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How Does Alibaba’s Ant Financial Operate?

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Expanding beyond e-commerce

Since Alibaba (BABA) has decided to exercise its option to swap its profit share in Ant Financial for an equity stake in the business, it’s important for investors to understand what exactly Ant does and how it could benefit Alibaba over the long term.

Like its US counterparts Amazon.com (AMZN) and eBay (EBAY), Alibaba has dreams of a deeper global penetration, of expanding beyond its e-commerce roots. Ant has a wide-ranging presence in the digital economy—not just in China but in other Asian countries and beyond. Through brands such as Alipay, Sesame Credit, Ant Fortune, and Ant Financial cloud, Ant operates in digital payments, consumer credit, wealth management, and cloud computing markets.

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Alibaba’s primary payments processor

Through Alipay, Ant is the primary payment processor on Alibaba’s e-commerce platforms. It’s an arrangement similar to what eBay had with PayPal (PYPL) before it recently tapped a new payment partner known as Adyen.

Enhancing its customer acquisition and retention

In taking an equity stake in Ant, Alibaba hopes to take greater advantage of Alipay’s popularity in and out of China to enhance its customer acquisition and retention.

Taking a stake in Ant also seems to fit with Alibaba’s efforts to diversify its revenue sources as Ant gives it exposure to potentially lucrative businesses such as online lending. Amazon, PayPal, and Square (SQ) also extend loans to their customers online. PayPal has also partnered to bring investing solutions to its customers, while Square introduced a feature last year that allows users of its money transfer app to buy and sell bitcoin.

Notably, Ant says that Alipay has 520 million users, compared with PayPal’s 227 million active customer accounts at the end of 4Q17.

Continue to the next part of this series for a closer look at the prospects for Ant Financial’s IPO (initial public offering).

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