Ant Financial Case Study PDF

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Deciphering the Trillion-valued Unicorn -Ant Financial Case Study

Copyright ©2019 EO Intelligence. All Rights Reserved.

EO INTELLIGENCE

INTRODUCTION According to the World Development Report 2019 issued by the World Bank in October 2018, Ant Financial was rated as the most valuable fintech company in the world. As a financial services company that has just spun off from Alibaba Group for four years, it does deserve the title "the most valuable company" with a valuation of USD 160 billion. In China, there is a huge gap between the lofty valuation of Ant Financial and the valuation of other unicorn companies.

It can be seen that Ant Financial is growing rapidly and outperforming financial institutions that have been developing for decades in China and even the world. Ant Financial cannot be labeled as a simple fintech or a financial company, because in terms of the 15-year accumulation and development from Alipay to Ant Financial, both the innovation capability of its financial business and the technical output capability serving a third-party financial and non-financial institution are indispensable consideration factors for its valuation of USD 160 billion.

Why is Ant Financial selected?

By making a summary and analysis on the development of Ant Financial, EO Intelligence hopes to have a deep understanding of the impetus for the industry brought by the

combination of technology and finance, and the logic behind it. The scale and uniqueness of the Ant Financial ecosystem may not be replicable today, but the exploration course of Ant Financial will definitely give practitioners food for thought.

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CONTENTS

04 16

Ant Finan cial Ov erview Financial Overview

1.1 Financing and Equity 1.2 Background 1.3 License and Product Information 1.4 Investment Events Financial Development Strategy Ant Finan cial Dev elopment Strateg y 2.1 Globalization 2.2 Serving Small and Micro Businesses 2.3 Credit System

26 38

Ant Finan cial Revenue Fore casting Financial Forecasting 3.1 Business Data Disclosed by Ant Financial and Third Parties 3.2 Revenue Structure Pos tscript Postscript

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Ant Financial Case Study

Chap ter 1 Chapter Ant F inancial Overview Financial

Ant Financial, a four-year-old independent financial services company, known as the world's most valuable fintech company with a valuation of USD 160 billion. By making a summary and analysis on the development of Ant Financial, EO Intelligence hopes for deep understanding of the impetus for the industry brought by the combination of technology and finance, and the development logic behind it.

This chapter mainly provides descriptions of

basic information of Ant Financial, including development development,

background, main

products,

business equity

distribution and investment events in China and the world, so as to facilitate understanding of the logic behind the strategy formulation and business adjustments of Ant Financial.

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Ant Financial Case Study

Fi Financing Equity nancing and Eq uity Fi Financing nancing events According to the business registration information, the full name of Ant Financial is Zhejiang Ant Small and Micro Financial Services Group Co., Ltd., formerly known as Zhejiang Alibaba E-Commerce Co., Ltd. which was

IPO ro und established in October 2000. By the end of 2018, Ant Financial had 9 financing events, and its PrePre-IPO round fundraising financing, the valued USD 14 billion financing is still the biggest-ever single fundra ising globally. After t he financ ing, th e inancial billion. Rumors about the listing of Ant Financial have been going on all the valuation of Ant F inanc ial hit U SD 160 billion time. Whether Ant Financial will go public in America, Hong Kong or on Sci-Tech Innovation Board (STAR Market) in mainland China has become the biggest suspense.

By sorting out the investment agency engaged in Ant Financial's financing events, EO Intelligence find that its PreIPO financing round not only involved Chinese investment organizations, but also 12 overseas ones. EO Intelligence believes Ant Financial hopes to expand global markets by sharing profit margins in the future. EO Int Intelligence: elligence: Ant Financi Financial al Financing Ev Events ents Announced Date

Transaction Name

Money Raised

Investment Agency

23/6/2018

Strategic financing

￥ 1.6B

China Pacific Insurance Lead investors: Government of Singapore Investment Corp, Warburg Pincus, Canada Pension Plan Investment Board, Temasek , Khazanah Nasional Berhad;

