Has Ant Financial Entered Its Golden Age?
摘要： Ant Financial is currently in cooperation with over 200 banks and 60 insurance companies with 2000 insurance products available for consumers to choose from. Ant Financial is probably the first finance organization in the history of finance . What kind of changes will this monstrous company bring about exactly?
Recently, Alibaba’s board chairman Jack Ma had an in-depth dialogue with China Business Network’s former editor in chief Qin Shuo. When Qin mentioned that the fact that the once dominating Internet giants BAT (Baidu, Alibaba, Tencent) had been replaced by the ATM (Alibaba, Tencent, Xiaomi), Jack Ma suddenly said without hesitation that the M in ATM should be Ant Financial (Ant is pronounced as Ma Yi in mandarin).
In Jack Ma’s grand business plan, Taobao, which had already made a glorious business record, was the vanguard, and Ant Financial will be the next leading warrior in the field. During the Double Eleven Shopping Festival in 2015, Ant Financial’s payment product Alipay had 85,900 transactions per second, breaking the record of 56,000 transactions per second set by VISA. Such unprecedented performance has no doubt made Alipay the strongest payment platform in the world.
As a matter of fact, Ant Financial has more than just Alipay: Ant Financial has 600 million users, through whom Ant Financial is able to collect useful big data and use it to create innovations that later had a profound impact on the Internet sector. Besides that, Ant Financial is also providing services ranging from underlying architectures to cloud computing for finance organizations.
At present, Ant Financial is in cooperation with over 200 banks and 60 insurance companies with 2000 insurance products available for consumers to choose from. Meanwhile, Ant Financial has also registered several licenses related to the finance sector, probably the company that has the most finance licenses in China: Third-party payment, fund sales, banking, insurance and the licenses for personal credit and securities that are still in process. What’s more, 2015 had been a year of O2O, in which more scenarios had appeared in Ant Financial’s product system: Dining, supermarket, KTV, cab-hailing etc. Furthermore, users who have a credit above 700 on Ant Financial can apply for a visa to visit Singapore more easily (in the future Luxembourg might be included).
At the end of 2015, Alipay turned 12 while Ant Financial had its first birthday. Before that, Ant Financial’s valuation hit between USD 46 ~ 50 billion after going public. In contrast to that, JD only had a valuation of USD 24.6 billion after the IPO. In the history of business, there has never been any financial organization like Ant Financial that not only has capital, but also an enormous user base, thorough and detailed data on user behaviors, and advanced IT capability. So how will Ant Financial fit into the current financial system? And how will it transform the future financial system?
The most powerful payment platform
When we look back at the time when Ant Financial was still green, Alipay was its main product. A little known fact is that it wasn't until 5 years after Alipay was born and had accumulated nearly 500 million users that Ant Financial was then finally established. Alipay is a tool derived from the development of the e-commerce industry. In its early stage, Alibaba only had a small team with less than 20 people. “Alipay, like other products of Ant Financial, emerged for a certain demand,” Ant Financial’s president Jing Xiandong said in his interview with TMTpost. The issues occurred in the field of Internet credit sector at that time could be attributed to the immature credit environment in the real economy. And in order to insure the safety of the transactions, Alibaba designed and launched Alipay. Subsequently, the development of e-commerce business further boosted Alipay. It’s fair to say that Alibaba’s prosperous e-commerce business was mainly contributed by the emergence of Alipay.
Besides the influence of the e-commerce industry as a whole and Alibaba’s own e-commerce business, Alipay was able to thrive thanks to the fact that Chinese banks back then didn’t take e-payment seriously enough. In Japan, payment service is the main income source of banks while payment accounts for 25% of the income of western banks. Compared to that, for a long time Chinese banks relied mostly on margin interests for revenue, with payment accounting for less than 5% of the revenue.
On the other hand, the e-commerce industry in China has been developing at a rocket speed and has accumulated more than 40 million small and mid-sized businesses active online. And these business owners’ financial needs had been neglected by traditional banks. Additionally, traditional banks didn’t have the ability to make their services reach the users. The cost of operating one loan could be up to a couple thousand RMB for traditional banks, while Alipay was able to lower the cost to one RMB through technological innovations. The Alipay at that time, though young, already had some financial functions other than just payment.
