When the Chinese state directs a policy, action tends to follow. But rather than take the government’s 2014 directive to “Go Global” as solely requiring majority acquisition of overseas companies or trying to expand products directly, there has been a fascinating mix of strategies underpinned by corporate venturing – taking minority equity positions in private third-parties.
Last week, Ant Financial, the financial services affiliate spun off by New York-listed, China-based e-commerce group Alibaba, agreed to invest $200m in Kakao Pay.
Kakao Pay is a mobile finance subsidiary of South Korea-based internet company Kakao. The substantial funding by Ant Financial is to be used to spin out Kakao Pay as a separate entity. Kakao Pay said it provided financial services, including online payment, bill payments and remittances, to a customer base of more than 14 million in South Korea.
Ant provided the funding as part of a strategic partnership to integrate the 34,000 merchants that use its local services and payment platform, Alipay, into Kakao Pay’s system, allowing them to sell goods and receive payment in South Korea.
Kakao Pay also agreed to offer Ant’s services in South Korea where they will be available for use by Chinese visitors. Targeting tourists and expats seems to be part of a broader strategy for Ant’s global strategy given Chinese expenditure on outbound travel grew by a “stellar 53% in 2015” to $215bn through more than 60 million tourists going abroad, according to the World Travel & Tourism Council. This number is expected to climb above 78 million by 2026, the council added.
Kakao Pay is the latest deal in Ant’s rollup of stakes in mobile money and other fintech providers to boost growth before its own expected flotation later this year or later. Ant, which manages 58% of all online transactions happening in China through its Alipay service according to investment bank Credit Suisse, is reportedly raising $3bn in debt to finance more investments and acquisitions, according to newspaper Financial Times, a year after raising $4.5bn in equity and debt through a series B round.
Ant Financial has been active in acquiring stakes primarily in fintech and consumer businesses, the latter including ecommerce company Ele.me and ride hailing service Didi Chuxing, as illustrated on the bubble chart by GCV Analytics.
It was also reported last week that Ant had invested an undisclosed amount in Globe Fintech Innovations, a financial technology subsidiary of Philippines-based telecommunications company Globe Telecom, also known as Mynt. Diversified conglomerate Ayala Corporation also took part in the funding round.
Mynt operates micropayment platform GCash and Fuse Lending, a service that offers loans to unbanked and underserved customers and businesses.
Earlier last year Ant Financial acquired a 20% stake in Thailand-based online payment company Ascend Money, as Reuters reported, along with an option to boost its share to 30%. The financial terms of the transactions were not revealed. Spun out of conglomerate True Corporation in 2014, Ascend oversees online payment service True Money and microfinance and loan provider Ascend Nano.
Singapore-based currency exchange platform M-Daq also received funding from Ant Financial in 2016, as Tech in Asia reported. Founded in 2010 as Summit Investment, M-Daq operates a foreign exchange platform to simplify cross-border trading, and has also launched a dedicated offering for e-commerce, dubbed Aladdin, aiming to make cross-border transactions cheaper for retailers.
Ant, therefore, has been one of the most active investors in the fintech corporate venturing scene in Asia and hence the world. Through 2016 an estimated record $7.22bn were pumped into fintech startups from the Asia Pacific region in 40 rounds involving corporate venturers, as shown on the bar chart. The region accounts 43% of the global fintech financing, according to a report by news provider ImpactAlpha.
Outside of minority investments, however, Ant Financial’s most sizeable and important acquisition in the field was the purchase of MoneyGram for $880m in late January. MoneyGram is the second largest provider of money transfers and remittances around the world, operating roughly 347,000 offices across more than 200 countries. This acquisition will give Ant Financial access to the money transfer market worldwide.
An additional dimension to Ant’s impact is its complicated relationship with its former parent, Alibaba.
Due to its New York listing, Alibaba does not have a direct stake in Ant, due to Beijing’s restrictions on foreign companies owning Chinese financial institutions, but it has a 37.5% profit-sharing agreement and could take up to 33% of equity in a listing of Ant.
Alibaba and Ant have coinvested in numerous deals, including Didi Chuxing and Ele.me, and Ant’s international influence is helped by the use of Alipay on Alibaba’s ecommerce platform.
However, Alibaba has also taken stakes in Ant’s peers, including India-based online retail service Paytm E-Commerce, which is reported to be raising between $180m and $200m to spin out its mobile payment subsidiary. Alibaba already holds a stake in Paytm, the mobile payment platform formed in 2010 by One97. Paytm E-Commerce, which oversees the firm’s e-commerce functions, is to be renamed PaytmMall.
This depth and complexity of relations can be seen between Alibaba and Ant and also other large China-based corporations.
Within a few years of the directive to go global and Alibaba and Ant, along with China’s other internet titans, such as Baidu, Tencent and JD, have acted swiftly using a sophisticated mix of financial strategies.