8/6/2018

Pre -IPO

$ 14B Follow investors: Carlyle Asia, Baillie Gifford, General Atlantic, Silver Lake 、Sequioa Capital (China), Janchor Partners, Discovery Capital Management, T Rowe Price

1/2/2018

Strategic financing

￥ More than 100M Lead investor: Alibaba

18/5/2017

Debt Financing

$3.5B

Undisclosed Lead investors: CIC Capital, CCB Trust

26/4/2016

Round B

5/9/2015

Strategic financing

Follow investors: National Council for Social Security Fund (China), GP Capital, China Pacific Insurance, New China Insurance, China Life Insurance, China Post Capital, China Development Bank Capital, Primavera Capital, China Development Bank International Investment、ALPHA (Beijing) Investment Fun, Hanfor Capital、E Fund ￥ More than 100M China Post Capital $4.5B

5/7/2015

Round A

￥ 12B

Zongfu Equity Investment, JingYi Investment, China Development Bank Capital, Guokaixinyuan Investment, New China Insurance, PICC Capital, National Council for Social Security Fund (China), China Pacific Insurance, China Life Insurance, Primavera Capital, Shanghai Financial Sector Investment Fund Second Stage, Yunfeng Capital, China Post Capital, GP Capital

1/5/2015

Round Pre-A

￥ 219M

Haier Capital

15/4/2014

Strategic financing

Undisclosed

CCB Fund, PICC Capital

Source: EO intelligence organize from public information

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Ant Financial Case Study

Fi Financing Equity nancing and Eq uity Ow Ownership nership struc structure ture Based on Ant Financial's financing events, EO Intelligence has analyzed major equity distribution of the company. To date the two largest shareholders of Ant Financial are Hangzhou Junhan Equity Investment Partnership

("Junhan") and Hangzhou Jun'ao Equity Investment Partnership ("Jun'ao"), with a total equity ratio of 74.6% (2019 Q3 financial report of Alibaba) according to the proportion of registered capital (registered capital, also known as authorized capital, is the sum of the subscribed capital contributions of all shareholders and promoters of the company), having absolute control over it. According to the business registration information, Junhan has Jack Ma and Shihuang Xie as its limited partners and Hangzhou Yunbo Investment Consultancy Co., Ltd. as its general partner. Jun'ao has 24 executives of Alibaba, including Jonathan Lu, Daniel Zhang and Lucy Peng as its limited partners, and Hangzhou Yunbo Investment Consultancy Co., Ltd., which is 100% owned by Jack Ma, as the general partner as well.

Backg round Background The “L “Little ittle Ant” originating from Alipay In terms of the development history of its products, Ant Financial started from Alipay launched by Alibaba in 2004. At the beginning, Alipay was a secured payment instrument of Taobao, with an original intention of solving the trust issue in users transactions. In terms of the product mode, Alipay's secured transactions do not have much innovation, it simply adjusted transaction processes. Nevertheless, the emergence of Alipay has become a turning point in China's e-commerce industry, and th the usiness fundamental e payment busine ss has been the most fundamen tal and core business even inancial. Today, Alipay has become the world's largest payment platform, with busi ness of Alipay and eve n Ant F inancial annual transaction volume of RMB 100 trillion.

In March 2013, the parent company of Alipay, Zhejiang Alibaba E-Commerce Co. Ltd., announced that it would set up an Alipay-oriented small and micro financial service group, which is the predecessor of Ant Financial. In October 2014, Ant Financial was officially established.

As far as EO Intelligence concerned, there are three crucial events during the development of Ant Financial, which h of Alipay, Yu'e Bao (an attempt to arrange ot her fina ncial bus iness es bes ides payment) and financial are launc launch other financial business inesses besides tech nology technology nology. The three crucial events (products) have fundamentally affected the business layout and long-term development of Ant Financial, exerting a profound influence on enterprises and the industry.

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Ant Financial Case Study

Backg Background round Yu' Yu'e e Bao wa wass established amid the att attempt empt to arrange other financial bus businesses inesses be besides sides payment In June 2013, Ant Financial launched Yu'e Bao in cooperation with Tianhong Asset Management Co., Ltd., in order

to cope with the policy of turning in provisions and improve the utilization rate of users' funds. Yu'e Bao is a customized fund product that mainly invests in the interbank market, with a low investment threshold - RMB 1, and depositors can withdraw their money at any time (T+0). The balance can be directly used for consumer payment.

