Ant’s Venture Investments and the Anatomy of a Super App

The digital economy has blurred traditional industry boundaries, and Ant Group exemplifies the successful ‘super app’ model that many start-ups across Asia now seek to replicate

Ant Group, the sister company of Chinese e-commerce giant Alibaba, is set to raise $34.5bn in the biggest IPO the world has ever seen, valuing it at just under $314bn.

This would make Ant the most valuable fintech company in the world, but calling Ant a fintech firm may be an oversimplification. The firm pioneered digital payments in China, but it has come a long way from its origins in 2004, when Alipay was created as an escrow system to hold customers’ payments, releasing the funds to sellers only after they have verified that they are happy with the purchase – thus bridging the trust gap between buyers and sellers on Alibaba’s e-commerce sites.

For Ant, digital payments is not an end in itself but a necessary feature of a successful platform business where multiple business verticals are built out from a single mobile app. In its own words, Ant’s stated vision is to “digitalize the modern service industry.” By linking consumers’ wallets directly to its digital platform and digitizing large volumes of user data to generate unique customer insights, Ant has turned Alipay into a massive mobile ecosystem where merchants and financial institutions can transact with over a billion users across a growing range of services. This business model innovation has come to be known as the ‘super app’ strategy.

Ant’s venture capital investments reflect its ambition to evolve beyond the realm of consumer finance, so it can play a much bigger role in consumer access to everyday goods and services. Having spun off from Chinese e-commerce giant Alibaba in 2011, Ant has participated in close to 130 known venture capital investment rounds since 2014. Preqin data shows it has backed start-ups that span dozens of industry verticals.

To sketch out Ant’s investment strategy and its evolution over time, we had to depart from our standard industry classification system. We grouped Ant’s deals into categories that we felt better described where they might fit into Ant’s product development plans. For instance, ‘touchless interface’ describes companies working on gesture control, iris recognition, and facial recognition, even though these companies may fall under categories like artificial intelligence (AI) software and electronics under standard industry classification. Not included in the chart above are Ant’s one-off investments in electric batteries, drones, and a human resource outsourcing firm. We also excluded digital media businesses as Ant stopped investing in this sector after 2016.

Investing in Global Partnerships
Ant has been most active in backing financial services and e-commerce start-ups as it relies upon global partnerships to grow its international user base. In March 2020, Ant took a minority stake in Swedish payments firm Klarna. As part of their deepening collaboration, Ant will embed Klarna’s popular ‘buy now pay later’ solutions into AliExpress, the e-commerce site owned by Alibaba. And in May, Ant joined forces with Myanmar’s Wave Money, pumping in $75mn to promote financial inclusion for Myanmar’s unbanked communities. Ant is also an investor in South Korea’s Kakao Pay, India’s Paytm, Thailand’s Ascend Money, Indonesia’s Akulaku, Pakistan’s Telenor Microfinance Bank, Bangladesh’s bKash, and Mynt in the Philippines. Last year, Ant inked its largest-ever overseas deal with the $700mn acquisition of UK currency exchange giant WorldFirst.

Ant’s cross-border deals attract more attention, but Chinese fintech and e-commerce start-ups are still the most frequent recipients of its cash. In March, Ant invested an undisclosed sum in Shenzhen Mustard Boat, a software provider that’s working on cross-border logistics integration, digital customs clearance, and other enabling services for importers and exporters at home and abroad. Ant also has a 30% stake in Alibaba offshoot MYbank, the licensed online lender focused on disbursing micro-loans to small businesses in China. MYbank is just one of the 100 or so partner banks that doles out loans via Ant’s platform, but is Ant’s second-largest customer.

Hunting for New Customer Access Points
Another deal that stands out is a CNY 280mn (close to $40mn) Series A funding round for Xinlian Technology that Ant led in July last year. Xinlian Technology is a highway electronic toll collection (ETC) solution provider set up by Shandong province’s state-owned highway company. According to Chinese media reports, ETC has become an increasingly important battleground for Chinese tech giants, ever since Chinese authorities made the popularization of ETC devices on freeways part of its reform agenda for state-owned enterprises.

Prior to this, we had already seen Ant and rival Tencent, which is behind China’s most popular messaging app WeChat, compete for dominance in China’s public transport infrastructure. In 2018, Tencent and Geely won a joint bid to take a 49% stake in High Speed Network Technology Company, the high-speed rail network WiFi subsidiary of state-owned China Railway Corporation. Shortly after, Ant backed Chinese subway WiFi provider Peanut Subway in a Series D funding round. Providing free WiFi to travelers gives firms more access points to users’ information such as phone numbers and social accounts, reports China Money Network. WiFi providers also get to pick which mobile payments platform to embed into their services, which of course benefits Ant.

