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Why Alibaba Invested in CompareAsiaGroup

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Jul. 31 2017, Updated 7:41 a.m. ET

Alibaba backs CompareAsiaGroup’s funding round

Online personal finance marketplace operator CompareAsiaGroup recently raised $50.0 million in a funding round backed by investors including Alibaba (BABA), Goldman Sachs (GS), and Nova Founders Capital.

CompareAsiaGroup, which counts American Express (AXP) and Citibank among its partners, operates platforms where people can turn for credit services that match their needs and risk profiles. For example, it allows users to compare credit costs from different providers. This capability contributes to expanding financial inclusion, which aligns with one of Alibaba’s goals.

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Alibaba’s credit line for purchasers

Reuters reported in April that Alibaba was considering launching a credit service in Brazil. The report quoted Alibaba’s founder and executive chairman, Jack Ma, as saying, “We want to invest in e-commerce, logistics and inclusive financing.”

In 2015, Alibaba partnered with LendingClub to launch a credit line to provide small business loans to companies in the US (SPY) that use its platforms to buy from Chinese suppliers. The loans range from $5,000 to $300,000 and are offered at lower interest rates of ~0.5% per month, the New York Times reported.

Using loans to leverage e-commerce sales

e-Commerce companies such as Alibaba and Amazon (AMZN) are finding that providing convenient and low-cost loans can help them drive sales and build a loyal base of customers on their platforms. Alibaba’s investment in CompareAsiaGroup can be viewed as part of its financial inclusion goal that it hopes would encourage customers to buy more from its marketplaces on a more frequent basis.

Alibaba’s core e-commerce revenues increased 47.0% year-over-year to ~$4.6 billion in fiscal 4Q17,[1. fiscal 4Q17 ended March 2017] as shown in the chart above.

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