The original idea of Yu'e Bao is to solve the problem of single channels for fund sales, which, to some extent, promoted the formulation of fund sales standards on e-commerce platforms. In 2013, theInterim Provisions on

the Administration of the Business Operations of Securities Investment Fund Distributors through Third-Party ECommerce Platforms was officially issued. Yu'e Bao, after obtaining the compliance qualification, has seen rapid business development and its net asset size began to rocket up. EO Int Intelligence: elligence: Yu’e Bao Net Asset Sca Scale le 18000

14318

15798

14540 11327

5789

6134

2014/6

2014/12

2015/6

8083

2016/12

5742

8163

2016/6

12000 6207

6000 42

1853

0 2018/12

2018/6

2017/12

2017/6

2015/12

2013/12

2013/6

Yu'e Bao Net Asset Scale

Source: Shanghai Tiantian Fund

Yu'e Bao is the first step of Ant Financial ecosystem. After that, Ant Financial has stepped up its efforts in the layout in the Internet plus finance sector, and defined the development direction of inclusive finance. Now, arrangements have been made in three financial sectors.

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Ant Financial Case Study

Backg Background round Yu' Yu'e e Bao wa wass established amid the att attempt empt to arrange other financial bus businesses inesses be besides sides payment EO Int Intelligence: elligence: Ant Financi Financial al Top Top3 3 Financial Bu Business siness Seg Segments ments

June 2013

February 2015

April 2015

Yu’e Bao launched

March 2013

Set up Zhong’an Insurance 13% of total shares

September 2015

Take stock in Cathay Insurance 60% of total shares

Take stock in Tianhong Asset Management 51% of total shares

Take stock in Shumi Fund 60.8% of total shares directly

Bank Banking ing In Industry dustry

In Insurance surance In Industry dustry

Fun Fund d In Industry dustry

May 2015

Set up Hangzhou Baojin September 2016

Insurance (now renamed Mayibao Insurance)

Apply for HongKong virtual

100% of total share February 2018

Yu’e Bao and Yuli Bao open to foreign currency money funds

Set up MyBank 30% of total shares directly

2018 May 2017

Set up Trust Mutual Life 34.5% of total shares

bank(Obtain a virtual banking license from the HongKong Monetary Authority on May 9th, 2019)

Source: Public information; Note: The shareholding ratio of Ant financial is the data at the time of investment, which is not the latest data

Es Establish tablish the Important Positio Position n of Fintech Development Strate Strategy gy In September 2015, Ant Financial launched the “Internet Propeller” program, setting a goal of helping 1,000 financial organizations transform and upgrade to new finance in next 5 years, and promoting the opening up of its platform, data and technical capabilities.

In October 2017, Ant Financial unveiled its five technology-open “BASIC” strategies at the first ATEC conference. kcha in that helps build reliable and globally connected systems can be used to Such strategies are as follows: Bloc Blockcha kchain store, exchange and process data; AI (artific (artificial intelligence) ial intelligenc e) that helps build intelligence systems can deliver cheaper, more sustainable and optimal services to consumers; Se Secur curity cur ity is the core of information system security and stability; Io IoT (Internet T (Intern et of Things) is a bridge between the physical world and the digital world, bringing the same changes in the physical world as in the digital world; C loud Computing, the abundant resource of computing power in cloud computing opens up new possibilities for digital finance and even the digital economy. Based on this, Ant Financial has extended the three capabilities of risk control, credit and connectivity, and began to achieve all-round coverage in the layout of fintech.

