five years it was one of the world’s largest fintech
companies. According to a Hurun (胡润) Report (publisher of China’s Rich List) released in
January 2020, Ant Financial had “reached a market valuation of US$145 billion and China’s top 5
in a ranking of all companies in China across all the sectors.”2 Ant Financial controlled the world’s
largest money market mutual fund (MMMF) – Yu’e Bao (余额宝), and extended loans to tens of
millions of people in China.3
tC
Tencent gained fame from social networking and games – popular digital products such as the
instant messaging (IM) service QQ, the social network Qzone, the gaming platform QQ Games,
and the mobile IM service WeChat. Its IM software service and web portal social networking
service QQ.com, released in 1999, monopolized the Chinese market from 2005, when it overtook
MSN (a similar IM service offered by Microsoft). WeChat (known as “Weixin” (微信) in China),
released in 2011, surpassed QQ in Q1 2017 with 938 million monthly active users (MAU) while
QQ saw a 2% decline to 861 million MAU.4 Qzone, a social network similar to Facebook, released
in 2005, allowed QQ users to write blogs, keep diaries, post and share photos, videos, and live
streaming. Unlike Facebook, which was monetized by advertising, Qzone sold value-added
services like background wallpaper and profile customization.
No
Online advertising represented just 18% of Tencent’s total revenues, much less than the games
sector which accounted for 30.4% of the total revenues. 5 Though less well-known than
Nintendo/Super Mario, Tencent was the biggest company in the global games market, with 2018
games revenues of US$19.7 billion, more than any listed company in this sector, accounting for
15% of total global games revenue.6
Do
Leveraging the vast user base of WeChat, Tencent expanded from social networking into banking
and financing services, including payment services (“WeChat Pay” 微 信 支 付 ), wealth
1
2
3
4
5
6
“Alibaba becomes most valuable Asian company as market cap tops $500bn”, by Kentaro Iwamoto, Nikkei Asia Review
26/12/2019
“Asian Fintech Firm Ant Financial Ranked China’s Fifth Most Valuable Private Company”, by Omar Faridi,
Crowdfundinsider.com, January 11, 2020.
“Jack Ma's FinTech startup shakes up China's banks”, by Stella Yifan, marketwatch.com, 29/07/2018.
“WeChat’s Older Sibling QQ Plans to Stay Forever Young”, by Rita Liao, 07/08/2017, technode.com and Tencent annual
report 2019.
Tencent Annual Report 2019, company website.
“Newzoo: Tencent responsible for 15% of 2018’s global games revenue”, by Alex Calvin, April 18, 2019, Pocketgamer.biz
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management (“LiCaiTong” 理财通), and MMMFs (“LingQiangTang 零钱通). While similar in scope
to Alibaba’s Ant Financial, unlike Alibaba Tencent was powered by its 1.1 billion WeChat users
and its fintech segment was embedded within Tencent itself.
Together Ant Financial’s Alipay and Tencent’s WeChat Pay accounted for over 90% of China’s
third-party mobile payment market, representing a transaction volume of CNY¥208.07 trillion
(US$31.15 trillion) in 2018, according to the People’s Bank of China (PBC).7 Both companies built
up an open platform to fill the financing void, reaching out to offer financial services to consumers
and small and micro businesses (SMBs) underserved by traditional Chinese banks. Both exploited
a first-mover advantage to become fintech unicorns in China’s banking and finance industry.
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Could they sustain their exponential growth in an increasingly complex legal and regulatory
environment, as competition from state-owned banks and other new entrants intensified? What
strategy would sustain their momentum? Who were their potential competitors and collaborators
in China’s fintech industry? Could CSR (corporate social responsibility) be a potential nonmarket
strategy in China’s changing institutional environment?
Alibaba and Ant Financial: A Brief History
Alibaba
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“Alibaba’s special innovation, we realized, was that we were truly building an
ecosystem: a community of organisms (businesses and consumers of many types)
interacting with one another and the environment (the online platform and the larger
off-line physical elements). Our strategic imperative was to make sure that the platform
provided all the resources, or access to the resources, that an online business would
need to succeed, and hence supported the evolution of the ecosystem.”
Zeng Ming, chairman, Academic Council of the Alibaba Group8
No
Alibaba plays in the “big tech” league alongside Amazon, Facebook, Apple and Google, with 846
million mobile MAUs and 726 million annual active consumers in two retail marketplaces (Taobao
淘宝 and Tmall 天猫) 9 In fiscal year ending March 31, 2020, Alibaba Group reported net income
of more than $19.8 billion on revenues of $72 billion. Its core business (retail and wholesale,
logistics services, consumer services) accounted for 86% of total revenues (see Exhibit 2a).
Headquartered in Hangzhou, Zhejiang Province, Alibaba was described by Forbes as the
“gateway to China and Chinese customers” for brands. It dominated e-commerce (Taobao and
Tmall), and affirmed its leading position in digital payments (Alipay 支付宝), and cloud computing
services (Alibaba Cloud 阿里云) in China.
Do
The Alibaba empire was built on its own architecture, which included Alibaba Cloud (technology
infrastructure for cloud, IoT, mobility and big data), Amap ( 高德地图, a mobile digital map,
navigation and real-time traffic information provider), Ant Financial (payment and financial services
7
8
9
http://www.xinhuanet.com/money/2019-03/21/c_1124262401.htm, translated by case writers.
“Alibaba and the Future of Business”, by Zeng Ming, Harvard Business Review, (pp.88–96) September-October 2018
issue.
“Alibaba Group Announces March Quarter and Full Fiscal Year 2020 Results”, released on May 22, 2020.
www.alibabagroup.com.
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infrastructure) and Alimama (阿里妈妈, the marketing services and data management platform),
with a logistics infrastructure (including Cainiao Network 菜鸟 and Fengniao 蜂鸟配 送) for
physical goods and services, and data technology for digital media and entertainment respectively
(see Exhibit 2b).
The company started wholesale (B2B) e-commerce in 1999 (Alibaba.com for the global market;
1688.com for the domestic market); and retail (C2C) e-commerce with the launch of Taobao in
2003. It thus developed “a retail ecosystem with the best selection and range of prices, while
solving the challenges around logistics and payments”10 (see Exhibit 2c). Unlike Amazon, which
hosted inventory and the supply chain, Alibaba did not own inventory or merchandise but was
purely a platform to connect buyers and sellers.
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Alibaba’s 2014 IPO on the New York Stock Exchange was “the largest IPO of all time”.11 Since
2015 it has maintained the average annual growth in revenues above 40% (see Exhibit 2d). On
November 26, 2019, Alibaba listed on the main board of the Hong Kong Exchanges and Clearing
Limited (HKEX), with shares priced at HK$176 (US$22.5). CNBC called it “the world’s largest
listing so far in 2019”.12 As it expanded into all the major markets in the world, founder Jack Ma
became something of a legend.13
Ant Financial
“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.”
Antfin.com
tC
Ant Financial started small, in what was then an undeveloped financial system and a regulatory
vacuum (see Exhibits 3a and 3b). The fintech company focused on “providing inclusive financial
services to consumers and small and micro businesses in China and across the world”.14 Alipay,
its key product, was initially designed to provide online payment services and facilitate Taobao’s
online transactions to overcome a lack of trust in e-commerce in the days when online shopping
was still a novelty in China.
Do
No
Taobao was Alibaba’s response to eBay’s high-profile entry into China’s C2C business in 2003,
when it purchased Eachnet, the top e-commerce site at that time with over 2 million users and
85% market share in China. EBay, founded in 1995 and listed on NASDAQ in 1998, had claimed
70% of the online auction market in the US by 2002.15 Concerned that Alibaba’s B2B business
would be hurt by eBay, Jack Ma launched Taobao to compete head-to-head in the C2C market:
“EBay may be a shark in the ocean, but I am a crocodile in the Yangtze River. If we fight in the
ocean, we lose – but if we fight in the river, we win.”16
10
11
12
13
14
15
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“Word-wide e-Retail Market Forecasts to 2024”, PR Newswire, July 11, 2019.
https://www.nyse.com/network/article/Alibaba-Lists-on-the-NYSE
“Alibaba shares surge in Hong Kong debut, the world’s largest listing so far in 2019”, by Eustance Wang, November 26,
2019. CNBC.
“Alibaba and the Future of Business”, by Zeng Ming, Harvard Business Review, (pp.88–96) September-October 2018
issue.
Alibaba SEC Form 20-F 2019, Alibaba.com.
