What Ant Group's world-beating IPO means for Asia's mobile payment giants
Ant Group's plans for the world's largest IPO have turned up the heat in Southeast Asia's ultra-competitive mobile payments market.
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.
The Chinese financial technology giant is widely expected to raise over US$34 billion with a dual listing in the Hong Kong bourse and Shanghai's STAR Market on November 5, a price that would put its valuation at more than US$300 billion and eclipse even the IPO of its former parent Alibaba Group Holding (owner of the South China Morning Post), which in 2014 raised US$25 billion. Alibaba's founder, Jack Ma, controls 50.52 per cent of Ant's shares.
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In its prospectus to the Hong Kong stock exchange, filed in August, Ant said it planned to devote 10 per cent of the IPO proceeds to growing its global user base, which includes users in 11 Southeast Asian countries.
"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.
Southeast Asia is a lucrative market for any digital payment company looking for a new revenue stream. There is a visible trend of more internet users adopting digital payments, particularly as the coronavirus pandemic has encouraged the use of cashless payments.
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.
A study by Mastercard this year found that e-wallet usage was highest in Malaysia, where 40 per cent of respondents said that they used such a service, followed by 36 per cent in the Philippines, 27 per cent in Thailand and 26 per cent in Singapore.
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."
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.
It has invested in Thailand's mobile wallet and financial services company Ascend Money, which is owned by the conglomerate Charoen Pokphand Group (CP Group); the Philippines' Mynt, which runs popular e-wallet GCash; Singapore's M-Daq, which facilitates cross-border financial services; and most recently Wave Money in Myanmar. It has also reportedly invested in Vietnam's e-wallet provider eMonkey, though the company is yet to confirm this.
As for joint ventures, Ant has a tie-up with one of Malaysia's largest banks, CIMB Group, in the launching of Touch 'n Go e-wallet app. In Indonesia, it partnered the media conglomerate Emtek to launch a mobile wallet company, Dana, and invested in online lending firm Akulaku.
"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.
In the region, Alipay is currently only available as a method of payment for Chinese travellers visiting Singapore, Malaysia, Thailand, the Philippines, Brunei, Cambodia and Laos.
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.
The Shanghai office of Alipay, owned by Ant Group. Photo: Reuters alt=The Shanghai office of Alipay, owned by Ant Group. Photo: Reuters
"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.
But rising geopolitical tensions in the region, due to China's perceived aggressiveness in the disputed waters of the South China Sea, would pose a challenge for Ant's growth strategy in the future, Chong 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.
"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."
Ant's e-wallet portfolio faces tough competition from other e-wallets offered by well-funded home-grown tech unicorns, banks, and other Chinese tech companies, including Tencent.
Chief among them are GoPay and GrabPay, e-wallets owned by the ride-hailing giants Grab and Gojek that are available in multiple countries in Southeast Asia. Indonesia's Gojek in June secured an investment for GoPay from social media titan Facebook and the US payment firm PayPal.
"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.
A GoPay cashback promotion at a restaurant in a mall in south Jakarta. Photo: Resty Woro Yuniar alt=A GoPay cashback promotion at a restaurant in a mall in south Jakarta. Photo: Resty Woro Yuniar
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.
Ovo, which is backed by Indonesia's conglomerate Lippo Group and used as the main payment method in the Grab platform, was chosen as the government's partner to distribute Covid-19 assistance funds to some 1.3 million beneficiaries this year, the same role performed by Ant's Touch 'n Go and GrabPay in Malaysia.
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.
This article originally appeared on the South China Morning Post (SCMP).
Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.
