I got into an interesting debate with two good friends in Asia over the weekend. I was sitting at home in the UK of course, but these days we are all connected globally in real-time so if you post something on Facebook or Twitter, you can soon find yourself in a global discussion. This one was an interesting one as Zennon Kapron, a really good analyst and commentator based in China, posted an article about Alibaba’s Ant Financial.
Ant Financial is the biggest FinTech Unicorn in the world with a valuation of $60 billion. Much of this is attributed to AliPay, the online payments service that is now going global. That’s good news for Chinese tourists, who last year had 120 million people spending USD$104.5 billion overseas, increases of 12% and 16.7% compared with 2014. As German bank innovator WireCard notes on their blog: “Shopping is placed at the very top of their to-do list. When traveling to Europe, every tourist from China spends on average of $ 3.000 and 67% of their budget on luxury purchases abroad. Chinese tourists spend even more for shopping than for accommodation and transportation. That's a real difference to other countries.”
With the AliPay wallet in their pocket, it’s even easier to spend abroad and this upstart is already challenging China’s largest payment scheme China Unionpay. Alipay has 450 million registered users and is winning specifically in the mobile payments space with a 68% market share in third-party mobile payments in 2015, according to iResearch.
Add on to this the other big news about Alibaba with their Yuebao mutual fund which, by the end of 2015, had attracted almost USD$100 billion of assets under management, and you can see why everyone is so enamoured with Alibaba.
Anywho, it was intriguing when Zennon posted an article with the title: “Is Alibaba's Finance Cloud the future of banking in China?”
Here’s the low-down:
Alibaba setup their cloud division called Ali Cloud and started to capitalize on the fact that foreign cloud providers weren’t allowed in mainland China. The platform found near instant traction as start-ups, manufacturers and retail giants all moved onto Ali Cloud. In 2013, Alibaba verticalized their cloud with the announcement of Ali Cloud for financial services.
The development of the ‘Ali Finance Cloud’ was part of a perfect storm for Ant Financial (Alibaba's finance-focused relative). They had applied for their MyBank license and obviously needed to have a future-proofed core-banking system. Rather than look to an external provider, they decided to develop it internally.
A bank developing its core banking system internally is not unique in China, but Ant decided to go one step further: it decided to sell the cloud-based solution to other banks in China. Although the diagram below is in chinese, it provides an idea of the breadth of the solution including risk management, lending, deposits, mobile app, Infrastructure as a Service, Platform as a Service, KYC, etc..
It is difficult to overstate its potential impact of Ali Finance Cloud on the Chinese banking industry or the potential implications globally. Adoption and usage of the Ali Finance Cloud in China has been swift. Although Ant declined to say, Kapronasia’s estimate is that around 40 organizations in China are using Ali Financial Cloud including, banks, payment providers and even P2P platforms.
Having shared this, another good friend Emmanuel Daniel, founder of The Asian Banker, pointed out that this could be just the Alibaba PR machine.
I simply do NOT believe Ali Baba has even the closest ability to build a banking system (core banking? Are you kidding) in the cloud. If at all, this is pure PR. If you told me they bought a Temenos or Fidelity licence and loaded a ripped up version on the cloud, I'd say maybe. The PowerPoint slide is an intention. I'd say that Ant is trying to put an existing system of one of the friendlier banks they work with on the cloud and make it available to others. That might be more plausible.
MyBank is using the Ali Finance Cloud and we have talked directly to multiple banks that are testing services on there if not in production. Of course it will be awhile until we see the big-5 on the Finance Cloud, but there are 2nd and 3rd tier banks for which this makes a lot of sense.
It’s interesting to see this debate as I guess that Alibaba, Ant and Alipay are a bit like Google, Amazon and Facebook. Everything they do turns to gold and many media accept what they say, regardless of whether it makes sense or not. Could Alipay and WeBank have built a full scope banking core system in just a few years, and now made it available in the cloud? I don’t see why not and, either way, we need to watch Ant Financial and AliPay, as they are going global.
Watch this space.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...