Ant Group, a fintech firm backed by Alibaba Group Holding Ltd (NYSE: BABA), announced its plan to list its shares on both the Shanghai stock exchange’s Star board and the Hong Kong stock exchange.
The fintech, best known for its payment service Alipay, has recently released its IPO prospectus.
Here, I’ll look at one important aspect – its business model – to help investors better understand the company.
The digital payment platform (Alipay)
Ant started its business in 2004 when Alipay was created in the early days of e-commerce to solve the trust issue between buyers and sellers in online transactions.
Since then, it has grown into a dominant payment platform in China – based on payment total payment volume and transaction volume – enabling consumers, businesses, and financial institutions to transact on various financial products beyond digital payments.
For the first half of 2020, digital payments accounted for 35.9% of Ant’s total revenue.
The digital finance technology platform
Ant’s fintech platform offers three categories of products known as credit-tech, investment-tech, and insure-tech. Collectively, these segments accounted for 63.4% of Ant’s 2020 first-half income.
The credit-tech business facilitates the provision of credits – mainly through Huabei, Jiebei (花呗 借呗) – to consumers and small-medium business by matching customers to credit providers, about 100 banks and institutions.
In return, Ant will receive a fee for facilitating these transactions. As of 30 June, 2020, financial partners underwrote approximately 98% of the credit balance originated through this platform.
Next, the investment-tech business facilitates the matching and distribution of investment products to a wide range of consumers.
Leveraging AI, Ant provides intelligent matching of investment products, based on customers’ risk tolerance, provided by approximately 170 partner asset managers.
In return, it generates technology service fees from our financial institutions based on the volume of investment products distributed through its platform. Examples of products include Yu’ebao (餘額寶), Yulibao (餘利寶) and Dalicai (大理財).
Lastly, the insurtech segment is the largest online insurance services platform in China in terms of premiums generated, distributing a wide range of innovative, customised, and accessible insurance products from about 90 partners. These cover life, health, and P&C insurance areas.
Examples of products includes Haoyibao (好醫保) and Xianghubao Xianghubao (相互寶). Similar to other services, Ant receives technology service fees from its partner insurance institutions based on a percentage of the insurance premiums and contributions generated through its platform.
Now that I’ve looked at Ant’s business model, let’s look at some of the metrics of these businesses.
Source: Ant Group’s IPO prospectus
So there you go, a quick overview of Ant’s business model.
Overall, I think Ant Group has an exciting future ahead of it and long-term investors should keep an eye on the company’s upcoming IPO.