According to an insider, when China’s central bank gave Alipay the license for running third-party payment business, the media considered Alipay as the capillary while traditional banks were the arteries. Little did the media back then know that Ant Financial could have evolved to today’s financial giant. Ant Financial is so powerful that this company’s influence alone has made China the leading country globally in the field of e-payment. During the Double Eleven Shopping Festival in 2015, Alibaba made this made-in-China shopping festival international through AliExpress. And due to the sudden increase of online purchases, many foreign payment systems almost had a malfunction on that very day. Alibaba itself also needed to restrict traffic in order to stabilize the system. During the shopping festival, Alipay had 85,900 transactions per second, breaking the record set by VISA, which was 56,000 transactions per second. Such unprecedented performance made Alipay the strongest payment platform in the world.
In around September in 2015, Ant Financial’s architect Hu Xi and his team visited several commercial banks to test their systems in order to insure they wouldn’t have malfunction on the shopping festival. In addition to that, Alibaba also set up a 12-12-6 scenario in response to peak time in advance: the first 12 means that in every second 120,000 consumers would finish picking products and click Pay; the second 12 means that the same amount of consumers would be choosing payment channels within the same second; the final number 6 means that 60,000 consumers would be paying per second.
The 12-12-6 scenario setting was based on the data collect during the shopping festival in 2014. In 2014, the scenario setting was 8-8-3, which was based on the statistics from the previous year as well. The payment process on Tmall and Taobao is not only conducted by Alipay alone, but also over a hundred banks’ services and fast-payment function. Aside from that, some businesses also had promotion strategies like coupons and lucky money, which were sent to consumers’ accounts in advance, making the whole payment process even more complicated since it involved cooperation among the e-commerce platforms, business owners, banks and Alipay. Therefore, Hu Xi and his team had been visiting and helping banks run tests based on that scenario to find the most probable situation of traffic each bank might face.
Analysys International’s statistics show that Alipay, as Ant Financial’s key product, had a user base of 600 million in 2015 and by May 2015 the number of active mobile users had reached 270 million. The Alipay at present is not only the pillar product of Alibaba’s e-commerce transaction business, but also a third-party payment tool that can offer payment service in regions that are covered by online business. Alipay didn't just stop there, it’s expanding to offline scenarios as well.
Heavier and heavier
The picture on this slide went viral recently on the Internet: Alipay’s entry into the Dong Dan market in Beijing. “It’s hard to imagine in today’s society, you don't’ even have to carry any cash to shop in a 100-year-old market,” Jing Xiandong said. “All you have to do is install Alipay on your phone through which you can pay everything.” Almost every store near the 1933 Old Millfun located in Shanghai supports Alipay now as well.
In 2015, Alipay had entered restaurants, fresh good markets, supermarkets, and KTVs etc. In provinces like Zhejiang, you can see Alipay’s logo in many stores, which suggests that you can pay the bill via the Alipay on your phone in that particular shop alongside with UnionPay and LAKALA. Yu Ying, CMO of Carrefour China, recalled that the first thing Carrefour discussed with Ant Financial earlier in 2015 was finding common grounds. From her perspective, Carrefour is a traditional supermarket brand while Ant Financial is an Internet enterprise, two very different companies at nature. However, they do have a very fundamental common ground, that is the consumers, which Carrefour prefers to call as customers and users for Ant Financial. So are there people who can both users and customers? Yu Ying was able to find the answer before long by profiling the consumers.
In China, Carrefour serves over 400 million customers annually. In cities like Beijing, Shanghai, Guangzhou and Shenzhen, the male/female ratio of the customers is 1:3 while the average age is 42. After Carrefour adopted Alipay’s service and Alipay’s penetration rate reached 8% (male/female ratio 5:5), which means 8 out of 100 customers would use Alipay for payment, the average age was 25-25. Yu Ying found this exciting, since old people’s consuming power lags behind the young group. “Such consuming group is being guided to Carrefour by Alipay,” Yu Ying stated, revealing that Alipay had helped Carrefour gain an 18% increase in customer flow.
Alipay is now evolving from online to offline, adding more offline services to its service system. In early June 2015, the catering association of Qingdao helped local restaurants install Alipay POS. Alipay lowered the service fee from the average 12.5 RMB per one thousand RMB of similar products to just 6 RMB through technological innovations. Ant Financial’s tech frame has evolved to the stage of cloud computing, which is a sign of the centralization of distributed computing. According to Ant Financial, its clouds can lower the system cost from traditional frameworks’ tens of cents to just one cent per transaction. What’s more, the system cost of per loan is lowered to less than one RMB as well, which enables Alipay to provide users with free transaction services.
