Ant Financial, which operates Alipay, recently issued $3 billion in debt to fund a global shopping spree. In the past few weeks, Ant has taken shares in payments companies in the Philippines, South Korea and the United States.
Ant Financial and its parent company Alibaba Group Holding Ltd (NYSE:BABA) have big plans for global expansion. Ant Financial hopes to have 2 billion users worldwide in 10 years. Currently, 450 million people worldwide use Ant Financial. This rises to 630 million if you count Paytm, the Indian payments service in which Ant owns a stake.
If all goes well, Ant Financial could become a major force in global finance, if it isn’t already.
There are rumors that Ant will go public in Hong Kong and China later this year. Ant is hoping that rapid growth will impress investors and increase its share price. In the past, Ant Financial has been valued at anywhere from $60 billion to $75 billion. A successful IPO could generate a windfall for Alibaba, since BABA is entitled to 37.5% of Ant’s pretax profits.
Ant Financial is expanding in Southeast Asia, a region where 438 million lacked bank accounts in 2016 (according to KPMG). Southeast Asia includes rich countries, like Singapore, where almost everyone holds bank accounts; poor countries like Cambodia and Myanmar, where hardly anyone can access banking services; and countries that are in between, like Thailand.
Alibaba and Ant also see the importance of social engagement for commerce and payments, and Ant Financial inked a deal with South Korea’s largest chat app, KakaoTalk, in February.
Let’s look at Ant Financial’s recent purchases.
Buying Moneygram to Increase Ant Financial’s Global Presence
On Jan. 26, Moneygram International Inc (NASDAQ:MGI) announced that Ant Financial was acquiring Moneygram for $880 million. Ant will pay $13.25 a share in cash, a mere 11.5% premium over MGI’s Jan. 25 closing price.
Moneygram is the world’s second-largest money transfer service, second only to The Western Union Company (NYSE:WU). Moneygram boasts an impressive network, with 2.4 billion bank and mobile accounts and 350,000 agent locations worldwide. At these locations (in over 200 countries and territories), people can send and receive money and pay bills. Moneygram is available at 40,000 locations in the United States, including many CVS Health Corp (NYSE:CVS) stores. I counted 15 CVS stores with Moneygram within a five-mile radius of my location.
Moneygram might be integrated with Alipay so that businesses that now take payments through Moneygram accept payments via Alipay. Growing Alipay’s network increases its value to its users. Moneygram can be used to pay utilities, credit cards, cable bills, auto loans, insurance, mortgages, rent and healthcare bills and to top up mobile phones.
This increases Alipay’s value not only to Chinese tourists traveling abroad, but also to non-Chinese users outside of China. Since Alipay is maturing in China, future growth may be easier to find in other emerging markets.
That’s not all. Ant Financial could bring its technical expertise to Moneygram and speed up Moneygram’s transition to digital. And Moneygram will benefit from access to Ant’s 630 million users.
Ant Financial’s Shopping Spree: Southeast Asia
On Feb. 17, Ant Financial acquired a “substantial minority interest” (later revealed as 45%) in Mynt, a fintech firm much like Alipay. Mynt, also known as Globe Fintech Innovations, is owned by Globe Telecom Inc (OTCMKTS:GTMEF), the largest mobile operator in the Philippines with 66.6 million subscribers. Mynt runs Gcash, a payments service in the Philippines with 3 million registered users. On Gcash, users can top up phones, send money, pay bills and shop.
This is not Ant’s first acquisition in southeast Asia; in November Ant took a 20% stake in Ascend Money in Thailand. Ascend provides financial services to those who lack bank accounts and credit cards. Ascend Money had 700,000 active users in Thailand as of November, and expects 7 million there within a year or two.
Ascend’s position in neighboring countries impresses even more. In southeast Asia, Ascend has 20 million customers, and hopes to grow this to 100 million by 2020. Ascend has 50,000 agents, with 23,000 in Indonesia, and wants to have more agents than the biggest regional banks.
The Charoen Pokphand Group, Thailand’s largest private corporation, owns 80% of Ascend, and also owns the 10,000 7-Eleven convenience stores in Thailand. However, like in India, protectionist sentiment is rising. There are concerns over Ascend, which is partly owned by Ant, dominating Thailand’s payments system and blocking new startups.
Ant’s position in Southeast Asia gives Alibaba a head start as Amazon.com, Inc. (NASDAQ:AMZN) prepares to enter the region. And lest we forget, Alibaba also owns Lazada, the Amazon of Southeast Asia, with 7.3 million customers last year.
Ant Financial’s Shopping Spree: South Korea
Finally, on Feb. 21, Kakao of South Korea announced that Ant would invest $200 million in its payments arm KakaoPay. Kakao owns KakaoTalk, South Korea’s largest messaging platform, with 48 million active users globally as of last April. 14 million people use KakaoPay.
Both Kakao and Ant will benefit from this merger. It gives Ant a stronger position in the country and adds the 34,000 merchants in South Korea who use Alipay to KakaoPay’s network. With more places accepting KakaoPay, the value of the payment service to its users will increase.
Not only Ant, but Alibaba as a whole will benefit from greater ties to this messaging app. BABA’s main weakness in China is that Tencent (OTCMKTS:TCEHY) shuts Alibaba apps out of WeChat and instead promotes Alibaba’s competitor, JD.com Inc(ADR) (NASDAQ:JD). With 768 million WeChat users, this is a big problem. But Alibaba can always partner with other apps in China and messaging apps in other countries.
It looks like Alibaba understands the importance of social engagement. KakaoTalk isn’t the first app Alibaba has invested in. In 2014, Alibaba invested in Tango, a U.S.-based messaging app with 48.5 million monthly active users last year. In 2013, Alibaba paid Sina Corp (NASDAQ:SINA), a Chinese internet company, $586 million for an 18% stake in Sina’s microblogging service Weibo Corp (ADR) (NASDAQ:WB). BABA stock increased its stake to 31.5% last year. Weibo, with 313 million monthly active users, has been described as a cross between Twitter Inc (NYSE:TWTR) and Facebook Inc (NASDAQ:FB).
Alibaba even rolled out its own chat apps, Laiwang and DingTalk, which met with varying degrees of success.
Can Ant Financial Get 2 Billion Users?
It looks like Ant Financial is serious about reaching 2 billion users; it already is around 1/3 of the way there if we include Paytm in India. Ant certainly has made progress since I first wrote about it last year.
A report by Ernst & Young and the Singaporean bank DBS sees Ant succeeding more in developing countries than in the West. Developing countries resemble China, with massive urbanization, increasing access to mobile phones and millions without bank accounts or credit cards. People in these countries are likely to lack access to financial services, and this is where Ant (or Paytm, or Ascend, or Mynt) can fulfill an unmet need.
Ant is more likely to succeed in these countries.
But in the West, things may be more difficult for Ant. Since people in wealthier countries have bank accounts and credit cards, they tend to shun switching to new solutions. Marcus Swanepoel, the CEO of Luno, a Bitcoin startup, wrote that he spoke to a European bank and found that customers weren’t switching to investment apps. Even if the apps were cheaper and better than traditional financial services, 99% wouldn’t switch.
As of writing, Lucas Hahn did not hold a position in any of the aforementioned securities.