“A Case Study on International Expansion: How eBay Failed in China”, by Alex Lee, July 14, 2018, medium.com.
“How eBay Failed in China”, by Helen Wang, Forbes.com, Sep 12, 2010.
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Taobao’s initial development was bumpy. Users had doubts about online transactions – sellers
worried whether the money would be collected after sending the goods; buyers whether they
would receive the goods after making payment – hence many transactions were conducted in the
same city. A buyer in Hangzhou would post an order on Taobao and arrange to meet the seller at
an agreed location to physically receive and pay for the goods.
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It was clear that the “no pay, no goods” mentality would hinder further development. Alipay,
launched in 2004, offered a solution by providing an online payment facility and escrow services.
Not only did it enable buyers and sellers to send/receive payments, but kept the payment in an
escrow account (instead of transferring it from the buyer’s account directly to seller’s) (see Figure
1), thus providing the means to claim a refund if the goods/services were not received or failed to
satisfy quality expectations. The third-party payment service sparked confidence in China’s online
marketplace, which until then had failed to inspire trust. Indeed Alipay’s “full-refund compensation
system” 17 singlehandedly explains the exponential growth of Taobao transactions and the
development of e-commerce in China. “By March 2006, Taobao had outpaced eBay EachNet and
became the leader in China’s C2C market, with 67% market share in terms of users, while eBay
EachNet had only 29%.”18
Figure 1. Alipay’s Payment and Escrow Service
Alipay notifies
seller to deliver
the product(s)
purchased
Buyer receives
the goods and
notifies Alipay
Alipay transfers
the payment
fund to seller
Transaction
successfully
completes
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Buyer selects
product(s) and
makes payment
to Alipay
Source: compiled by authors
No
From a handful of employees supporting online payment services for Taobao, Ant Financial
developed into one of the largest financial institutions in the world. Every milestone in its short
history — from Alipay’s “full-refund compensation system” in 2005, to small and micro financial
services (阿里小贷) in 2010, Yu’e Bao in 2013, and Zhao Cai Bao (招财宝) in 2014 – added to the
success of its core business, meanwhile redefining the landscape of banking and financial
services in China.
Do
By June 2019, the number of global annual active users (AAUs) served by Ant Financial and its
nine local e-wallet partners increased to 1.2 billion. Seven out of ten of Ant Financial’s domestic
AAUs used at least three of the following services: digital payment, wealth management, micro
financing, insurance, and Zhima Credit.19 Ant Financial surpassed US-based PayPal in 2013. In
2018 it raised US$14 billion in venture capital, or 35% of global VC investment in fintech firms (US
and European firms combined accounted for $15.9 billion).20
17
18
19
20
Alipay promises to well protect its members by fully reimbursing any unauthorized transactions that were made from their
accounts. https://intl.alipay.com/ihome/user/protect/memberProtect.htm
“How eBay Failed in China”, by Helen Wang, Forbes.com, Sep 12, 2010.
Alibaba SEC Form 20-F 2019 and “Ant Financial – A Global Leading TechFin Company” by Eric Jing, Alibaba.com
“China’s Ant Financial Raised Almost As Much Money As All US and European FinTech Firms Combined”, by John
Detrixhe, January 30, 2019, qz.com.
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As part of its “inclusive finance” strategy, Ant Financial launched a blockchain-based cross-border
e-wallet remittance service in June 2018, “offering a fast, secure, convenient, transparent and lowcost way to transfer money directly between individuals in Hong Kong and the Philippines.”21 In
October, it launched Xianghubao (相互保), an online mutual aid scheme platform, which attracted
100 million participants within a year, of which two thirds earned less than CNY¥100,000
(US$14,000) per year and one third was from rural China. Powered by Alipay’s proprietary
consortium blockchain technology (see Figure 2) to enhance security, transparency, efficiency
and low claims processing costs, Xianghubao provided basic health insurance against 100 types
of critical illness ( including thyroid, breast and lung cancer, brain and heart attacks). Approved
one-time claims were reimbursed up to CNY ¥300,000 (US$43,000), split equally between the
participants in Xianghubao. As of November 2019 it had provided medical aid to over 10,000
people.22
tC
Figure 2. Medical Invoice Issuance and Circulation on Ant Blockchain
Source: “Ant Financial—A Global Leading TechFin Company”, Alibaba Group Investor Day 2019.
Ant Financial operated in digital payments services (Alipay) and fintech platform services including
wealth management, micro financing and insurance, as well as credit services.
No
Digital Payment Services
Alipay—Mobile and Online Payment Services
Do
After a decade of development, Alipay was a leading global third-party mobile payment platform,
providing payment processing services to online and offline merchants and consumers globally. It
expanded its customer base by leveraging innovative technologies, from password verification to
scan codes to facial recognition. It had expanded to in-store offline payments in China and 50
markets worldwide, and supported tax reimbursement in 35 markets. Working in 27 currencies
and with 250 overseas financial institutions and payment solution providers, it was used by
Chinese travelling overseas and by overseas customers who purchased products from Chinese
e-commerce sites. By June 2019, the number of AAUs and local e-wallet partners exceeded 1.2
billion globally, of which 900 million were in China.23
21
22
23
“Our History and Timeline”, www.antfin.com
“Alipay’s Xianghubao attracts 100 million participants in a year”, press release November 27 of 2019, www.antfin.com.
“Alibaba Group September Quarter 2019 Results”, www.alibabagroup.com
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Alipay became a “lifestyle enabler” offering multiple services under one umbrella (be it ordering
food delivery, hailing a taxi, booking a flight/hotel or medical appointment, buying cinema tickets,
paying utility bills, or purchasing wealth management products).24 The more services it provided,
the more frequent the usage, the higher the switching cost and the ‘stickier’ the platform.
Financial Technology Platform Services
Wealth Management
Yu’e Bao (余额宝), Zhao Cai Bao (招财宝) and Ant Fortune (蚂蚁财富)
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Yu’e Bao launched as an investment service integrated with Alipay on June 17th, 2013, making
Alipay a provider of financial services. “Yu’e” (Chinese for spare cash) referred to the balance
remaining on Alipay’s e-commerce accounts. “Bao” signalled added value, referring to the way
customers could move money from their Alipay e-commerce account to take advantage of interest
yields on a daily basis, free of charge, for amounts as little as CNY¥1 (US$0.14). High-interest
accounts paid up to 7%25 and the deposits were pooled by Tianhong (天弘) Asset Management
Company (a finance company in partnership with Alipay)26 to invest in short-term debt securities
such as commercial paper. In essence, Yu’e Bao synchronized Alipay’s e-commerce payment
services with money market mutual fund (MMMF) services to create an integrated account, where
all e-commerce and investment-related transactions could be done online or via a mobile app
provided by Alipay.27 It was the first to integrate accounts using an internet/mobile platform as a
distribution channel.
tC
“It provides a list of benefits that Chinese investors have not experienced before: 1)
the remaining balance can be directly used to make payments for e-commerce, 2) the
remaining balance earns transparent earnings on a daily basis, which can be
immediately used to make new payments, 3) very low management fees, and 4) a
minimum investment threshold of CNY¥1.”28
No
The convenience of integrated accounts, internet/mobile platform and competitive interest
payments attracted small and micro investors in China, particularly online shoppers with a budget
of less than CNY¥20,000 (US$2,800). Within a year Yu’e Bao had CNY¥570 billion (US$80.3
million) in assets under management to become China’s largest MMMF. By the end of 2018 it had
CNY¥1.13 trillion (US$168 billion) in net assets, making it the world's largest.29
Alibaba’s next target was online wealth management. Zhao Cai Bao (招财宝), launched on April
10, 2014, was customised to “automatically match individual investors’ investment requirements
with proper wealth management products offered on its website”. 30 In partnership with China
www.antfin.com
The interest rate of Yu’e Bao dropped later to 5% in May of 2014, again down to 3% in 2015, but still maintained higher
than bank current deposit interest rate 0.35%.
In addition to Tianhong Fund, Alipay later also partnered with other third-party fund management companies to provide
MMMF products under the name of Yu’e Bao. Alibaba SEC Form 20-F 2019, Alibaba.com.
“Shadow Banking in an Economy: Could Alibaba Shake China’s Financial Stability”, by Jingying Jia, Anne Young, Hong
Zhang and Cen Zhao, 08/2018-6252-Ed, Copyright © 2018 INSEAD
Ibid.