Through observation, Yu Ying found that after learning to use the new system, the cashiers can finish one purchase in 15 ~ 20 seconds. “The work efficiency is increased,” Yu said.
Ma Tao, senior analyst at Analysys International, believed that the future mainstream payment wouldn't involved any bank cards, and that in an era where the mobile Internet has become more important than ever in the business world, Alipay has both the ability and the right time to go from online to offline. Alipay now has two kinds of target users: C and B. B is small-sized enterprises. If Ant Financial wants to increase the user retention rate of C, then it must integrate different scenarios and make them use Alipay more often. To achieve that, Ant Financial had launched many local services on Alipay. It’s fair to say that Alipay has infiltrated every aspect of online and offline payment scenarios.
According to incomplete statistics, there are currently over 500,000 restaurants, 40,000 convenience stores and supermarkets, around 200 hospitals, and over one million cabs and private cabs are using Alipay’s offline payment service. As the crucial part of the transaction, whether it’s online or offline, Alipay has always been a frequently-used product with an extremely high user retention rate. When a third-party payment tool has penetrated everyday scenarios to a certain degree, it not only possesses a giant financial account system, but also the power of a very influential channel, for which Alipay became dominant. Additionally, such advantages paved the way for Alipay to become the largest Internet finance retail platform in China.
Channels are transforming products
When more and more people are questioning whether it’s a good idea to make Alipay heavier or not, MingDao’s vice president Xu Wei said: “Besides the payment and ineter-bank segments, other functions from Ant Financial can be all considered as Internet finance products.” Payment service is the channel and inter-bank services are Zhima Credit and finance clouds. The rest of Ant Financial’s products are foundation, financial management, insurance, banking, small loans, equity crowdfunding and P2P, all of which can be considered as Internet finance products like what has been mentioned above. Unlike Alibaba who sells physical products, Ant Financial is an e-commerce platform that sells Internet finance products.
Statistics from Ebrun show that the B2C Chinese e-commerce platform JD has more than one hundred million registered users while VIP.com has 9.3 million. As for Alipay, the number of its user base is around 600 million, 270 million of which are active mobile Internet users. In this enormous account system even 1% of users could have made a decent transaction volume. The truth is, Tmall and Taobao have become so successful that there’s no need to build another platform.
Therefore, looking from the perspective of e-commerce, a powerful channel is the core competitiveness for Ant Financial. Having only the Internet as the channel might lead to failures, which is proven by many cases in the business world. And only finance organizations that have products designed based on big data can make more innovations, or let’s put it another way, more channels.
CPIC is the perfect example of that. In 2010, many consumers returned the products they bought on Taobao and there had been much of disputes about whom should be paying the logistics fee. To solve this problem, CPIC teamed up with Alipay and launched the insurance service for returns: If consumers are willing to pay an extra 50 cents, then in situation where they need to return the merchandise, either the consumers or business owners can get a refund in 3 days depending on who would pay the logistics fee. After that, CPIC and Alipay took it even further by launching insurance products on quality guarantee of cell phones and guarantee extension. Later the two companies even introduced similar products to appliances, providing guarantee insurance for electronic product buyers.
CPIC’s director told our journalist at TMTpost in an interview that one of Ant Financial’s advantages is that it can find insurance needs in different scenarios since it’s small, fragmented, affordable, and useful, and it provides services based on users’ needs. “This platform is the best place where we can explore the possibilities of Internet insurances,” the director commented at last.
The reality there is the tendency that finance products are going online, and what Ant Financial is doing is merely follow the trend. According to CICC, from 2011 to now, the volume of Internet financial insurance had an increase above 100% each year. In 2014, the volume even reached 50.6 billion RMB. It’s estimated that by 2020, the scale of the Internet insurance sector would hit 304.9 billion. From 2015 to 2020, the compound growth rate of property insurance will be around 35%. Meanwhile, Internet property insurance will account for more proportion of the total volume of the property insurance sector. In 2012, the property insurance sector only took up 1.83% of the total volume of the entire insurance industry. But in 2014, the number jumped from that to 6.7%. China International Capital Corporation also estimates that by 2020 the property insurance sector will be holding 20% of the entire insurance industry’s volume.
In this case, there are three factors influencing the success of Internet insurance: tendency; the right product; and the right channel. Yu’E Bao had all of them, and it has been the most successful case so far.
