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NYSE-listed Alibaba Group Holding, the owner of this newspaper, still owns a third of Ant and analysts see the synergies between them only multiplying as Ant broadens its remit.

“Alipay’s upgraded offering will further extend the reach of Alibaba’s ecosystem,” said Goldman Sachs analyst Piyush Mubayi in a report.

Ant could become the poster boy for China’s plan to attract fast-growing technology champions to list on its domestic markets so that its citizens can easily reap the benefits of rising share prices in the wake of red-hot IPOs.

Perhaps more importantly, at stake is funding for a platform that is accelerating the digitisation of the plethora of Chinese businesses, and by doing so, helping the economy recover from a trough caused by the coronavirus pandemic.

China’s service industry represented 59.4 per cent of GDP growth last year, according to China’s National Bureau of Statistics, and mostly still relies heavily on traditional bricks-and-mortar business models.

“You’re buying China if you buy into Ant … They will grow at a slight multiple to the nation’s consumer economy,” said Rob Jesudason, founding partner and chief investment officer at financial services principal investment firm Serendipity Capital and former CFO of Commonwealth Bank.

Alibaba sold control of its payments platform, called Alipay in 2011 so that it could apply for a mainland China payment business licence. Alibaba then launched Ant to house Alipay and other budding financial services in 2014. It has grown rapidly since.

WeChat Pay also has around 1 billion users, while Palo Alto-based payments firm PayPal has about 346 million users globally and a market capitalisation of US$226 billion as of Thursday.

“An American consumer is probably more profitable right now than a Chinese consumer, but that might not be the case [in] 20 years’ time,” said Jesudason.

Growth is also tempering after an explosive run in 2016 and 2017. Online payment transaction value steadied in China to around a 20 per cent annual increase last year, according to data from the People’s Bank of China and Analysys.

The hunt for higher-margin business and growth as the number of online payment users reaches saturation point has prompted Ant to diversify. Regulators have given it another push to change its business model, according to researchers.

Payments companies in China used to make money from interest income on users’ reserve funds. However, in January last year China’s central bank ruled that these reserves should be managed in a central account and no interest could be claimed by the service providers.

“It has become more important for third-party payment companies to source revenue from alternative channels,” said Mizuho Securities analyst Ben Huang citing the change in rules.

Ant has leveraged the data generated by Alipay users to develop other products. Ant’s major businesses include payments, consumer lending, SME lending and wealth management.

Among Ant’s users, eight out of 10 people used over three services last year, up from seven out of 10 in 2018. Growing loyalty among its users has meant Ant has been able to reduce cash subsidies to merchants.

“Payment is the gateway to acquiring new customers which is key to providing data insights in future product development,” said Jefferies’ Chong.

For instance, Ant’s Yu’e Bao, which translates into “leftover treasure”, launched in 2013 allowing Alipay users to invest their spare cash for short periods of time easily. Ant’s majority-owned Tianhong Yu’e Bao Money Market Fund grew into the world’s largest money market fund by 2017 in terms of assets under management.

“The points of friction in the wealth management space in China meant that these products were inaccessible to the masses,” said Zennon Kapron, a director at Kapronasia, which focuses on financial services.

“The Ant footprint within the financial system was getting larger and larger, and in our view, the regulators started to see them as systemically important … whether overtly or not, the regulators put pressure on them to transform their business and move away from being a financial provider to become a technology provider,” said Kapron.

Yu’e Bao opened up to third-party asset managers in 2018 and charges them a fee for access. There are now around 23 external firms on the platform. 

Ant also studied the banking landscape. Commercial banks in China tended to lend to larger, state-owned enterprises, which meant SMEs struggled to secure financing for growth.

Ant also began working with traditional banks to help them originate loans and put their deposits to work by syndicating out requests to borrow capital from individuals and small businesses and making a recommendation on their creditworthiness for a fee.

“It’s been a symbiotic relationship and one of the examples where fintech is not creating disruption but cooperation within the financial industry,” said Kapron.

Ant has been swiftly opening up its platform to other service providers in other areas too. In 2015 it launched Ant Fortune which allows financial institutions to list their products and services on the platform. As of March 31, Ant Fortune facilitated 4 trillion yuan of assets under management for its partners. Meanwhile, insurance premiums facilitated by Ant more than doubled for the 12 months ended March 31, compared with the same period in the prior year.

Ant has also been selling its technology to other institutions for them to white-label, including blockchain, artificial intelligence, security and internet-of-things. For example, Ant’s blockchain technology has been applied to a wide range of commercial use cases, such as supply-chain financing, product provenance, as well as electronic bill issuance and circulations.

Ant claims the largest productivity blockchain platform in China, with the ability to process and support one billion user accounts and one billion transactions every day.

Ant contributed 5.1 billion yuan to Alibaba for the three months ending March, up from 500 million yuan a year earlier, implying Ant made a net profit of 15.3 billion yuan (US$2.18 billion) in the final three months of last year, calculated JP Morgan analyst Alex Yao in a May report, who partly attributed the jump to its growing market share in online lending.

This is only a rough measure of Ant’s profits as Alibaba uses the equity-method accounting rule, proportional to its 33 per cent ownership stake, so the contribution also includes profits made on investments and other potential one-off payments. Ant declined to give its exact net profit or revenue figures because it is in a “quiet period” ahead of its IPO.

On March 10, Alipay said it would diversify further from a platform that provides financial services and technology into an open lifestyle ecosystem.

The company aims to grow its services fee from over half of its revenues now, to 80 per cent within five years. The contribution from Ant’s self-operated services direct to consumers will shrink further as a result.

“They have to continue to diversify; otherwise Tencent might dominate new markets,” said Jesudason.

One month before Alipay integrated Starbucks’ pickup feature into its app, the coffee chain launched a WeChat mini program that allowed WeChat users to order coffee deliveries. To accelerate its transformation in the face of such fierce competition, Ant made a symbolic move.

Ant won permission from China’s State Administration for Market Regulation in May to change its registered name from Ant Financial Services Group to Ant Group, showing its clear intention to keep its metamorphosis going into a technology champion.