Ant Financial recently announced that Hu Xiaoming, former head of Alibaba Cloud, will now serve as the president of Ant Financial.

This begs the question: how will the move boost Ant Financial’s global expansion strategy given that this has been its focus in the past few years?

First, a little back story.

Hu was the first finance professional recruited by Jack Ma. Before Ant Financial was established, Hu started Alibaba Micro-Finance, providing credit to sellers on the company’s ecommerce platforms.

The most successful product in his career so far is Huabei, a consumer credit product which left large and small domestic fintech players far behind.

In addition, Hu was also instrumental in developing Zhima Credit in its early stage.

Hu with Muyangquan (meaning “herding dog”), an early financial product of Alibaba
Shorter hair, but more seasoned

This is his third time entering the fintech business of Alibaba. There are certainly a lot of stories behind his movements. The episodes are also a sign of what Ant Financial has gone through to achieve its success today.

In 2015, Jack Ma proposed that “the overseas market will account for half of Alibaba’s revenue in the next decade”. In the same year, Alibaba Cloud and Ant Financial set the goal of international expansion almost simultaneously.

Currently, Alibaba Cloud is the third largest public cloud service provider in the world after AWS and Microsoft Azure, and it has a strong presence in several regions around the world. In comparison, Ant Financial has a relatively less prominent presence that needs to be enhanced.

It is true that the technology and products of Alibaba Cloud are more straightforward compared to that of Ant Financial’s. Many countries are in the early stage of internet development- Alibaba Cloud has years of advantage over local competitors.

Besides, Alibaba Cloud could use its own brand name, rather than having to depend on a myriad of local joint ventures, each operating their own brands. Ant Financial on the other hand has to rely on joint ventures or investments as electronic payment is often seen as strategic national interest and governments are reluctant to cede control to foreign players.

Despite the difficulties, overseas expansion is a necessity for Ant Financial. In China, Ant Financial is far ahead of its mobile payment competitors. Moving forward, it is not realistic to compete directly with banks, many of which are state-owned; and morphing into a technology and data company would obviously impact their top and bottom lines.

It makes great sense for it to focus on international markets, where its advantage is clear over the next couple of years.

Equipped with a finance background and Alibaba Cloud’s promising global efforts, what will Hu Xiaomin’s next moves be?

Global expansion of Alibaba Cloud

Taking a look at Alibaba Cloud’s developments in recent years gives us an idea about Hu’s global expansion strategy.

Alibaba Cloud is currently available in 52 zones across 19 regions around the world, covering the Chinese mainland, Hong Kong, Singapore, Malaysia, Indonesia, India, Japan, Australia, Middle East, U.S., and the European Union.

After launching overseas in 2015, Alibaba Cloud has determined four key categories of clients after several iterations of trial, error, and adjustments:

1) Chinese companies who want to expand overseas. These clients are further divided into Chinese ventures who are taking part in “One belt one road initiative”, venture capitals keen on overseas investments, global Chinese companies and so on. Both DJI and UC browser owned by Alibaba are in this category.

2) Partners in the Alibaba ecosystem. For example, sellers on T-mall platform, and overseas Alipay clients. Costco and Macy’s are in this category.

3) MNCs who want to expand their business in Asia;

4) Joint ventures with overseas companies to expand into that market

In China, Alibaba has proven itself to be successful in key areas of ecommerce, new retail, and fintech. This makes it easier for them to operate in overseas markets. For example, in Indonesia, Alibaba Cloud meets the requirements of data localization quickly, and can effectively serve many Chinese fintech companies in Indonesia. For a variety of reasons, Amazon hasn’t launched its ecommerce or cloud business in Indonesia.

Since cloud service is a very basic infrastructure need that can be adapted to various industries it can offer solutions according to the needs of key customers and industries.

Global expansion can’t be achieved without right talent. In the process of overseas expansion, Alibaba Cloud recruited many Huawei employees to further its business. The reason is obvious. Huawei has experience in aggressively expanding in local markets. They also have an added advantage of being familiar with the telecommunications industry.

Alibaba Cloud entered Dubai in 2016

In contrast, it is challenging for Ant Financial to find skilled Chinese talent with overseas experience in other industries such as fintech within a short period of time.

Ant Financial’s idea of global expansion

Ant Financial’s approach to overseas expansion involves the following three steps:

The first step is to occupy the payment business involving Chinese tourists when they travel abroad. Alipay has been gradually popularized in major tourist cities in Asia, such as Dubai and Sydney. However, since it is aimed at Chinese tourists, promotions and services appear mainly in Chinese language.

The second step is to encourage non-Chinese consumers to shop on Alibaba’s platform using Alipay.

The third step involves adopting its technology and business model, and building an international payments system.

