Four years ago, Ant Group had its IPO taken away from it and found itself hounded by China’s regulators. As a result, it went from being the world’s largest consumer finance and e-wallet company to…still number one, just slightly more modest about it. Ant’s consumer lending business is estimated to be around RMB1 trillion (US$138 billion), about half of its pre-IPO peak. Increasingly, the company is turning to its retail payment platform and other consumer services for growth: Ant’s payment service Alipay is the default platform for Tmall and Taobao, China’s largest ecommerce platforms run by parent Alibaba (Alipay was bequeathed to Ant Group by Alibaba in 2014).
Rural China has occupied an important place in the country’s consciousness ever since Mao’s adage of “taking the cities from in the countryside” served as the defining strategy of the Chinese civil war. In another model flip, China’s technology companies are now looking to use AI and digital connectivity to serve the needs of consumers in remote markets from Hangzhou and other digitally minded cities.
Over 1.3 billion consumers worldwide have active Alipay mobile payment accounts (someone billion in China alone), which connects them to an estimated 88 million (again, mainly Chinese) merchants and hundreds of consumer service extensions. Estimates place Alipay’s market share of mobile payment app-enabled transactions at slightly more than half, in a country where an estimated $76 trillion in mobile transactions (online, and in-store) were made last year.
Whatever Happened to Jack Ma?
In October 2020, Jack Ma, the founder of China’s largest ecommerce company Alibaba, gave a now-infamous speech, in which he criticized global (and, importantly, Chinese) financial regulatory practices and boasted about the disruptive capabilities of new digital banking outfits like Ant Financial, an Alibaba company which was at the time tipped to complete the world’s largest IPO (estimated at $37 billion) days after.
That speech ushered in a world of pain for Ant and parent Alibaba in the days and years to follow. The Chinese government suspended Ant’s IPO and launched waves of anti-monopoly investigations and regulatory actions against the parent company, resulting in some RMB 7.1 billion (US$985 million) in fines for Ant last year, and Ma’s near-complete separation from the business. (He has made occasional drop-in appearances since.)
A chastened and compliant Ant Group emerged and has been steadily reaping the benefits of its rehabilitation. “In many ways, it was a good thing,” observes an Ant executive, saying that taking the IPO off the board and passing a raft of legislation to place restrictions on the consumer finance industry, China’s actions “took away the pressure to grow at all costs, and allowed us to focus on a steadier path. The company has restructured and spun off three technology units into stand-alone businesses, and there is industry speculation that this more focused Ant may try again to list.
Ant’s Campus Hive
A recent visit to Ant Group’s gleaming HQ in Hangzhou on a steamy July morning gives the impression that while the company may not be growing at all costs, it certainly remains fueled by growth ambitions, which hinge on its ability to use digital platforms to coax consumption out of an uncertain consumer base. Over 11,000 tech and knowledge workers, casually T-shirted to beat the summer heat, stream into a busy complex of glass cubes connected by elevated walkways crisscrossing over a courtyard laced with running tracks and workout stations. It’s Silicon Valley campus, Chinese style. “One of our VPs is really into competitive sports,” an employee explains
Chinese Economic Woes
Outside Ant’s thrumming hive, the streets of Hangzhou are much more muted. A brief stroll through Xixi National Wetland Park was peaceful, but perhaps too peacefully devoid of tourists, even in the air-conditioned adjacent shopping center, where claw machines (increasingly a harbinger of retail sector downturn across greater China) are deployed to fill in vacant shops. Street-level sluggishness reflects China’s recent economic performance: the National Bureau of Statistics recently reported GDP growth at 4 percent, and retail sales at 3.7 percent for the first half of 2024, both below expectations. Infrastructure and real estate investment have slowed, and while household wealth still increased in 2023, at 2.3 percent it is the slowest pace in nearly a decade.
There are some bright spots in China’s economic outlook, most indicators of how China’s slower but largely steady economy is evolving. Unsurprisingly, online retail sales grew faster (8.7 percent) than total sales (online and in-store). And while urban consumers saw decent growth in their disposable income (4.6 percent over last year), rural consumer’s discretionary spending power continued to grow much faster—6.8 percent higher than 2023 levels, albeit from a lower base (rural consumers’ spending power is about 40 percent of their urban peers).