Since 2003, money funds started to appear in the Chinese finance sector, which was seemed as the starting point of interest rate liberalization. However, the outcome disappointed a lot of industry insiders for the fact that after the emergence of money funds the industry tended to stay stable and nothing really happened. Yu’E Bao fundamentally uses Alipay’s platform to sell money funds. In this case the nature of Yu’E Bao is T+0. T+0 means when users file redemption application, the fund will be sent back to their accounts within one day or immediately. This T+0 completely changed people’s perception on money funds since they used to considered money funds as fixed deposit. Such innovation didn’t bring up much of a stir before Alipay came along. Naturally, TianHong Fund, who was running Yu’E Bao, was not famous at all at that time.
In August, 2013, 10 days after Yu’E Bao’s launch, its number of users skyrocketed to one million, far beyond TianHong Fund’s expectation. But the following surge of user base surprised them even more. Very soon, Yu’E Bao became popular across the country, making the TianHong Fund jump from around 50th to the top three on the industry ranking chart. Up till March 2015, the number of Yu’E Bao’s users had reached 200 million, with a transaction scale of 711.7 billion RMB, making Yu’E Bao the second largest financial management product in the world. According to TianHong Fund’s operation director and technical director, Han Haichao, everyday Yueabao’s system had to allocate revenue for 80 million users, and that the record was 5000 transactions per second. In general such complicated processing of data is completed in an hour.
After that, Zhou Xiaoming, the vice president of TianHong Fund, commented: “Yu’E Bao is not a mysterious product. Its core model is direct selling. That being said, Yu’E Bao installed the direct selling system from foundations on an e-commerce platform. In this case, Yu’E Bao acts just like an e-commerce platform where we buy merchandise. The difference here is that we are buying financial service on this platform.” Zhou is the designer of Yu’E Bao’s direct selling model.
Such design allows consumers to shop for financial services and pay for them easily just like transferring money with Alipay. When shopping on Taobao or Tmall, Yu’E Bao can be a payment tool just like Alipay. Since unlike putting money in Alipay balance, putting money in Yu’E Bao is no different from that except for the fact that users could earn a few bucks thanks to the interest rate. What’s more, in the early phase of Yu’E Bao, the interest rate was pretty high, and it naturally drew tons of users to use it.
“Internet finance is a combination of the finance industry and Internet industry. It’s a cross-industry business. Therefore it’s not a line in which people just sell finance products on the Internet nor a new industry where Internet companies start getting involved in the finance sector. From our perspective, this newly-emerged sector should be a fusion of both industries.” Zhou Xiaoming concluded.
“In terms of the transaction scale, Alibaba accounts for 80% of the total transaction volume in China,” Chen Xinlei, professor at the Cheung Kong Graduate School of Business commented. “In some way it means Alibaba holds 80% of the Internet traffic in China. If this 80% of traffic were to be poured into the finance sector, there would be another Alibaba in that particular sector.”
Chen was absolutely right about that.
From cooperation-competition to building an ecosystem
As a matter of fact, the rapid and large transfer of savings to Yu’E Bao shocked traditional banks, especially local banks. However, the fundamental reason for this shock lies in the overly slow marketization process of the interest rate of the Chinese banking sector and the lack of channels for resident investment. To maintain a higher margin, banks in China have been using low interest to attract clients. Even without Yu’E Bao, there would always be other similar products creating a stir within the industry. In contrast to the traditional Chinese finance industry that’s slowly going online, Ant Financial as a third-party force provides the traditional finance industry with an Internet finance thinking and some solutions.
Lin Ronghui is the president assistant and vice president of Industrial Bank. In June 2015, Industrial Bank signed a comprehensive cooperation with Ant Financial. He stated that traditional major banks’ advantages lied in the numerous branches they had, however mid-sized banks like Industrial Bank were not able to form competitive edge in promoting finance services geared to ordinary consumers. “If we mainly promote our services online, we would be able to reach more users and provide them with general and personalized services,” he said. “If we can build such platform, success will surely follow.”
At present, Industrial Bank is conducting most of its services online except for counter service etc. Lin Ronghui revealed that Industrial Bank focused on two main fields, which were services for ordinary consumers and the ones for enterprises. “Nowadays many enterprises’ production models and operation models have been transformed by the Internet.” Lin explained. “In the past the sales of financial services was complicated, and now we have direct channels.” Enterprises connect finance services related to purchasing, sales, production, inventory, and logistics etc. through using Internet and Industrial Banks aims to connect its system with enterprises’ production, logistics and sales systems.