“Technology and Big Data Analysis Drive 80-time Average Growth in Fund Size at World’s Most-used Money Market
Fund Platform”, by Georgina Lee, Mar 27, 2019, scmp.com, sourced from Factiva.
“Alipay Offers New Wealth Management Platform”, August 25, 2014, Global Data Point, sourced from Factiva.
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25
26
27
28
29
30
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National Investment & Guaranty Company (中国投融资担保有限公司) and Zhong’an Online
Property Insurance Company ( 众 安 在 线 保 险 公 司 ), Zhao Cai Bao provided 100% cover of
investors’ capital and interest up to CNY¥1 million (US$140,000) in case of unauthorized trades,
and assured real time liquidity. Unlike fixed-term investment products, investors could withdraw
early if they needed cash urgently or found a higher return elsewhere without forfeiting the interest
earned. They thus enjoyed the dual benefit of higher interest rates and liquidity. Zhao Cai Bao
targeted small and micro investors (like Yu’e Bao), but with more available cash in Alipay account.
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On August 18 2015, Alibaba launched a stand-alone independent app, Ant Fortune,31 a single
account (or Alipay account) to purchase wealth management products, including Yu’e Bao, Zhao
Cai Bao, and other fund and insurance products, as a means to connect investors with SMBs and
individual borrowers. A one-stop mobile wealth management platform for people underserved by
traditional financial institutions, Ant Fortune helped fund management companies and insurance
companies to extend their consumer base by offering MMMFs, fixed income products, debt and
equity securities funds, and other wealth management products. Partnerships with 120 asset
management institutions, Ant Fortune provided over 3,500 fund choices,32 enabling its 100 million
users to build an investment portfolio with varying degrees of risk.
Micro Financing for Consumers
Ant Huabei (花呗 Credit Pay) & Ant Jiebei (借呗 Cash Now)
tC
In December 2014, Alipay launched Ant Huabei (Huabei), an online credit scheme that provided
one-month’s free credit up to CNY¥500-50,000 (US$70-7,000) to shop online. If the borrower
could not pay within 30 days, he/she could either pay interest (0.05% per day) on the amount or
opt for an instalment repayment plan. For 12 instalments, the average service charge per
instalment was 0.73% of the amount owed.
No
In April 2015, Alipay launched Ant Jiebei (Jiebei), another internet-based consumer credit offering
for Ant users with a Zhima Credit Score over 600. Qualified users could borrow from CNY¥1000300,000 (US$141-4,200). The daily interest rate varied from 0.02% to 0.05% depending on their
credit score and repayment history. For users with a Zhima Credit Score of 800+ it could be as
low as 0.03%. Unlike Huabei, Jiebei users paid interest from day 1 (not day 31). According to
People’s Daily, Ant Jiebei’s net income was CNY¥6.1 billion (US$0.86 billion) in 2017.
Micro Financing for SMBs
MYbank
Do
Founded in June 2015, MYbank offered 3-1-0 online loans (“3 minutes to apply, 1 second to get
approved and 0 manual operation”) and was positioned as a “small deposit and small loan service
provider”. Deposits could not exceed CNY¥200,000 (US$28,200) and loans could not exceed
CNY¥5 million (US$0.7 million). MYbank had no real estate, no banking staff, no cash services
and nor cheque/remittance facilities. Ant Financial Cloud hosted MYbank’s IT structure. MYbank
used real-time payment data and a risk management system that analysed more than 3,000
variables. Zeng Ming, chairman of the Academic Council of Alibaba Group, explained:
31
32
“Ant Fortune” was initially called “蚂蚁聚宝” in Chinese and later upgraded as “蚂蚁财富” on June 14 of 2017.
“Ant Financial—A Global Leading Techfin Company”, 2019 Investor Day, September 2019. Alibaba.com.
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“Ant can easily process loans as small as several hundred CNY¥ (around US$50) in
a few minutes. How is this possible? Our algorithms can look at transaction data to
assess how well a business is doing, how competitive its offerings are in the market,
whether its partners have higher credit ratings, and so on.”33
On total loans of CNY¥2 trillion (US$290 million) to 16 million small businesses, its default rate
was 1%.34 Jack Ma insisted that MYbank did not compete with traditional banks; it was set up to
serve individual consumers and SMBs, 80% of whom were regarded as risky and neglected by
traditional banks.35 According to China's National Finance and Development Institution, two thirds
of China’s 80 million small businesses lacked access to credit in 2018.
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Credit Services – Zhima Credit
Credit scores assess the risk of lending money to a person. The classic FICO credit score (which
covers 85% of the US population) ranges from 300 to 850 (the higher the score, the more
creditworthy the individual) taking into account payment history (35%), debt burden (30%), length
of history (15%), types of credit (10%)36 and recent credit searches (10%).37
In China, out of eight potential borrowers, only three had a formal credit history. The PBC (People’s
Bank of China) had a credit score system but it was only available to state-owned banks and
financial institutions. People with no credit history were excluded from the official credit score
system. This posed a huge challenge for lenders, especially online financial services, to measure
the lenders ability and willingness to repay, and thus the likelihood of default and higher loan costs.
No
tC
In early 2015, PBC granted eight private credit companies (including Ant Financial’s Zhima Credit
and Tencent’s Credit) a preparatory license to provide personal credit reference services.
Henceforth, such services could be commercialised in China. Zhima Credit covered the grassroots
population (neglected by traditional institutions). Underpinned by e-commerce transaction data
derived from Alibaba and online financial data from Ant Financial, along with data from partners
such as the Public Security Bureau and other public institutions, Zhima Credit relied on five factors
to generate a personal Zhima Credit Score – 1) credit history 35% (credit card payment history,
micro-loan payment record, Ant Huabei or Ant Jiebei payment record, utilities payment record,
etc.); 2) behaviour and preference 25% (frequency of using Taobao/Alipay account, consumption
level and preferences, transaction amount); 3) repayment capacity 20% (balance in Alipay
account/Yu’e Bao, car or housing property ownership); 4) personal identity 15% (registered IC
number, educational qualification, truthfulness of personal information uploaded); 5) social
network based on fund transaction 5% (e.g. money transferred to or from family members or
friends).
“What the Largest Global Fintech Can Teacher Us about What’s Next in Financial Services”, www.cbinsights.com,
October 4, 2018.
“MYbank: Alibaba founder revolutionize China’s credit with digital bank”, NF news, July 29, 2019.
“Ant Financial—From Alipay to New Financial Ecosystem”(蚂蚁金服—从支付宝到新金融生态圈), by Wei Lian, Hui Bian,
Xianghui Su and Pengcheng Cao, China People’s University Publishing House, Beijing, China, July 2017, translated by
authors.
The existing history of exposure to different types of credit—revolving credit (credit card), mortgages, consumer finance
or instalment loans, is a positive indicator of familiarity with financial products and proficiency in managing them
appropriately.
“Credit Scores: What are they? How do they work?”, https://www.valuepenguin.com/credit-scores
Do
33
34
35
36
37
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Similar to FICO, Zhima Credit Scores ranged from 350 to 950 (the higher the score, the stronger
the credit profile). In this way, people with no loan history or credit cards (students, labourers, selfemployed) had a personal creditworthiness reference. For example, in Ant Huabei, only people
with a Zhima Credit Score above 600 are given a credit line extension for consumption. The higher
the Zhima Credit Score, the more credit granted and the lower the interest rate. Over 60% of Ant
Huabei’s customers had no credit card nor credit history, so the score enabled them to benefit
from credit for the first time – be it access to loans or other possibilities. Users that had no credit
card but had a Zhima Credit Score above 600 could rent a car on Zuche.com (神州租车) or book
a hotel on Fliggy.com (飞猪) without a deposit or prepayment.
Technology – (BASIC) and Beyond
op
yo
Technology underpinned the architecture of the digital economy built by Alibaba and Ant Financial
(see Exhibits 2b and 2e) and was the driving force of their growth. Ant Financial’s proprietary
technology BASIC – Blockchain, Artificial Intelligence (AI), Security, IoT and Computing –
“supports peak order volumes of up to hundreds of thousands per second, delivers tens of billions
of online marketing impressions per day, and enables millions of merchants, brands and other
businesses to conduct their operations efficiently and effectively.”38 Thanks to their unparalleled
scale, when new technology is applied across all its businesses it can make a “technological leap”,
allowing Ant Financial to further improve efficiency, reduce costs, improve the user experience,
enable innovation, and develop new businesses (see Figure 3).
