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Alibaba anticipates 'aggressive' user acquisition strategy from Ant Financial

Chinese e-commerce giant Alibaba Group Holding Ltd. expects an "aggressive" user acquisition and investment strategy from its digital payment affiliate Ant Financial Services Group as both companies angle to expand their market share in China and internationally, Alibaba executives said Feb. 1 during a conference call with analysts.

The call followed Alibaba's announcement that it will buy a 33% equity stake in Ant Financial, which operates Alipay and other financial services. Alipay is an electronic payments system that Alibaba developed for its Taobao and Tmall platforms, but consumers can also use the system for transactions with other third-party retailers and businesses. It will be the first time Alibaba has owned a direct stake in Ant Financial since Alibaba spun off the company in 2011.

Alibaba's move with Ant Financial comes a day after eBay Inc. said it plans to intermediate payments on its marketplace and directly manage transactions to simplify the experience for buyers and sellers. It inked a deal with Dutch payment processing company Adyen BV to implement these changes, which will be a multiyear process, and realigned the terms of its agreement with PayPal Holdings Inc.

Ant Financial has pursued an active user acquisition strategy, driven in part by mergers and acquisitions that have pushed China's largest fintech company into new geographic markets. In April 2017, Ant Financial merged with helloPay Group, creating Alipay Singapore, Alipay Malaysia, Alipay Philippines and Alipay Indonesia.

"We expect Ant Financial to continue this fairly aggressive plan, to continue to gain more new users and take market share," Joe Tsai, Alibaba executive vice chairman, said during the conference call. "We need to have a payment solution and payment growth into those new markets."

The move comes amid widespread market speculation that Ant Financial is preparing for an initial public offering. Ant Financial was valued at $60 billion in a 2016 financing round, The Wall Street Journal reported Feb. 1.

Tsai said that Ant Financial is profitable in its three key areas: payments, credit products and wealth management. This gives the company room to invest.

"What it means is that Ant has the luxury of reinvesting profits and cash flow," he said.

Tsai also said there are customers who use Alipay Wallet who do not shop on Alibaba's platforms. There is opportunity for Alibaba to grab those consumers with a tighter relationship with Ant Financial, he said.

"This actually helps us increase user acquisition," he said.

Alibaba on Feb. 1 also posted a 56% year-over-year increase in revenue to $12.76 billion for its fiscal third quarter. The Hangzhou, China-based e-commerce giant also raised its revenue guidance for the fiscal 2018 full year.