(Bloomberg) — Billionaire Jack Ma’s Ant Group is poised to pull off what could be the biggest initial public offering ever by simultaneously listing in Hong Kong and Shanghai. It’s said to be gunning for a valuation of $225 billion, making it the world’s fourth-largest financial company.
A 2011 offshoot of Chinese giant Alibaba Group Holding Ltd., the firm has defined and dominates the Chinese payments market through its ubiquitous Alipay app. It also runs the giant Yu’ebao money market fund and the Huabei and Jiebei consumer lending units.
Based in Hangzhou, a sprawling metropolis south of Shanghai, its ambitions run much deeper than just finance. Here’s a thumbnail look at the business units and the challenges faced by the firm.
Alipay: A $17 Trillion Machine
The world’s largest digital payment platform was created in 2004 as an escrow service for Alibaba to secure transactions on the e-commerce site. For consumer wary about online payments, the service was a hit and quickly spread to other platforms.
The mobile version, launched in 2009, once held 75% of the market, but has seen its share slide to about 55% in competition with Tencent Holdings Ltd.’s WeChat Pay.
Alipay has 711 million active users, mostly in China, who tap it to buy everything from a quick coffee to even property, generating $17 trillion in payments in the 12 months through June. But it’s also becoming less and less important to Ant and contributed 36% of its revenue in the first half of this year, down from more than 50% just two years ago.
Losing ground in the payments market was one reason that Ant called off a previous plan for an IPO already in 2017, people familiar said at the time. It’s now a much more diversified company.
Huabei and Jiebei: A Loan Feast
For those that don’t have ready cash to spend via Alipay, Ant operates services that dole out small unsecured loans: Huabei (Just Spend) and Jiebei (Just Lend). The former focuses on quick consumer loans for purchases of iPhones and fridges, while the latter finances anything from travel to education.
Ant uses some of its capital for these loans, but the bulk of the money comes from banks, with the firm acting as gateway. The platforms made loans to about 500 million people in the 12 months through June, charging annualized rates on its smaller loans of about 15%. Their lending could swell to almost 2 trillion yuan by 2021, according to Goldman Sachs Group Inc.
The firm’s CreditTech business, which includes Huabei and Jiebei, is its single biggest revenue maker, contributing 39% of the total in the first six months of the year.
The company is now applying for a license to set up a consumer finance company. The new entity would boost Ant’s lending capacity since consumer finance companies are allowed to lend out 10 times their capital, far surpassing the two to three times leverage of Ant’s existing micro-loan companies.
Yu’ebao: The Great Stash
With hundreds of millions flocking to Alipay, Ant in 2013 created a money market fund that allowed people to earn interest from cash they parked in the app, investing as little as 1 yuan. Tianhong Yu’e Bao Money Market Fund is one of the world’s largest of its kind with about $173 billion in assets. But it has shrunk from its heyday after regulators stepped in to limit how much each investor could put in the fund.
In 2018, Ant opened the platform to third parties. Now it offers fund options from more than 20 asset managers. It has partnered with companies including Invesco Ltd., which has seen one fund grow 300- to 400-fold in size as of March. This year, Ant teamed up with Vanguard Group to offer a robo adviser to allow the U.S. giant make headway in China.
The unit that Yu’ebao is part of at Ant accounted for 15% of revenue this year, which is about unchanged over the past three years.
Leveraging the vast amount of data it gleans on spending and lending patterns, Ant started a credit scoring service in 2015 called Zhima Credit. If users opt-in to the service, Ant runs checks on transaction histories and also uses data from third-party providers to check credit worthiness. Ant charges companies that tap into the service a fee and if customers score high enough, they can avoid paying deposits on everything from renting a bike or booking a room at hotels like Marriott.
Xianghubao: Insurance for Pennies
A lot of ants make a mighty colony. The company in 2019 entered the insurance market, creating a health care product called Xianghubao that allows people to pay a small monthly fee that is pooled to help cover treatment costs for members stricken by diseases such as cancer, Alzheimer’s and even Ebola.
Ant’s Insuretech unit also sells insurance premiums from third party companies, and it takes a cut. The unit’s revenue rose 47% to 6 billion yuan in the first half, accounting for 8% of total sales.
Ant had grand plans for the U.S., but those have now been put on ice…