What Ant Group’s world-beating IPO means for Asia’s mobile payment giants
- The Chinese behemoth has made no secret of its global expansion plans and its first stop is likely to be the relatively untapped market of Southeast Asia
- Home-grown unicorns like GoPay and GrabPay won’t be its only competition – smaller players are likely to team up against the big boys, analysts say
The region is essential for the Chinese company’s expansion blueprint but will be a tough one to crack amid fierce competition from home-grown and well-funded technology and banking firms.
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“It has the potential to tap the European and American markets, but I think Southeast Asia will be the first stop. Geographically it’s closer to China and the population is roughly young, compared to the developed markets, and there are a lot of business activities and Chinese investments in this region already,” said Guoli Chen, professor of strategy at INSEAD graduate business school in Singapore.
According to a recent report by consultancy firm Boston Consulting Group, 49 per cent of the region’s urban consumers who already have accounts with commercial banks now use e-wallets. The group projects this to increase to 84 per cent by 2025.
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The region also offers plenty of room to grow, thanks to its large underbanked population and increased internet penetration. The gross transaction value of e-wallets in Southeast Asia is projected to reach US$114 billion in 2025, up from US$22 billion in 2019, according to a report by Google, Temasek Holdings, and Bain & Co.
“Southeast Asia as a region is critical to Ant Group’s expansion plans, as smartphone penetration in the region is very high and many Southeast Asian economies are experiencing a shift to digital payments,” said Joshua Chong, analyst with financial technology consulting company Kapronasia.
“This region will be the battleground for mobile payments in the foreseeable future and we don’t really have clear winners yet. The crown of the market leader is still very much up for grabs.”
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A NETWORK OF VENTURES
In Southeast Asia, home to over 650 million people, Ant Group has built a presence by partnering with local e-wallet providers, conglomerates, and banks in seven Southeast Asian countries through investments and joint ventures.
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“Ant realises the need to take a localised approach to the region. Cultures, language, demographics, socio-economic vary greatly among different Southeast Asian nations. Partnerships and investments enable Ant to learn more about the local population’s needs and preferences so they can customise features and services for the local context,” Chong said.
WHAT ABOUT ALIPAY?
While Alipay is a household name in China, it is unlikely that Ant will try to expand its adoption in Southeast Asia, even after getting a major cash boost from its IPO, according to analysts.
Ant’s playbook of teaming up with local players, big or small, could be useful in the future if Ant decided to introduce its own mobile payment service in the region, be it under the Alipay brand or something else, analysts said.
“In the future, whether they’re going to use their own Ant entities to provide services to local customers, it really depends on how much Ant has learned in those earlier joint ventures,” Chen said.
“To reduce the risks of geopolitical tensions, Ant will be prudent to take an approach with less fanfare and gradually expand through partnerships and investments, and thus avoid calling too much attention to its growing presence and strength in the region,” he said.
Even then, joining forces with corporate behemoths and conglomerates is not always smooth sailing. Differing agendas could trim the length of any joint ventures, including Ant’s tie-up with various companies in the region, analysts said.
“Big conglomerates typically have their own agenda, they have their own interests and they may also leverage Ant as a learning springboard and try to learn from Ant. Eventually they want to do their own business,” Chen said.
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“My prediction is most of [Ant’s] joint ventures are going to be ended at a certain point of time, and who is the first party to say, ‘I’m going to do my own stuff’, it depends on which party has the quicker learning capabilities.”
“In terms of payment and financial services, GrabPay and GoPay have the edge because of localised content, features, promotions, or discounts. These two companies know the region better and have formed closer ties with users and businesses in the countries where they are present,” Chong said.
BEYOND PAYMENT
Some of Ant’s e-wallet partners in the region have started to offer financial services to stand out from competitors. In the Philippines, GCash has offered consumer loans, personal savings accounts, and retail investment products that can be accessed through their mobile app.
In Indonesia, however, Ant-backed Dana still focuses on its core mobile payment business, trailing rivals such as GoPay and Ovo.
Analysts said Ant was unlikely to bring its array of financial services from China to Southeast Asia, as it still needed to grow its mobile payment user base.
“It is good to have supporting financial services, but I don’t think that needs to be a high priority now. What is also important is to give merchants a good reason to accept Alipay, and I don’t think the option to receive working capital loans or microloans is something they value that highly. Instead, merchants’ pain points are about attracting more customers, getting them to spend more, and to return more frequently,” Chong said.
In China, Ant has evolved into lending to its more than 700 millions monthly active users with very small default rates as the company has collected the data of its users or targeted clients, analysts said, making it possible to build a credit risk assessment system in lieu of an institutional credit rating bureau.
“But in Southeast Asia, to what extent does Ant have that amount of data? Do they have the right algorithm to make a similar judgment like what they did in China? They need to get the risk profiles of their targeted customers, otherwise it’s also a risk for Ant Group to aggressively get into those types of businesses,” Chen said.
With or without financial services in the offing, Ant’s listing means the competition for the region’s mobile payment market will intensify as the big players seek to corner what remains a largely untapped market.
“Ant Group’s IPO is a wake-up call for the smaller players in Southeast Asia’s e-wallet market, they know they can’t stand up to the behemoth that is Alipay. We will likely see more consolidation among the smaller players, who will either band together, or partner with commercial banks,” Kapronasia’s Chong said.