Let’s view these steps taking Southeast Asia as an example. At present, Ant Financial has three businesses there: Alipay dominates the payment landscape involving Chinese tourists; ecommerce platforms such as Lazada handles payments via Alipay, and Ant Financial invests in e-wallets and payment systems in many countries (e.g., Dana in Indonesia, Mynt in the Philippines, Ascend Money in Thailand, etc.).

The third step of the expansion plan mentioned above is where Ant Financial should focus aggressively. It is a no-brainer that all countries will be sensitive to policies in foreign investments in the financial industry. Ant Financial is also well aware that it is unlikely to lead overseas in payments, so it is focusing in exporting its core technology and data-driven risk control models.

In this respect, Ant Financial has at least three to five years of head start over its local competitors and partners. So, the next few years are critical, and cannot be wasted.

One of the best examples one can look at is Paytm in India. In January and September 2015, Ant Financial conducted two rounds of investments in Paytm jointly with Alibaba. It put in north of $900 million, and occupied 40% of the shares. Paytm soon developed into the world’s third largest e-wallet with the help of heavy investments, Indian government’s sudden demonetisation plan, huge Indian consumer base, and the rapid development of mobile internet coverage promoted by Jio.

Paytm thanked Indian PM Narendra Modi for his ban on currency.

But the Indian market is also characterised by fierce competition. India is the main battleground of the capital race between U.S., Softbank, and China. Google, Masayoshi Son, Walmart, and Amazon all regard India as a key market. But Indian regulators are very clever. Through UPI and other methods, they have a firm regulatory grasp over the developments. Even if Paytm works hard to promote its ecommerce Paytm Mall, it is yet to come up with a clear strategy that has an obvious core advantage over others.

Ant Financial met a great obstacle in its way of international expansion. In 2017, Ant Financial announced its acquisition of MoneyGram, the world’s second largest international remittance company. After more than a year of difficult negotiations, Ant Financial was eventually rejected by the U.S. Committee on Foreign Investment (CIFUS) on the grounds of national security.

In Southeast Asia, after fumbling for a while, Ant Financial finally found a strategy that worked. However, there are great challenges in allocation of resources, selection of focus, coordination with local partners, regulatory compliance, and talent acquisition. The challenges are not small.

In general, as Ant Financial grows and develops further, it faces conflicts with the existing financial system at home as well as overseas.

Challenges met by Hu Xiaoming

Hu himself is a very inspiring leader. He has led several Alibaba businesses to attain significant achievements from scratch, which is no easy feat. However, looking ahead, a lack of technical know-how may prove to be his achilles heel.

Alibaba itself has transformed into more of a technology company. And Ant Financial must dive further into its core competence of technology.

As noted above, since finance is heavily regulated, there is bound to be a policy ceiling. The best way out for Ant Financial is not finance but financial technology.

Perhaps, it is in Ant Financial’s best interest to develop as a financial technology and data credit platform. For example, it could globalise its credit score system before FICO.

But FICO alone is not enough. FICO, after all, is now only worth less than $6 billion. Whereas Ant Financial was valued at $150 billion after the last round of funding.

How to maximize its value in the face of limitations can be an interesting challenge.

In terms of global expansion, Hu’s lack of technical background may not be a shortcoming after all, and may enable him to analyse strategy more effectively. After all, as mentioned above, Ant Financial still has clear technical advantages in most overseas markets at present.

Alibaba Cloud too had a difficult time when it began expanding overseas. Back then, Momentum Works interacted with Alibaba Cloud’s higher management in several different regions. In the early days of expansion, overseas customers were aware of Alibaba only as an ecommerce platform and had never heard of Alibaba Cloud.  When choosing cloud solutions, reliability and compliance are important considerations.

Alibaba Cloud has invested heavily in many regions, including setting up data centers and overseas offices, and directly recruiting BD and technical support teams from Alibaba HQs or from the local .

It is likely that Ant Financial may follow Alibaba Cloud’s steps and accelerate its overseas expansion efforts.

However, Ant Financial needs to be wary of an inevitable talent crunch. Alibaba Cloud succeeded in tapping into Huawei’s talent pool, but there is no obvious equivalent pool for Ant Financial.

On this point, Ant Financial (or even Alibaba) could consider learning from Huawei. They nurtured talent by spotting and training then early on in colleges and then sent their best team overseas through incentives.

Although Ant Financial faces much more complications in its overseas ambitions compared to Alibaba Cloud, it should be an easier task for Hu given his accumulated experience from Alibaba Cloud. This also presents an interesting challenge for him.

For the Ant Financial team looking to conquer overseas markets, they need a leader who everyone believes in, has strategic vision to make the right decisions, and is financially savvy.

Anyway, the prospects of Ant Financial’s global move look optimistic. Despite innumerable obstacles, there is hardly any company more powerful than Ant Financial.

So, all rests in its hands.

Here’s wishing them success!


Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].