No
tC
Figure 3. Ant Financial Technology: Proprietary & Proven Technology for all
Source: “Ant Financial—A Global Leading Techfin Company”, 2019 Investor Day, September 2019. Alibaba.com, compiled
by authors.
Do
Digital Economy Architecture—Empowering In-house Businesses
Blockchain technology was applied across all Alibaba and Ant Financial businesses, from
supporting the massive volume of shopping traffic on Singles’ Day – a record-breaking shopping
event held annually on November 11, to product traceability tracking 400 million cross-border
38
Alibaba SEC Form 20-F 2019, Alibaba.com.
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items, supply chain financing through the Ant Duo-Chain, copyright certification, and digital
identities.39
AI technology was used to improve the quality of Ant Financial’s customer service – faster
responses, accurate and relevant information, better quality control and accelerated
compensation payment. “My Customer Service”,40 for example, could complete insurance claims
within 24 hours, with 32% of payouts made within an hour. AI was also used to enhance the
consumer experience of online shopping, offering personalized search and shopping
recommendations powered by deep learning and data analytics, speech recognition and image
analysis in search functions.
op
yo
Ant Financials’ system security structure was enhanced by facial recognition technology, which
relies on biometric detection, image desensitization and facial recognition algorithms, with 99.6%
accuracy. It was also used in MYbank and Alipay’s identity authentication processes to spare
customers the hassle of remembering passwords and speed up the sign-in process.
IoT technologies included PaaS (platform as a service), microchip design and development
framework, operating systems and cloud computing capabilities for transportation, home, mobile,
public and industrial applications. “If cloud computing is the heart, AI is the brain, IoT is the nerves,”
Yang Zhijie, senior staff algorithm engineer of Alibaba Group told the AITech2018 conference.
AIoT (AI + IoT) is the foundation of an intelligently connected ecosystem. Cloud computing, risk
control and artificial intelligence (AI) were designed to sustain Ant Financial’s growth:
tC
“Ant Financial Cloud is characterized by high availability disaster tolerance (up to
99.99%), capital security management (transfer of tens of billions in funds per day),
high-concurrence transactions (peak workload of 85,900 transactions per second),
real-time security control (millisecond-level risk prevention capacity), and low-cost
transactions (less than RMB 0.10 per transaction).”41
Risk control technology synthesized “historic transactional data for individual cross-reference to
improve account security. On average, risk recognition and controls can be completed within 100
millisecond and the capital loss rate of Alipay is lower than 0.001%.”42
No
Reaching Out
In-house technology innovations raked in further revenues. Released in June 2018, Ant Financial
BaaS (blockchain as a service), an open platform based on Ant Financial and Alibaba Cloud’s
private blockchain, provided services such as cross-border remittance, supply chain financing,
and product authentication traceability.
Do
In September 2018, Ant Financial announced the launch of the Ant Financial Technology brand,
to sell a full suite of technology products and services to approximately 200 financial institutions,
including more than 100 banks, 60 insurance companies, and 40 asset management firms and
security brokers. Thanks to two of its large-scale financial transaction technologies – SOFAStack
39
40
41
42
“Ant’s Alipay Uses Blockchain to Expand China’s Record Breaking Shopping Festival”, by Miranda Wood,
www.ledgerinsights.com, accessed on Feb 16, 2020.
Ant Financial Technology https://www.antfin.com/exploration.htm, accessed on September 2, 2019.
Ant Financial Technology https://www.antfin.com/exploration.htm, accessed on September 2, 2019.
Ibid.
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(scalable open financial architecture) and OceanBase, its financial distributed database,43 PICC
Health Insurance successfully reduced its “daily reporting processing time from 6 hours to 4
minutes and new product launch time by 80%”. Bank of Nanjing stretched its loan underwriting
capacity “to comfortably process one million loans per day, with an average processing speed of
less than one second”.44
op
yo
According to Gartner (April 2020), Alibaba Cloud is the largest cloud computing service provider
in the Asia Pacific region, as measured by market share for IaaS (Infrastructure as a Service) and
IUS (Infrastructure Utility Service). Though how lucrative Ant Financial’s cloud computing
technology services are remained unknown, Alibaba Group’s cloud computing services, second
only to its core commerce, raked in US$5.65 billion and accounted for 8% of total revenues in
2020 fiscal year, almost double those of 2019 (see Exhibit 2a).45
Tencent and WeChat Pay46
A Brief History
Tencent
2020 marked the 22nd anniversary of the founding of Tencent, China’s internet services giant cofounded by Tony Ma and four friends, based in Shenzhen, Guangdong province. Alibaba’s biggest
rival operates the most popular messaging app – WeChat (2011) and instant messaging service
QQ (1999), with annual revenues of CNY¥377.3 billion (US$53 billion) in 2019 (see Exhibit 4a).
tC
Tencent launched its first product in 1999 – a free PC-based IM service called OICQ, later
renamed QQ, which also offered group and voice chat, shopping, microblogging and
entertainment services including eSports, comics, online social games and live streaming music
and videos, over PC and mobile phone. Smart Device QQ had 647 million MAUs by the end of
2019.47
No
In 2004, the company was listed on the Hong Kong Stock and Exchange. In 2005, Tencent
introduced Qzone (QQ 空间) – a multimedia social networking service, which soon became the
largest social networking platform in China thanks to its open-platform policy – Qzone is open to
apps from third-party developers. As the mobile phone conquered China, WeChat (微信) was
released in 2011, with more functions than QQ – voice messaging (2011), payment (2013) and
red packet (2014). By the end of 2019 WeChat had over 1.1 billion MAUs and was among the
world’s largest stand-alone mobile apps.
Do
The company’s main revenue stream relied on VAS (value added services), fintech and business
services and online advertising (see Exhibit 4a). VAS, the main revenue generator (accounting for
53% of the total revenues) included online games (for smartphone and PC), social networks of
digital content services (e.g. live broadcasts services), video streaming subscriptions and in-game
virtual item sales. Fintech and business services (accounting for 27% of the total revenues)
43
44
45
46
47
“Ant Financial Launches Ant Financial Technology Brand with Full Suite of Technology Products and Services to Support
the growth of Financial Institutions”, antfin.com, September 20, 2018.
Ibid.
“Alibaba Group Announces March Quarter and Full Fiscal Year 2020 Results”, www.alibabagroup.com, May 22, 2020.
WeChat is called Weixin (微信) in China and known as WeChat outside of China.
Tencent Annual Report 2019, company website.
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comprised mobile payment services, cloud services and other business services (e.g. Tencent
Meeting, WeChat Work). Online advertising (accounting for 18% of the total revenues) permeated
its social networks (e.g. WeChat), mobile advertising and media advertising (media platforms such
as Tencent Video and Tencent News).48
WeChat and WeChat Pay
op
yo
WeChat was devised in 2011 as an integrated IM and social entertainment app catering to China’s
rapidly expanding mobile users. After progressively adding a multitude of functions, (real-time
communications via free text, multimedia messages, video/voice calls, photo-sharing, recreational
features like “Games” and “Sticker Galley”, and friend-adding services like “Shake” and “People
Nearby”, WeChat “creates an ecosystem where the user’s time is monopolized and there is no
need for them to use a variety of apps”.49 The WeChat “super app” met their every need.
WeChat exploited its function of Subscriptions – “Official Accounts” that users follow – to make its
large base of active users extensively accessible to companies. Unlike QQ, which is monetized
from users (digital content subscriptions, membership subscriptions and sale of virtual goods),
WeChat monetizes from merchants.50
tC
WeChat mini-programs, “the apps inside apps that make WeChat so powerful”,51 were embedded
in its ecosystem, designed by other developers in Tencent’s specific “language” to provide users
with easy access – swipe-down to reach saved and recently used mini-programs. Users could
leverage the in-app search function or scan an offline mini-program QR code to use games, ecommerce, and local services without downloading them. As a huge part of the WeChat
ecosystem, mini-programs in WeChat were smaller than stand-alone apps – usually less than 10
MB – hence favoured by users with cheaper data plans. By June 2019, WeChat mini-programs
had 746 million MAU and each in average spent 64 minutes per month, according to QuestMobile.