Industrial Bank’s overlaps on client source with Ant Financial are also a driving force of their cooperation. For traditional banks there are many restraints that have been holding them back, for which reason they had no choice but cooperated with third-party platforms. In most cases traditional banks start their process of going Internet by building their own websites first, making their services available online. Although such initiatives could attract a lot of registered users, the inconvenient truth is that these users are all vertical users. By vertical I mean these users can only enjoy services in the bank that offers them. And because of that users of Bank A face barriers when they need to use Bank B’s services. Ant Financial’s system is, in contrast to that, horizontal, which can better serve users in a society where time, content, and even users are fragmented and improve the efficiency of cash flow.
Additionally, traditional banks in the past didn’t have the capacity to meet the demand of small-amount transaction and payment. To put it in perspective, traditional could lend one thousand RMB to one person in the past, but with Internet finance technologies they are able to lend one thousand RMB to one thousand people. And such function is based on third-party payment organizations like Alipay, which used to serve mainly e-commerce businesses. Today these third-party platforms even allow payment of a 50-cent insurance, showing that relevant technologies have evolved to the mature level.
Building online banks to attract users is a method similar to traditional enterprises’ efforts of building B2C websites during their transition period. The harsh reality is that a lot of companies failed during this process and some traditional enterprises later just cooperated with third-party e-commerce platforms, which could also be an option for traditional banks.
This gives third-party organizations lie Ant Financial an opportunity. Ant Financial alone is in cooperation with over 200 banks and 60 insurance companies. And with this abundant resource, Ant Financial doesn’t just simply sell finance products, but integrate all the resource. “From coopetition to integration, in the end an ecosystem will be built,” Jing Xiandong concluded.
Zhao Cai Bao, launched in August 2014, is the perfect example of that. Zhao Cai Bao is a new finance product built upon the foundation of the 200 million users’ finance demand. It’s positioned as a B2C platform that sells regular financial products. In operation, Ant Financial fully exploits its advantages as a platform and introduces qualified regular financial products that have been filtered to Zhao Cai Bao’s platform for sales. There are four main product sources: One is those banks with a scale of more than 200 billion RMB (there are less than 50 banks like that in China); one is the four assets management giants, AMC; one is property insurance companies that have a solvency of 150%; the other one is those top financial organizations in China.
Individual users could subscribe Zhao Cai Bao’s service by authorizing the platform and simply inputting the service life of the product and the rate of return. Then the system would match services with the criteria set by the users and subscribe them automatically. What banks really do is giving the name of the client, the needed amount of financing, deadline, and the rate of return to Zhao Cai Bao. After that they would inform Zhao Cai Bao the collection account of the enterprises and the corporate code, then Zhao Cai Bao’s clients would come and make investment. It’s reported that some cooperating banks also help promote Zhao Cai Bao, some have even integrated Zhao Cai Bao into their direct banks or online banks in service of enterprise clients’ financing needs. Favored by the users and banks, Zhao Cai Bao had no trouble accumulating a scale of 370 billion RMB in just one year after launch.
Statistics from the Central Bank show that the summer in 2013, in which Yu’E Bao emerged, the total saving volume of banks hit 43 trillion RMB, among which 16 trillion RMB was current deposit. When some people say that Yu’E Bao is the cause of massive transfer of savings, some industry insiders point out that: “There have been little evidence that shows this is really connected to the emergence of Yu’E Bao. As long as China is still under the structure without interest rate liberalization and significant differences still exist between money market rate and deposit rate, the development of money funds is an inevitable tendency.” The active private lending scene in some way shows that 20% of users of low net worth lacks financing channels. However there are a lot of risks in the private lending sector. News like some borrowers just disappeared with the money is not uncommon. Such phenomenon paved the way for Ant Financial to launch products like Zhao Cai Bao.
Data brings revolution
Up till now, Ant Financial has created an operation model different from the ones that traditional finance industry is using. The driving force of such transformation on business model was technological breakthroughs. The most apparent factor here many people could notice easily is that more than half of the Ant Financial’s staff were technical staff, empowering the company’s technological capability.