A newer area that Ant is exploring is government digitalization, as China undertakes what it calls “electronic government reform” to make it more convenient for companies and citizens to access administrative services, opening up a market that is reportedly worth CNY 272bn (about $38bn). In 2019, Ant made a strategic investment in Hanweb, a software firm focused on cloud applications, mobile platform development, data analytics, and web security for electronic government. Ant and Alibaba are working with Hanweb to streamline government functions online and offline. Becoming the native payments gateway for essential public services would be a big win for any platform business.

Using Tech to Solve Trust Issues
Since 2017, Ant has also ramped up investments in IT security, and is especially bullish on blockchain, the digital ledger technology. In 2018, Ant launched AntChain as a so-called ‘blockchain-as-a-service’ open platform to support diverse applications. The same year, Ant invested in eSand, a Chinese start-up that’s using blockchain to provide digital identity services. Last year, Ant also participated in a $10mn funding round for Israel’s QED-it Systems, which enables cloud deployment of blockchain without revealing any sensitive data outside of a chosen provider. Patent database IncoPat has reported that Alibaba and Ant lead the world in blockchain patent applications. The majority of Alibaba's blockchain patent applications in 2019 were filed by the blockchain team at Ant Financial, for use cases in finance, insurance, and security. 

It makes sense for Ant to focus its efforts on innovations in IT security and enterprise tech, as China’s digital payments industry matures. Over the years, Ant has derived a growing share of revenue from helping financial institutions assess consumers’ credit quality, investment preferences, and insurance needs, as well as detecting fraud. Indeed, Ant’s digital finance technology platform accounted for 63.4% of group revenue in the first half of 2020, whereas revenue share from digital payment and merchant services was 35.9%, down from 54.9% in 2017.

Innovating the Payments Interface
Meanwhile, COVID-19 is driving greater adoption of touchless interactions to limit virus transmission. Both Ant and WeChat were early promoters of facial recognition in payments, though consumers gave them the cold shoulder due to privacy concerns.

Still, Ant is pushing ahead. Last year, it pledged to spend CNY 3bn ($448mn) to promote the use of its ‘smile to pay’ facial scan machines via merchant subsidies and shopper rebates. Ant made seven venture investments in firms working on touchless user interface solutions between 2015 and 2018, and is a backer of Chinese AI start-ups Megvii and DeePhi Tech, as well as 3D motion sensor company Orbbec. In 2016, Ant acquired EyeVerify, a US firm that transforms the image of a user's eye into a key to enable mobile identity verification. The two combined to create a new entity, ZOLOZ, which has developed more biometric authentication technologies. There is a good chance that such technologies will be a feature of Alipay in the near future.

Super Apps: The New Standard in Customer Experience?
Ant has struck up numerous partnerships and diversified its venture bets in its journey from escrow service to super app. Ant may be the most valuable fintech company in the world, but that’s largely because its growth prospects reach far beyond the world of financial services, into an unlimited number of verticals. As of 30 June, the Alipay app had over two million mini-programs. These so-called ‘apps within an app’ connect users to various daily life services from ride-hailing to municipal services. In the 12 months ending June 30, over 60% of users came to the Alipay app for daily life services.

Ant’s diverse interests demonstrate that the digital economy is blurring traditional industry boundaries. As leading players from adjacent sectors seek to continually solve pain points and make their user experience more seamless for customers, industries are converging, KPMG has observed.

That’s the driving principle behind Alipay and WeChat’s ‘super app’ strategy that many other start-ups across Asia like Grab, Gojek, LINE, Flipkart, and Paytm now seek to replicate. Even US-based Uber proclaimed in 2019 that it wants to become “the operating system for your everyday life.” And Facebook founder Mark Zuckerberg said last year that he regretted not taking note of WeChat sooner. WeChat was first released as a smartphone messaging app in China in 2011, before adding e-wallet and other functions over time. It’s now regarded as the Chinese 'app for everything.' Facebook has been working to unify the underlying messaging infrastructure of the WhatsApp, Instagram, and Facebook Messenger services as part of a new strategy announced last year. In India, where many super-app wannabes are already in fierce competition, Goldman Sachs expects the partnership between Facebook and telecoms giant Reliance Jio announced in April this year to create a strong contender for super-app supremacy.

While some observers have argued that the success of super apps in China may not be replicable in more mature internet economies like North America, where competition from incumbents is strong, the rise of super apps is a trend worth noting. Research from KPMG suggests that an evolution in consumer preferences is also driving the shift toward super apps in the West: “after nearly a decade of fragmentation and unbundling of services in their lives – consumers are starting to revert towards rebundling [...] Consumers may not be specifically demanding super apps, but they certainly want the convenience and simplicity that super apps can offer.”