Ant Financial, an affiliate company of Alibaba that runs popular digital payment service Alipay, has delayed its initial public offering (IPO) until late 2018 at the earliest, according to a report in the Financial Times. The IPO, which had been expected sometime this year, has been widely anticipated, given that Ant Financial was valued at $60 billion during its most recent funding round in April 2016.
That’s a staggering figure, considering Alibaba’s IPO was $25 billion in 2014, which ranks as the world’s largest ever. The company now has a market capitalization that tops $308 billion.
So what is Ant Financial’s relationship with Alibaba, and where does all of this value come from? The answer to both of those questions lies, in part, with Alipay.
The digital payments service had 432.0 million active users for its mobile app in Q4 2016, according to data from Analysys International Enfodesk. The platform also accounted for more than half of all mobile payment transactions in China for the quarter.
Other sources also underscore how important a player Alipay has become in China’s digital ecosystem. QuestMobile reported that Alipay had the fourth largest number of monthly active users (MAUs) in China in December 2016, with 402.4 million, a figure that represented a year-over-year increase of 60.6%. Only messaging services WeChat and QQ, along with Alibaba’s ecommerce marketplace Taobao, had more MAUs.
But Alipay’s relationship with Alibaba is a little complicated.
The payment service was originally founded by the ecommerce giant in 2004. As a result, it is tightly integrated with Alibaba’s ecommerce platforms Taobao, a consumer-to-consumer (C2C) marketplace, and Tmall, which focuses on business-to-consumer (B2C) sales.
Therefore, Alibaba is gathering a host of tremendously valuable data about Alipay users. The estimation of that information is only increasing as Alibaba seeks to grow its advertising business. eMarketer estimates Alibaba’s ad revenues will grow 34.3% to $16.0 billion this year. By 2019, that figure will have increased by more than $10 billion, to $26.1 billion.
In 2011, Alibaba founder Jack Ma spun off Alipay in a controversial move he said was required under new government regulations in China, drawing the public ire of Yahoo, a large Alibaba shareholder at the time. (Alibaba later settled with both Yahoo and Japan-based telecom firm SoftBank, another major Alipay stakeholder.)
Under its current structure, Alipay is owned by Ant Financial. Alibaba management and employees control a little more than three-quarters of the company, while the remaining stake is held by investors in China.
Alipay has now migrated outside of Alibaba’s ecommerce operations into much wider use in China.
The service uses QR codes to complete transactions, allowing offline merchants to sidestep investments in costly payment terminals. Instead, they can simply post a unique QR code. Shoppers scan the code with their smartphone at the point of sale, then finalize payment details on their devices.
This sort of organic growth has made Alipay an integral part of China’s digital payments ecosystem, and has helped to drive estimates of its worth.
Ant Financial is now hoping to take the lessons it has learned with Alipay and apply them to other markets in Asia-Pacific, many of which are five to 10 years behind China in the adoption of smartphones and other digital technologies. Since the beginning of the year, the company has taken aggressive aim at countries in the region in a series of moves.
In February, the company invested $200 million in Kakao Pay, one of South Korea’s larger digital payment services. Also that month, Ant Financial acquired a stake in Mynt, a digital payments and lending platform operated in the Philippines by Globe Telecom.
Ant Financial followed that with a purchase in March of a majority stake in the ecommerce operation of Paytm, an India-based company that also operates a digital payment service. The two firms have already partnered on the rollout of Paytm Mall, an ecommerce platform closely modeled after Alibaba’s Tmall.
In April, Ant Financial forged a partnership with Elang Mahkota Teknologi (Emtek Group), an Indonesia-based media group that licensed messaging platform BlackBerry Messenger (BBM) in the country. Under the agreement between the companies, BBM plans to host a mobile payments service developed by Ant Financial.
But Ant Financial is not pinning all of its hopes solely on digital payments.
The company is also among the vanguard in developing financial technology products for the mobile-first consumers that dominate in Asia-Pacific.
Ant Financial already operates Yu’e Bao, a money market fund tied to Alipay that currently manages about $165 billion in investments. In addition, it created online bank MYbank in 2015, a business that targets consumers in China that have historically lacked access to retail banking services—no small feat in a country where the concept of a credit score was an alien one until just a few years ago.