For example, MyBank can support small loan services 24/7 and 310. The 310 mentioned here mean users only need 3 minutes to register, one minute to pass the verification process, and then the money will be transferred to the user’s account (0 minute). “In order to prepare for this year’s Double Eleven festival, we now offer loans up to 9 billion RMB to business owners for stocking up,” Zhao Weixing, the vice president of MyBank revealed. During the lending process, Ant Financial completely abandoned the mortgage model traditional banks adopt and relied entirely on credits.
Through years of accumulation, WeBank has established many risk control models based on the data it has gathered. The moment small and micro-sized companies file the application, WeBank’s system will start to analyze the applicants’ basic information, credit record and transaction history simultaneously. “As a matter of fact, the analysis process can be seen as users confirming their relevant information themselves,” Zhao concluded. If a user has a suspiciously high transaction record, then the risk control system will search and cross-reference the user’s logistics record and determine the authenticity of the transaction record.
As for new users, WeBank has another analysis method: their business license for example, logistics record, even their utilities payment record will be taken into consideration. Through this highly efficient system WeBank is able to control its bad debt rate below 2%.
The 9.0 version of Alipay canceled the login password and pattern password completely, and naturally users started to have questions and doubts. Ant Financial’s senior risk control expert Feng Liguo revealed to TMTpost since 2007 Alibaba had been working on the Super Security Brain Plan, a plan dedicated to enhancing Alipay’s safety level. The paying process has always been the center of this project and its development literally is based on the maturing technologies and the accumulation of data. By the time Alipay decided to get rid of pattern password, the asset loss rate of Alipay had already been lowered to the bottom.
In general, Alipay only has small amount transactions but with a high frequency. Alipay’s risk control mechanism is the backbone of the payment process. The more data on payment Alipay has, the more secure the payment process would be. Besides that, the risk control center scans for abnormal activities 24/7, and if suspicious activities occur the system will make real-time response. For example, if a user login to his or her Alipay account in Beijing while another person in Hangzhou tries to login at the same time, the system will determine this situation as abnormal login activity if these two people are not linked as families accounts. The geographical environment, transaction preference, and interpersonal relationship are the fundamental factors Alipay’s risk control system will analyze, and based on which more than 60 risk control models have been built, eventually giving Alipay the confidence to cancel password and pattern lock. Feng Liguo revealed that this technology alone is ways ahead of the world.
“Most banks’ data are structured data,” Gu Yong, consultant at Yong An insurance said. Gu believes Excel is already powerful enough when dealing with traditional banking businesses. “But big data mainly came from non-structured data,” Yan Lixing, professor at Fudan University said, stating that the combination of structured and non-structured data is the foundation of Internet finance ecosystem.
Structured data include client relationship, accounting system, and relevant data base while non-structured data cover data collected from social media, e-mails, texts, audio, videos, photos, Internet logs etc. Therefore, today besides data gathered from Alibaba’s other e-commerce platforms, data like user behavior, logistics history etc. are also part of Ant Financial’s big data bank. From online to offline, Ant Financial is trying to build as many scenarios as possible as long there is payment process involved. Alipay took it even further by adding social function to the app. All these developments indicate that Ant Financial is still trying to refine its data structure in hopes of boosting its core competitiveness.
Providing technological services
In October 2015, Ant Financial’s president Jing Xiandong announced the company’s new project, Internet Thruster, which could help over one thousand finance organizations enter the area of new finance in the future. In Jing’s opinion, the growth of the Chinese economy has slowed down from 7%~8% in the past to 7% and the economy has changed from investment-driven to consuming-driven, which is no doubt a sign of new economy. The thing is a new economy needs to be supported by new finance since one of the characteristics of the new economy is the application of internet technologies in the finance sector.
Ant Financial also learned a few lessons when exploring cloud architecture. Most problems occurred during the Double Eleven festival in 2011. The system was overwhelmed by the sudden surge of sales and had trouble connecting to banks’ system due to the IOE architect. The front client was having trouble making quick payment and in the back people were trying everything they could to fix the system constantly.
After that incident, Alipay decided to upgrade the whole system architecture to the third generation: to the clouds, literally. “After the upgrade, Alipay’s capacity went from a couple thousand payment transactions per second to 60,000 per second,” Ant Financial’s first architect Tong Ling said. “To put it in perspective, this amount of transactions is six times more than that of the largest bank in China.”
In May this year, Ant Financial’s WeBank was founded. It’s a commercial bank that bases its core system on cloud computing infrastructure without any brick-and-motor branch and doesn't involve cash, which means no offline service staff. WeBank’s target audience is the 20% users with low net worth.