Consumption growth in remote and rural markets has been a focus for policymakers and management consultants alike for years and this is also where Ant is targeting much of its efforts. Alipay is a primary tool for expanding its reach into more remote consumer markets. Alipay is one of Ant’s three strategic pillars (the first being AI, naturally, and the third is globalization). In internal communications, the company refers to it as the “Alipay Dual Flywheel” — an ungainly (but appropriately techie) metaphor to describe how Ant’s digital payment platform provides both continuous energy and stability to its broader digital interconnection businesses—payment transactions, marketing and content—for its merchants, much like the mechanical dual flywheel used in any SUV’s internal combustion engine.
The Ant Network: AI-First, and Foremost
Ant Insurance, a decade-old online brokerage platform originally focused on insuring online purchases for customers on its parent’s ecommerce platform, now sells over 600 million policies over its Alipay-linked platform from over 90 partner insurers. Ant recently announced that its AI-enabled claims platform issued RMB 14 billion (US $1.93 billion) in payouts in the first half of 2024, 30 percent more than the same period last year. The company’s growth strategy is focused on younger, less affluent consumers beyond China’s core urban markets; more than half of its insurance customers are already from rural areas or sub-Tier Three cities.
Unsurprisingly, AI and data management tools are also being liberally applied in service of these goals. In many ways, these tools close small gaps and remove steps in service delivery, adding incremental conveniences that quickly add up. My host bought me an Americano with Alipay, which automatically credited points to his Starbucks loyalty card program “without having to flick between all the different QR codes.” Ant Group has built numerous AI-flavored capabilities into brokering offerings including bots who assist with medical inquiries and provide decision support for policy selection. The aforementioned AI-powered settlement service launched in 2022 has automated agents that can assess users’ eligibility, and consumers can submit photos of claim documentation directly through their Alipay accounts.
There is even AI-enabled “noseprint recognition” for pet insurance. Pet ownership has soared in recent years; industry estimates place the value of China’s pet economy will grow from $67 billion in 2022 to $110 billion by next year, fueled in part by the younger generation’s growing penchant for pampering their fur babies. Yet microchipping dogs has never taken off in China. Ant has leapfrogged over this gap, allowing pet insurance policyholders to create a unique digital ID by sending in a few photos of their dog’s snout.
Another of Ant’s tech-enabled efforts to extend financial services to traditionally underserved Chinese consumers is a lending platform for farmers with small agricultural plots. Farmers confirm satellite imagery of their landholdings, and Ant generates loan offers based on valuation and economic data.
Ant Insurance and the other consumer finance services the group offers all draw upon common digital resources, perhaps most importantly Bailing, Ant’s own AI foundation model which supports the hundreds of microservices and service extensions the company offers consumers and merchants. One such is an AI-enabled one-stop insurance platform, allowing customers to select and manage policies, and even submit and receive payments for claims from some 96 different products (including outpatient, accident, and even pet insurance) offered by China’s 12 largest insurers.
B2B2C…Emphasis on the “C”
Ant Insurance, like many of Ant Group’s businesses (including the all-powerful Alipay—the double flywheel upon which all of Ant’s success rests) is a consumer channel provided to other businesses. Although retail businesses are arguably Ant’s primary customers, it has placed consumer convenience at the core of its strategies: AI-assisted image recognition capabilities allow users to quickly and easily snap pictures of their medical receipts (or their dog’s noses) and have their claims processed fast. Haoyibao, an online insurer co-developed with Ant, claims that 85 percent of its customers receive a decision and payout within two days of submission.
Ant’s claims technology is attempting to overcome two challenges rooted in the Chinese legacy insurance business model. The first is the role of brokerage which is “traditionally focused on simply facilitating sales rather than improving customer experience and trust” says Fang Yong, Head of Claims Technology at Ant Insurance.
The second is that China’s insurance market is a ‘pay-and-claim’ one, but increased use of embedded AI tools at a healthcare facility could flip the model to ‘pay on-site’—something that will be particularly well received in cash-strapped rural and remote areas where there is less digital financial inclusion.
Rural China has occupied an important place in the country’s consciousness ever since Mao’s adage of “taking the cities from in the countryside” served as the defining strategy of the Chinese civil war. In another model flip, China’s technology companies are now looking to use AI and digital connectivity to serve the needs of consumers in remote markets from Hangzhou and other digitally minded cities.
Ant’s “AI First” strategy, however, could be complicated by the U.S.-waged tech trade war on China launched under Trump and progressively retooled under Biden. Chinese tech companies have felt the pain of the numerous restrictions on sales of semiconductors and related computing equipment, making it difficult to build and maintain the AI engines that Ant and its cohorts depend. Ant spokespeople shrugged off those concerns, and given the size and the scale of the digital consumer market they serve, it is unlikely that they will be completely without access to the technology required to keep the dual flywheel spinning.