They enabled WeChat to convert content from articles in “Subscriptions” to e-commerce. This
explained the surge in influencers (opinion leaders) active in the WeChat community, who in turn
develop their own content and e-commerce mini-programs in WeChat, driving growth for fashion,
childcare and cosmetic brands as well as trust among Chinese users.52 In 2019, the transaction
value created by mini-programs exceeded CNY¥800 billion (US$113 billion).53
No
WeChat first saw a surge in downloads of its app when it started “Red Packet” in Chinese New
Year of 2014 – a special feature enabling users who register with CaiFuTong (财付通) to give or
collect red packets54 among WeChat friends. “Red Packet” instantly went viral. During the 2014
Spring Festival Eve, nearly 20 million Red Packets were exchanged by 4.82 million users, and at
peak time 25,000 were opened within one minute.
Do
“Red Packet” ignited the power of social networking – it not only acquired more WeChat users and
increased penetration, but attracted users to WeChat Wallet – a mobile payment service platform
48
49
50
51
52
53
53
Ibid.
“Are Super Apps the Future”, by Betsy Atkins, Sept 3, 2019, forbes.com
“Tencent Products and Services”, company website.
“Mini Programs: The apps inside apps that make WeChat so powerful”, by Julianna Wu, www.abacusnews.com, Feb 27,
2019.
“What are WeChat Mini-Programs? A simple Introduction”, by Thomas Graziani, WeChat News, November 6, 2019.
Tencent Annual Report 2019, company website.
Giving and collecting red packets is one Chinese cultural custom usually done during Chinese Spring Festival as a
blessing.
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in WeChat Pay and linked it to their bank accounts as well as a variety of credit and debit cards.
As the number of WeChat and WeChat Pay users rose sharply, Tencent entered the fintech
domain. By the end of 2014, WeChat had 500 million MAUs, up from 355 million in 2013. In China’s
mobile payment market, WeChat Pay rose from a 10% share in 2014 to 32% in 2016. Alipay
dropped from 80% in 2014 to 55% in 2016.55
op
yo
“Red Packet” signified the start of battle between the two tech giants – Alibaba (Ant Financial) and
Tencent (WeChat) in mobile payment services, then fintech services (see Exhibits 5a and 5b).
Earlier incursions into their respective domains included Tencent’s Paipai.com (拍拍网) in 2006,
an e-commerce platform born to compete with Alibaba’s Taobao.com. Alibaba’s Wang Wang (旺
旺) in 2011 copied Tencent’s QQ.
Yet nothing compared to their competition in the ride-hailing market between Kuaidi (快的) and
Didi (滴滴) – ride-hailing apps launched in 2012 – in a mutual quest to generate business for their
mobile payment services from online to offline (O2O) – Alipay and WeChat Pay respectively. Didi
(backed by WeChat Pay) initiated the “Red Packet” war by giving out vouchers to riders and cash
bonuses to Didi drivers when the fare was settled using WeChat Pay. The vouchers were so
generous that, after a discount, the ride was often cheaper than a bus fare or even free. Kuaidi
(backed by Alipay) also used a cash stimulus to expand the user base and increase stickiness to
the apps for both ride-hailing and payment.
tC
Although Kuaidi and Didi merged in 2015, the battle between Ant Financial and Tencent did not
cease (see Exhibits 5a and 5b). In 2014, Tencent released LiCaiTong ( 理财通) – a wealth
management platform in WeChat similar to Ant Fortune in Ant Financial. LiCaiTong initially
partnered with four top fund management companies – China Asset Management (华夏基金), E
Fund Management (易方达基金), GF Fund Management (广发基金) and China Universal Asset
Management (汇添富基金), and was operated by Tencent’s CaiFuTong (财付通). In 2018, Tencent
divested LiCaiTong’s MMMF businesses to LingQianTong (零钱通), Yu’e Bao’s counterpart.
No
In digital banking services, WeBank ( 微 众 银 行 ) focused on servicing consumers through
consumer-oriented loans for cars, home renovations etc., while MYbank focused on e-commerce
merchants to serve micro and small businesses, entrepreneurs and farmers, each with their
specific characteristics.
The competition between Alibaba and Tencent expanded to markets including games, enterprise
services, digital banking services, cloud and computing services, community centred e-commerce,
local life services, and logistics.
Do
In September 2017, Alibaba Digital Media and Entertainment Group established Ali Games
following trials in 2014 – rolling out its mobile games platform, acquiring UC Web (an internet
company) and its gaming platform 9Games, and investing US$120 million in US mobile game
55
“Ant Financial—From Alipay to New Financial Ecosystem”(蚂蚁金服—从支付宝到新金融生态圈), by Wei Lian, Hui Bian,
Xianghui Su and Pengcheng Cao, China People’s University Publishing House, Beijing, China, July 2017, translated by
authors.
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developer Kabam.56 Two days later, it acquired online gaming company Ejoy to push into China’s
on-line gaming business57 dominated by Tencent and NetEase.
On April 2, 2018, Alibaba Group together with Ant Financial fully buyout Ele.me (饿了吗) – a
popular online food and grocery delivery service platform. The US$9.5 billion transaction was seen
as a declaration of war for local services, with Tencent backing another online food delivery service
– Meituan Dianping (美团点评).58
Tencent Businesses
op
yo
Tencent spent US$27 billion in the first seven months of 2018 on social e-commerce start-ups,
including “mini app e-commerce platform SEE Xiaodianpu (SEE 小店铺), menswear brand HLA
(海澜之家), cross-border shopping platform Camelia (山茶花), mini-program e-commerce platform
Haowumancang ( 好 物 满 仓 ), online group seller Pinduoduo ( 拼 多 多 ), mobile ordering app
Huixiadan (会下单), online second-handed book shop Duozhuayu (多抓鱼), lifestyle platform
Xiaohongshu (小红书), mobile e-commerce solution provider Youzan (有赞) and clothing platform
Haoyiku (好衣裤).59
Tencent’s products and services mainly target Chinese users. Its social media networks and
messaging apps provide a vast active user base for its products and services in payments, cloud
and AI, entertainment (see Exhibits 4b and 4c).
Social Networks
tC
In addition to WeChat, QQ is another Tencent’s IM platform for both PC and mobile users that
supports chatting, sharing, interest groups, QQ wallet, mobile payment including mobile top-up,
online shopping and bank transfer, as well as digital content like games, anime, literature, music
and live streaming. Although WeChat MAU number surpassed QQ in 2017, QQ remains a onestop entertainment portal that fills in any gaps, e.g. to transfer large files for work purpose, as
WeChat cannot handle files bigger than 20M. By the end of 2019, QQ remained as China’s second
most popular social app with 647 million MAU.60
No
Qzone is a social networking website that offers a personal space for users to upload photos, post
videos and live streaming, write blogs, keep diaries, play game and make personal decoration. By
the end of 2018, MAUs reached 532 million.
Payment (Tencent’s fintech segment)
Do
A key part of Tencent’s architecture – payment platforms – connect tens of millions of merchants
and thousands of millions of individual users to complete transactions both online (e.g., mobile
credit top-ups, flight and bus ticket purchases etc.) and offline (e.g., retail outlets including
supermarkets, fashion and beauty stores). Unlike Alibaba, which entered the payment market
56
57
58
59
60
“Alibaba formally enters gaming business”, by Shi Jing and He Wei, September 28, 2017. Chinadaily.com.cn
“Alibaba expands online gaming business with Ejoy acquisition”, by Yimian Wu, September 27, 2017.
Chinamoneynetwork.com.
“Alibaba to Buyout Chinese Delivery Firm Ele.me”, Dow Hones Institutional News, April 2, 2018. Factiva database,
accessed on September 11, 2019.
“Tencent Spent USD27 Bln in First Seven Months on Social E-commerce Startups”, by Duan Qianqian, Yicai Global,
August 3, 2018. Factiva database, accessed on September 11, 2019.
Tencent Annual Report 2019, company website.
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through its e-commerce, Tencent used its competitive advantage in social networking – QQ and
WeChat. The volume of daily transactions exceeded 1 billion in 2018 according to China Internet
Watch.61 Mini programs and Scan-to-Pay solutions have boosted its payments penetration in the
food and retail industries. Its two-way cross-border mobile payment service enables foreign users
to conduct CNY¥-denominated transactions including taxi-hailing, food ordering and high-speed
railway ticketing services, funded by 16 major foreign currencies including GBP, USD, JPY, AUD
etc. Available in 49 markets outside Mainland China, WeChat Pay enables China’s outbound
travellers to make overseas purchases and its users to get real-time tax refunds in over 80
airports.62
op
yo
Tenpay, WeChat Pay and QQ Wallet are all payment products launched by Tencent.