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Ant Financial Case Study

Li License Product cense and Produ ct Information Dif Difficulty ficulty in obtai obtaining ning ful fulll license of traditional financial business Ant Financial has always been active in applying for a financial business license, a prerequisite for conducting financial transactions in China, to comply with the requirements of regulation and business compliance. At

ses which were obtained through subsidiaries established or companies present, it has 14 f inancial licen licenses controlled. By business type, the financial licenses held by Ant Financial itself or indirectly through a holding company include: •

banking license and insurance license approved by China Banking and Insurance Regulatory Commission;

•

payment license and credit investigation license approved by People's Bank of China;

•

fund license and securities license approved by China Securities Regulatory Commission;

•

factoring license approved by the Ministry of Commerce;

•

petty-loan license approved by other organizations. EO Int Intelligence: elligence: Fi Financial nancial Lice Licenses nses o f Ant Fin Financial ancial ( Sel Selff -owned and ow owned ned by Ho Holding lding C ompa ompany) ny) Pay ment Payment

Payment license

Bank

Private bank license

Fund Fund payment by the third party license

In surance Insurance Insurance agent license Property insurance

Fund sales license Fund management license

Mutual insurance license

01

02

03

04

Cre dit Credit

Pett Pettyy L oan

Sec urity Security

Fa ctoring Factoring

Small-loan company license Network petty loan license

Brokerage license

Factoring license

06

07

08

Personal credit license (Shareholder enterprise of Baihang Credit) Enterprise credit license

05 Source: EO Intelligence

Fou Fourr prod product uct str structures uctures of Ant Financial: payment, financial management, mi micro cro loan and technology After the formal establishment of Ant Financial, in addition to businesses related to Alipay, Ali Finance with Ali small loan as its main business was also merged into Ant Financial. Ant Financial’s current businesses, both owned by itself and by its sponsor shareholders, include Alipay, Yu'e Bao, MYbank, Ant Credit Pay, Zhima Credit, Ant Cash Now, Ant Fortune, My Loan, Ant SDAQ and Ant Financial Cloud. These business sectors involve payment, fund, financial management, insurance, banking, consumer finance, petty loan, cash loan, credit investigation and equity-based crowdfunding, etc.

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Ant Financial Case Study

Li License Produ oduct Information cense and Pr odu ct Inf ormation Fou Fourr prod product uct str structures uctures of Ant Financial: payment, financial management, mi micro cro loan and technology EO Int Intelligence: elligence: Major Business Se Segm gm gments ents o f Ant F inancial Payment Pay ment • Alipay- October 2004

Fund • Tianhong Asset Management- Holding share • Shumi Fund- Holding share

Fin ancial Management Financial • Yu’e Bao- June 2013 • Yuli Bao- June 2015 • Ant Fortune- August 2015

In surance Insurance • Zhong’an Insurance- September 2015 • Dingsun Bao- June 2017 • Xianghu Bao- October 2018 • Cathay Insurance- Holding share

Pet ty Lo an Petty Loan • My Loan- March 2010 • Ant Petty Loan- May 2011

Co nsumer Finance Consumer • Ant Credit Pay- December 2014

Banking Ba nking • Zhejiang Mybank- June 2015

Cre dit Inv estigation Credit nvestigation • Zhima Credit- January 2015

Cash Loan Ca sh Lo an • Ant Cash Now- April 2015

Cro wdfunding Crowdfunding • Ant SDAQ- May 2015

Source：EO Intelligence

As can be seen from the product categories of Ant Financial, it has almos almostt achieved full coverage of 2B and 2 C businesses nesses. However, its business structure still needs to be optimized. In particular, the payme payment busi nesses nt business is too centrali tralized, butt it h as a h igh ma market hare, hich ead weak regulation ability forr r ele elevant iskss. cen trali zed, bu rket s ha re, w hic h may lea d to wea k regulati on ab ility fo vant r isk

Failed product exploration In addition to these established business segments, Ant Financial has also had failed attempts. EO Intelligence has sorted out these failed attempts, holding that the shutoff of three products has a great impact on Ant Financial’s overall layout. After encountering some setbacks, Ant Financial defined a clearer direction for its business layout, and deployed enterprise resources to focus on core business.

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Ant Financial Case Study

Li License Produ oduct Information cense and Pr odu ct Inf ormation Failed product exploration ocai Bao  Zha Zhaocai Launched in April 2014, Zhaocai Bao positioned itself as a financi...