Looking from the experience of traditional commercial banks, every year banks have to spend millions on purchasing both software and hardware for their IT system. “After we upgraded to the cloud, the system cost of WeBank has been significantly lowered,” Tangjia, CIO of WeBank said. “And as our businesses expand, the cost advantage of finance clouds will continue to grow.”
Let’s take account maintenance for example. The cost of account maintenance for banks that adopt traditional IT system is 30 to 100 RMB each and the cost of payment is 6 to 7 cents per payment. Compared to that, Internet banks that adopt finance cloud only have a 50 cents cost of each account and 2 cents cost of each payment.
One of the main businesses of traditional banks is risk monitoring service on loaning. The operation model of this business is similar to what’s been mentioned before. Relevant data will be collected manually and will be used to determine a target’s credibility based on three factors: assets and liabilities, operating profit, and cash flow record. It should be notice that statistics on these three things might not be the original data. WeBank’s operation model is based on big data, through which the system can profile the target’s credibility.
Unlike in traditional banks, IT technologies have a much more profound impact on the Internet finance sector since this sector is based on literally technologies after all. Li Xiaofeng, director of the Internet Finance Research Center at People's Bank of China, believes that the centralized IT architectures that traditional banks adopt and distributed architectures all have their own advantages as well as disadvantages. Traditional IT architectures tend to be safer and more stable while distributed architectures have more advantages in small-amount transactions and high-frequent online transactions for its low cost and technical flexibility.
For that, Ant Financial’s chief architect Tong Ling stated that the fundamental architecture of the future banks would be in a mixed mode. Tong’s idea actually fits the Internet finance strategy released by the Industrial and Commercial Bank of China recently. The Industrial and Commercial Bank of China’s report recognizes the Yilian, Rongyg, and Rongyixing, the content of the Internet finance content, and that its IT architecture is the core banking system, a combination of peripheral distributed architecture, a central server and a shared data base. For that, she concluded that: We are in the first revolutionary Internet finance era in three decades.
Not long ago, IDC’s report on the cloud market in China shows that in 2014 the scale of the cloud market in China was USD 903 million, which is around 5.73 billion RMB. Additionally, the scale of the finance cloud market was around 550 million RMB in China, which accounted for 1% of the finance sector’s investment in IT. “IDC found that there’s a huge market potential of the cloud industry since the total investment scale only accounts for 1% of the entire cloud market,” Fang Zheng, chief researcher of the finance sector at IDC China. IDC found out through surveys that banks with a scale under 50 billion are having an increasingly demand for cloud services, and are more in favor of thirty-party services.
The opening of Ant Financial cloud and the launch of Internet Thruster will be a boost for SAAS companies to sell IT technologies to medium and big-sized finance organizations as well as providing small and mid-sized finance companies with services from IAAS to SAAS. This is not just another business of Internet finance platforms, but also an opportunity for Ant Financial to enter the traditional finance sector more easily and faster.
In August 2015, The List Company Report In the First Half Year revealed that 16 banks hadn’t been performing well and that the year-on-year growth of the net profit was 2.4% while the growth in 2013 and 2014 was 12.8% and 7.7% respectively. The president of Pingan Bank Shao Ping commented that this plunge signified that the 10-year golden age during which the Chinese banking industry had a rapid growth was indeed over.
In the face of the enormous Chinese finance industry, Ant Financial is just like a little ant literately. But in an age where major transformations keep happening, Ant Financial’s attempts in the industry might bring about a few changes:
When facing the challenges for traditional loan-focused models brought by the manufacturing, real estate sector, and government platforms, Ant Financial’s light loan models and capacity might be an efficient supplement to that.
Could Alipay’s downward penetration make cardless payment scenarios the mainstream in the future? What kind of changes will happen to the future landscape of the payment sector and the banking industry?
Finance services that are based on data and drip operation system and rely on Alipay and small-amount loan companies will bring miracles in finance that had happened in the past decade in China.
As Ant Financial fuses with the traditional finance sector, what kind of impact will be brought upon? Will small and micro-sized companies have less trouble finding the financing they need? Will this fusion help achieve the national plan of mass innovation and mass entrepreneurship? Will it really nurture small and mid-sized companies and truly transform the Chinese economy?
[The article is published and edited with authorization from the author @Guo Juan, please note source and hyperlink when reproduce.]
Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.