Tenpay/CaiFuTong ( 财 付 通 in Chinese) was the company’s first online payment platform
released in September 2005. It shares a government granted third-party payment license with
WeChat Pay and QQ Wallet. WeChat Pay catered to mobile phone users, an integrated feature
in WeChat, emerging as “the key infrastructure platform that enables its merchant partners to
complete transactions in online and offline services and connect users and merchants together”.63
Similarly, QQ Wallet – a payment method built in QQ – is also a mobile payment product
incorporating multiple methods such as bankcard, QR (Quick Response) code and NFC.64
tC
Building on its payment user base, Tencent offered financial services similar to Ant Financial.
LiCaiTong, its online wealth management platform embedded in WeChat helped manage over
CNY¥ 900 billion (US$127 billion) of customer assets by the end of 2019.65 According to Yan Min,
VP of Tencent FinTech, Tencent fund products already encompass all fund categories, including
share, bond, indexed and mixed. LiCaiTong has launched nearly 300 funds with over 40 fund
companies that rank in the top 5% of financial institutions in China.66
No
LingQianTong (零钱通), an MMMF launched in 2018 in WeChat, similar to Yu’e Bao, let customers
put their remaining balance in WeChat Pay to earn interest, via a real time redemption scheme.
WeBank, Tencent’s online banking business, similar to Ant’s MYBank, provides micro-loan/loan
service to needy consumers with a good account history with WeBank through WeiLiDai (微利贷);
and to small and micro businesses through WeiYeDai
(微业贷).
Cloud & AI
Tencent Cloud is another core business. Integrating with AI and data analytics capabilities, it
provides the foundation for the company’s smart industry solutions and a public cloud platform for
corporate and individual users. It provides developers with cloud servers, cloud databases, cloud
storage, CDN (content delivery network) and other cloud computing services.
Do
In 2018, Tencent Cloud served over half of all China-based gaming companies and expanded to
other industries including financial, e-commerce, social media and community, and retail. Its
61
62
63
64
65
66
China Internet Watch (CIW) is a leading digital media on China internet statistics, trends, and insights, part of Incitez (a
digital consulting company based in Singapore).
Tencent Annual Report 2018, company website.
“Why Tencent will Focus More on Payments and Cloud”, by SC Yeung, Hong Kong Economic Journal, March 26, 2019.
NFC (Near Field Communication) is the technology that enables contactless payments by allowing two devices (e.g. a
mobile phone and a payments terminal) close together to communicate.
Tencent Annual Report 2019, company website.
“Tencent Surging FinTech Growth Driven by Online Wealth Management”, Chinabankingnews.com, Feb 19, 2019.
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clients include top banks – Bank of China (BOC 中国银行), China Construction Bank (CCB 中国
建设银行), China Merchants Bank (CMB 中国招商银行) – and online finance companies and
insurance firms. 67 By end of 2018, Tencent Cloud’s global architecture covered 25 regions,
operating in 53 availability zones. Its cloud revenues almost doubled in 2019 to over CNY¥17
billion (US$2.4 billion).68
op
yo
In 2016, Tencent opened an AI Lab in Shenzhen with a vision to “Make AI Everywhere”.
Emphasizing both research and application, it led AI research in machine learning, computer
vision, speech recognition and natural language processing, as well AI application in content,
social, online games and cloud services. Tencent YouTu Lab, an R&D team, focused on machine
learning, pattern recognition and cognitive technology. AI and machine learning technologies were
widely applied to Tencent’s products and services including WeChat, QQ, etc.69
Entertainment
Tencent built up a content ecosystem covering online games, video, music, news, literature,
comics etc. The company’s revenues from VAS businesses by the end of 2019 increased by 13%
to CNY¥200 billion (US$28.2 billion).70 The new “Men in Black International” movie released in
June of 2019 was produced by Tencent Pictures. So were “Terminator: Dark Fate” (2019) and
“Top Gun: Maverick” (2020).71
tC
Tencent Games, one of Tencent’s biggest revenue-generating division with a massive portfolio,
has played an important role in company’s growth. Founded in 2003, it released its first game QQ
Tang (QQ 堂) in 2004, soon followed by a series of QQ variant games such as QQ Fantasy (QQ
幻想世界, an internet game that incorporates Chinese mythology), QQ Sanguo (QQ 三国, a
massively multiplayer online (MMO) game based on the Three Kingdoms historical period), QQ
Dancer, QQ Pet etc. Its Honor of Kings (王者荣耀), a multiplayer online battle arena game
exclusively for Chinese market released in 2015, grossed nearly US$2 billion in 2018, the highestgrossing mobile game of the year.72 Its international version titled “Arena of Valor” was released
in 2017.
No
Tencent Games credited its growth to the purchase of international games makers. Riot Games –
the Los Angeles-based studio known for two of the world’s biggest games, “League of Legends”
and “Teamfight Tactics”, is solely owned by Tencent. The company also owns a substantial stake
(40%) of Epic Games, the North Carolina-based developer behind “Fortnite”. It also acted as a
gateway for non-Chinese video games companies to access the huge Chinese games market.
Activision, publisher of “Call of Duty” and Nintendo both chose Tencent as their partner to tap into
China’s lucrative video game market. 73 Tencent’s online games revenues grew by 10% to
CNY¥114.7 billion (US$16.2 billion) in 2019.74
Industrial and Commercial Bank of China (ICBC 中国工商银行), Alibaba and Ant Financial formed a strategic partnership
on December 16 of 2019, press release of Alibaba.com. Their cooperation expands previous payment and e-commerce
to more areas including global corporate finance, scenario-based finance and financial innovation.
“Tencent Products and Services” and Tencent Annual Report 2018 & 2019, company website.
“Tencent Products and Services”, company website.
Tencent Annual Report 2019, company website.
“The biggest game company in the world isn’t Nintendo”, by Ben Gilbert, Business Insider US, October 14, 2019.
“Tencent’s ‘Honor of Kings’ Highest-Grossing Mobile Game of 2018”, by Stefanie Fogel, January 11, 2019, variety.com
“The biggest game company in the world isn’t Nintendo”, by Ben Gilbert, Business Insider US, October 14, 2019.
Tencent Annual Report 2019, company website.
Do
67
68
69
70
71
72
73
74
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China’s Banking and Finance Industry
op
yo
Starting from the early 1980s, China’s banking and finance system has undergone a generational
reform towards a more open system to support its presence in the world economy after decades
of communism and state-ownership. The banking system then was synonymous with the People’s
Bank of China (PBC), China’s central bank. In the early 1980s, five state-owned specialized banks
– the Industrial & Commercial Bank of China (ICBC), China Construction Bank (CCB), Bank of
China (BOC), Bank of Communications (BOCOM), and Agricultural Bank of China (ABC) – were
allowed to accept deposits and conduct banking business. Although the five have all conducted
IPOs and have varying degrees of public ownership, they are all majority owned by the Chinese
government. Since then, China has allowed a dozen joint stock commercial banking institutions
and more than 100 city commercial banks to operate in the country. Foreign banks were also
allowed to establish branches in China and make strategic minority investments in state-owned
commercial banks.75
The main regulatory body, the China Banking Insurance Regulatory Commission (CBIRC), is
responsible for rules governing the banking and insurance sectors, conducting examinations and
oversight of banks and insurers; publishing statistics on the banking system; approving the
establishment or expansion of banks; and resolving potential liquidity, solvency, or other problems
that might emerge within individual banks. The PBC has considerable authority over the Chinese
banking system, from the typical central bank responsibility for monetary policy to reducing overall
risk and promoting the stability of the financial system. It also regulates lending and foreign
exchange between banks and supervises the country’s payment and settlement system.76
1)
tC
Main Characteristics of the Sector
Large in structure but short in supply of financial services
No
Although China’s banking and finance industry counts a vast number of institutions and financial
assets, its main target customers are limited to large firms, state-owned companies, and high-networth individuals whose liquid assets exceed US$1 million. SMEs and individuals who have few
liquid assets are poorly served. For an individual investor, wealth management products provided
by banks required a minimum of CNY¥50,000 (~US$7,000) and were difficult to access.77 Limited
investment channels existed and there were few choices: either deposit their money in the bank
at a low rate of interest or invest it in real estate. That was before the emergence of MMMF like
Yu’e Bao in China.
2)
Rapid technology developments giving rise to fintech.
Do
Advances in internet technologies like big data databases and analytics, blockchain, AI, and cloud
computing and storage made it possible to offer a variety of wealth management products,
depending on customers’ risk-taking profile and liquid assets. Smartphones made it possible to
accumulate customers without a physical bank branch site (cutting the cost of customer
acquisition). Together these accounted for the emergence of many internet/mobile-based financial
75
76
77
“Introduction to the Chinese Banking System”, by Caroline Banton, Investopedia.com, March 1, 2019.
