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Why Alibaba’s Ant Financial Wants to Focus More on Technology

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Technology could contribute 65% of revenue

Ant Financial may look quite different in the next few years. The Alibaba (BABA) finance affiliate is shifting its main focus away from payments and consumer finance to cope with growing regulatory pressure on its core businesses, according to Reuters.

The shift could see Ant’s main focus becoming technology services. As a result, the technology business is expected to account for 65% of Ant’s revenue in the next five years, compared with 34% in 2017. Consequently, the payment business’s contribution is expected to drop to 28% from ~54% in 2017. The financial service business, which comprises lending and wealth management, is expected to shrink to 6.0% of revenue from 11% in 2017.

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China cracking down on financial risk

China has continued to crack down on financial risk, shaking the country’s online financial service sector. Ant is among the players that have been affected by the crackdown. As it focuses on technology, Ant is expected to offer services such as fraud prevention and risk management to banks and other institutions.

Alibaba taking an equity stake in Ant

Alibaba, which has a profit-sharing agreement with Ant, took a charge of $114 million courtesy of Ant in the quarter ended in March. Alibaba posted an overall profit of $1.1 billion in the quarter, compared with a $243.1 million profit by JD.com (JD) and a $3.8 billion profit by Tencent (TCEHY). Baidu (BIDU) and Amazon (AMZN) reported profits of $1.1 billion and $1.6 billion, respectively, in the March quarter. Alibaba is ending its profit-sharing agreement with Ant and taking an equity stake in the business.

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