“Introduction to the Chinese Banking System”, by Caroline Banton, Investopedia.com, March 1, 2019.
An individual buyer needed to personally go to the bank’s business site with his IC to purchase the wealth management
products offered by banks; a pre-order call was required if the financial product is too popular; early withdrawal was not
encouraged and may result in forfeiting earned interest.
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products and services - like Alipay and WeChat Pay, MMMF like Ant’s Yu’e Bao, WeChat’s
CaiFuTong, etc.
3)
Regulatory challenges: balance regulation with fintech development
The take-off of fintech was aided by a relatively encouraging and tolerant policy environment. For
example, PPDai (NYSE: PPDF) – China’s first internet-based P2P platform was launched in 2007,
but the rules and regulations of P2P business were formalized only in 2016 – a nine year gap for
‘wild’ growth that applied to many fintech businesses. Alipay launched in 2003 but was licensed
in 2011.
op
yo
Albeit the lag helped to boost fintech businesses, the potential risks to China’s financial stability
did not go unheeded by governing bodies. The P2P sector was hit by a high-profile scandal in
2015 – Ezubao’s Ponzi scheme left investors CNY¥38 billion (US$5.4 billion) out of pocket.
QianBao was another case – illegal fundraising through a P2P platform by luring lenders with
interest rates of 60%-80%, for which founder Zhang Xiaolei was sentenced to 15 years and had
property worth CNY¥100 million (US$14.6 million) confiscated.78
Evolution and the Future
“Science and technology are the greatest drivers of public welfare of our age.”
Eric Jing, CEO of Ant Financial79
Rural Development
tC
Ant Financial’s Rural Finance
Agriculture, rural areas and farmer’s issues remain the top development priorities of the country.
According to China’s National Bureau of Statistics, there were 16.6 million below the poverty line
at the end of 2018 whose incomes and living standards had been left behind by the country’s drive
to develop and modernize.
No
Seeking the vast opportunities in rural development, and in accordance with government policy,
Ant Financial expanded into rural finance in 2014, offering the rural population financial services
via big data-based online loan services, acquaintance-based loan services, and supply chain
financing.80
Do
Big data-based online loan services mainly offer credit for consumption to villagers, farmers and
local e-commerce merchants with less credit approved than economically affluent areas. By using
big-data analytics, it is faster, easier and more affordable for capital-thirsty rural applicants. Online
loan application and approval for Taobao merchants in rural areas as well as MYbank’s
“Entrepreneur Fund for College Graduates back to Home Village/County” use such a model.
Acquaintance-based loan services run background-checks on applicants who are village farmers
or run micro/small enterprises with little or no credit history by talking to applicants’ acquaintances
78
79
80
“QianBao Founder Zhang Xiaolei Faces 15 Years Behind Bars for Illegal Fundraising”, by Dou Shicong, Yicai Global,
June 21, 2019.
“Ant Financial Sustainability Report 2016”, May 20, 2017, company website.
“Ant Financial Pushes Rural Finance Service”, by Ouyang Shijia, December 22, 2016, China Daily.
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like business partners, customers and even neighbours before deciding whether and how much
to loan, similar to “risk control” to reduce the risk of default.
A third loan model, supply chain financing, combines finance, e-commerce merchants and
agricultural production, targeting new farming operators’ demand for large amounts of capital.
Leveraging block chain AI, and cloud computing, Ant Financial regards all the members in the
supply chain—suppliers, manufacturers, distributors, retailers, end customers as a single block,
and provides them with access to its inclusive financial services. The key here is to “focus on a
core enterprise in the supply chain, and manage its upstream and downstream capital flow to grant
credit to enterprises in the entire industrial chain. In this way, supply chain finance transforms the
uncontrollable risk of a single enterprise into a controllable risk of the supply chain as a whole.” 81
op
yo
Tencent’s Rural Development
Tencent took a different approach to rural development. WeCountry – an open platform built on
the “Internet + Village” model was launched in 2015 to offer villagers access to digital technology.
As of December 31, 2019, 29 provincial administrative areas with over 15,000 villages had joined
the platform, covering 2.5 million villagers.82 It collaborated with agricultural banks or cooperative
unions including Rural Commercial Bank of Zhangjiagang, Jiangnan Rural Commercial Bank,
Zhejiang Rural Credit Cooperative Union, using its financial technologies to help partners design
financial products for rural populations more easily and cheaply.
CSR Strategy
Ant Forest
tC
For several years, corporate social responsibility (CSR) has been increasingly seen as a way of
driving philanthropy, for firms to fulfil their obligations to customers, workers, shareholders and the
community alike.
No
Launched as a special feature in Alipay in August of 2016, Ant Forest creates a “carbon account”
for registered users to accumulate “Green Energy”(GE) points by performing one or more of the
16 carbon-reducing actions every day such as using public or green transportation, buying tickets
on-line, going paperless in office etc. The accumulated GE points can be used to water and grow
the users’ virtual saplings till they grow into virtual trees; Ant Financial and charity partners will
then plant real trees in China’s arid regions such as Gansu and Inner Mongolia. It motivates users
to live a “greener” life. As of May 2020, Ant Forest had over 550 million participants and 200 million
trees with a daily carbon emission reduction of 12 million tons.83 Users can see the direct impact
of their actions by monitoring trees’ growth on their phones enabled by AI, drones and remote
sensing satellite.
Do
Another scheme – for forestland protection – also involves Ant Forest’s innovative “carbon
accounts”. In 2019 the United Nation awarded Ant Forest the title of the “Champions of the Earth”
and the 2019 UN Global Climate Action Award.84
81
82
83
84
“Supply Chain Finance: Solution for SMEs’ Financing”, China Daily, March 20, 2019.
Tencent Annual Report 2019, company website.
Alipay Sustainability Report 2019-2020, www.antfin.com.
Ibid.
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“Ant Forest is very innovative. It has managed to mobilize millions of people to get an
understanding of the environment and what they can do by contributing a small
amount of resources…What we likes is to have people connected with the
environment. Having people engaged in a personal way is very powerful”.
Inger Andersen, Executive Director of the United Nations Environment Programme 85
Tencent Foundation
Going Forward
op
yo
On 26 June 2007, the Tencent Foundation was created with a commitment of donating part of its
annual profits to charity work. In addition to direct donations to disaster relief, rural development,
education, ecological conservation, cultural preservation, community development and poverty
relief, Tencent built the first online public fundraising platform by leveraging on its internet technical
capabilities and online platforms, to allow charity organizations (free of charge) to work more
conveniently, smoothly and transparently. As of December 31, 2019, over 10,000 charity
organizations were active on the platform with 75,000 projects. In 2019 alone, in addition to
Tencent’s donation of CNY4.3 billion (US$600 million), 98 million internet donors gave a total of
CNY¥2.8 billion (US$400 million) via its online public fundraising platform.86
“It was the best of times, it was the worst of times.”
Charles Dickens, “A Tale of Two Cities”
Do
No
tC
Alibaba’s Ant Financial and Tencent’s WeChat Pay have a nearly duopoly in China’s digital and
mobile payments market, and the fintech industry. Not yet cut-throat competitors, they keep a
close watch over each other (see Exhibit 6). With more state-owned banks and financial
institutions entering the fintech domain, what is the outlook for China’s fintech industry? Where
will competition, cooperation or even learning come from? China’s institutional void offers
opportunities for both companies, but given the uncertainty of the policy environment, what
strategies should both company to take to maintain their growth momentum? Both companies
advocate “openness, sharing and enabling”. Are rural development and CSR projects sufficient to
leverage synergies among all stakeholders and deal with non-market uncertainties?
85
86
Ibid.
Tecent’s Annual Report 2019, company website.
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tC
op
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Exhibit 1
World’s Top 10 Companies by Market Capitalization (as of Dec. 20, 2019)
Do
No
Source: QUICK-FactSet, Nikkei Asia Review 26/12/2019.
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op
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Exhibit 2 (a)
Principal Components of Alibaba’s Revenue
Do
No
tC
Source: Alibaba Group March Quarter and Full Fiscal Year 2020 Results, released on May 22, 2020, Alibaba.com
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No
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Exhibit 2(b)
Alibaba Digital Economy
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Source: Alibaba SEC Form 20-F 2019, Alibaba.com.
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Source: Alibaba Investor Day 2019, edited by case writers.
op
yo
tC
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No
Exhibit 2(c)
Track Record of Alibaba’s Innovations over 20 Years
Do
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Exhibit 2(d)
Alibaba Financial Results 2015-2020
Do
No
tC
Source: Alibaba US SEC Form 20-F (year 2015-2019) and Alibaba Group March Quarter and Full Fiscal Year 2020 Results,
Alibaba.com.
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tC
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Source: “Alibaba Cloud Intelligence Leading Technology Propels Robust Growth”, 2019 Investor Day, Alibaba.com.
No
Exhibit 2(e)
Technology Middle Office/Platform for Alibaba Digital Economy
26
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Exhibit 3(a)
Ant Financial’s Business Structure
Source: “Ant Financial—From Alipay to the New Financial Ecosystem”, translated and compiled by authors.
Exhibit 3(b)
Milestones of Ant Financial
The first successful online escrow transation
Alipay Company (支付宝公司) founded
First mobile payment app launched
Ali Micro-loan Company (阿里小贷公司) founded
Payment Business License (支付业务许可证) granted
First QR-code Payment
The birth of Yu'ebao (余额宝)
The birth of Zhao Cai Bao (招财宝)
The official opening of Ant Financial (蚂蚁金服)
The launch of Financial Cloud (金融云)
The launch of Ant Huabei (蚂蚁花呗)
Zhima Credit Management Company (芝麻信用管理有限公司) founded
The launch of Ant Jiebei (蚂蚁借呗)
The opening of Mybank (网商银行)
The launch of Ant Fortune (蚂蚁财富)
The Insurance Business Department set up
The launch of Ant Forest (蚂蚁森林)
Cashless Alliance (无现金联盟) founded
Facial Pay launched
First Blockchain-based Cross-border e-Wallet Remittance
Xianghubao (相互宝) launched.
tC
→
→
→
→
→
→
→
→
→
→
→
→
→
→
→
→
→
→
→
→
→
Do
No
(Y.M.D)
2003.10.18
2004.12.08
2009.05
2010.06.08
2011.5.26
2011.07
2013.06.13
2014.4.10
2014.10.16
2014.11
2014.12
2015.01.08
2015.04
2015.06.25
2015.08.18
2015.09
2016.08
2017.04.18
2017.09
2018.06
2018.1
Source: “Ant Financial—From Alipay to New Financial Ecosystem”(“蚂蚁金服—从支付宝到新金融生态圈”), by Wei Lian, Hui
Bian, Xianghui Su and Pengcheng Cao, China People’s University Publishing House, Beijing, China, July 2017, “Ant Financial
– A Global Leading TechFin Company”, Alibaba Group 2019 Investor Day, Alibaba.com, translated and compiled by authors.
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Do
No
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Exhibit 4(a)
Tencent Business Highlights
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Do
No
tC
Source: Tencent Annual Report 2019, company website, complied by authors
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Exhibit 4(b)
Tencent Products and Services
Category
Payment
Wealth Management
Cloud/Platform
Artificial Intelligence
Weixin/WeChat
Qzone
Tenpay/CaiFuTong
Weixin/WeChat Pay
QQ Wallet
LiCaiTong
WeBank
LingQianTong
Tencent Open Platform
Tencent AI Lab
Tencent Music Entertainment
Interest Tribe
QQ.com
YingYongBao
Utilities
Tencent Map
Tencent YouTu Lab
Tecent Pictures
Tecent Comic
China Reading (Tecent Literature)
QQ Music
Penguin e-Sports
Now Live
Tencent Classroom
Nextradio
Tecent News
Tencent Video
Tencent Microblog
QQ Browser
Tencent Mobile Manager
Tencent PC Manager
QQ Mail
Pitu
Tencent Questionnaire
Source: company website, compiled by authors.
Do
No
Tucao
Products and Services
Tencent Cloud
tC
Information
Products and Services
QQ
Tecent Games
Entertainment
Products and Services
op
yo
Social Networks
Products and Services
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Exhibit 4(c)
Tencent Milestones
2004
2005
→
→
2006
2007
2008
2009
2010
2011
2012
2013
→
→
→
→
→
→
→
→
2014
→
2016
2017
2018
→
→
→
Tencent founded
The launch of OICQ, renamed as QQ in 2000
The release of QQ Coin, virtual currency used by QQ users.
The launch of Tencent Games
Tencent portal available online
Tencent was listed in Hong Kong Stock and Exchange
The release of Qzone (QQ空间), a multimedia social networking service
QQ won the battle of instant messaging service against MSN.
Tenpay/Caifutong launched
Tencent Foundation was founded.
Cross Fire (CF) and Dungeon and Fighter (D&F) available online
Tencent Games ranked No.1 in China's game market
In lawsuit with Qihoo 360, commonly know as 3Q War
Launch of Weixin/Wechat (微信)
"Pan-Entertainment" strategy was officially put forward.
"Connecting Everything" and "Internet+" were proposed.
The launch of WeChat Pay (微信支付)
Tencent Games ranked No.1 in global game market.
The launch of LiCaiTong (理财通)
WeBank (微众银行) was lincensed.
Tencent AI Lab was opened.
MAU of WeChat surpassed QQ.
MAU of WeChat reached 1.1 billion.
The launch of LingQianTong (零钱通) in WeChat, similar to Yu'e Bao
op
yo
→
→
→
→
tC
1998
1999
2002
2003
Do
No
Source: “Tencent 1998-2016”, by Xiaobo Wu, Zhejiang University Press, January 2017, translated and compiled by authors.
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Exhibit 5 (a)
Comparison of Products and Services of Alibaba and Tencent
Category
Alibaba
Tencent
e-commerce
Taobao, Tmall
Paipai.com, JD.com, Pinduoduo
Life Services
Koubei, Ele.me, Fliggy (Travel)
Meituan Dazhong Dianping, LY.com (Travel)
Cloud and Payment Ali Cloud
Alipay
Entertainment
op
yo
Social Networking Wangwang, Laiwang, DingTalk,Sina Weibo QQ, WeChat, Qzone
Tencent Cloud
WeChat Pay
Youku (Video), Xiami (Music),
Tencent Video, Tencent Music Entertainment, QQ Music
Alibaba Pictures, Aliwx.com (Literature) Tencent Pictures, China Reading (Tencent Literature)
Internet Tools
Ali Sports, Ali Games
Tencent e-Sports, Tencent Games
UC Browser, amap.com
QQ Browser, Tencent Map, YingYongBao, QQ Mobile Manager
tC
Source: The Tug-of-war between Alibaba Group and Tencent in Business OS “阿里腾讯决战商业 OS”, by Xuehui Liu, Lishi
Business Review, January 23, 2019, accessed from mp.weixn.qq.com, translated and compiled by authors.
No
Exhibit 5(b)
Comparison of Products and Services, Ant Financial vs Tencent, FinTech Segment
Do
Category
Ant Financial
Mobile Payment Services Ali Pay
Wealth Management
Ant Fortune
Money Market Fund (MMF)
Yu'e Bao
Digital Bank
MYbank
Consumer Loan Service
Jiebei, Huabei
Cloud and Computing
Ant Financial Cloud
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Tencent
WeChat Pay
LiCaiTong
LingQianTong
WeBank
WeiLiDai
Tencent Cloud
Source: compiled by authors.
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No
tC
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Exhibit 6
The Tangled Web of China’s Internet
Source: “What is Alibaba?” by Marc Lajoie and Nick Shearman, Wall Street Journal, https://graphics.wsj.com/alibaba/ accessed
on Feb 18, 2020.
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References
• “Ant Financial—The Rise of the Fin-tech Unicorn” (蚂蚁金服—科技金融独角兽的崛起”), by Yi
You, CITIC Press Group, April 2017.
• “Ant Financial—From Alipay to New Financial Ecosystem”(“蚂蚁金服—从支付宝到新金融生态
圈 ”), by Wei Lian, Hui Bian, Xianghui Su and Pengcheng Cao, China People’s University
Publishing House, Beijing, China, July 2017.
op
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• “Ant Financial (A)”, by Feng Zhu, Ying Zhang, Krishna G. Palepu, Anthony K. Woo and Nancy
Hua Dai, 9-617-060, Harvard Business School, Rev: January 9, 2018.
• “Tencent Annual Report 2014- 2019”, Tencent company website.
Do
No
tC
• “Tencent 1998-2016”, by Xiaobo Wu, Zhejiang University Press, January 2017.
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