Can VodaPay transfer Alipay to South Africa?

Vodacom is working with Alipay to launch a lifestyle consumer application, merchant commerce and financial services platform that brings together to all ecosystem participants. What are the opportunities, and what will it take to succeed?

The VodaPay and AliPay alliance: Can it succeed?

In July 2020 Vodacom announced a partnership with Alipay to launch a super app in South Africa under its current payments brand VodaPay. It is an initiative that has been under development for the past two years. Ant Group’s Alipay will provide Vodacom with fintech experience from its knowledge of both financial services and trade merchant relationships to Alipay’s core capabilities in app development, data analytics and machine learning.

Alipay’s beginnings stem from a need to resolve the trust issue between buyers and sellers transacting on Alibaba’s marketplaces such as Taobao, tmall, and 1688.com. The Alipay app reaches over one billion users and 80 million merchants. It is the primary method used by buyers and sellers to complete payment transactions on Alibaba’s platforms.

In this sense, Alipay benefited and was born into an established and successful marketplace ecosystem with multiple Chinese merchants across all FMCG sectors. This was also serendipitous in establishing a lifestyle platform that is Alipay today – hosting over 1,000 daily life services and over two million mini programs.

Vodacom has been making its own efforts to develop a marketplace platform attracting 4,500 small merchants to its VodaTrade program by offering payment solutions, invoice financing and loan facilities. The VodaPay super app is due to launch in the coming months hosting most of South Africa’s leading retail brands across all key verticals, according to its CEO Shameel Joosub.

The success of the platform will come down to the value Vodacom can offer its merchants as well as its end consumers. Merchants stand to benefit from SME financing and other financial business support as well as other capabilities Alipay can offer using customer insights and data analytics to target and reach customers and develop new product and service offerings.

Alipay benefits from the wealth of insights generated across Alibaba platforms from payment, commerce, logistics, local services, merchant services, digital entertainment, offline store visits and map navigation. Vodacom will be relying on its network data and online and offline properties in addition to data generated as customers interact and consume services on the new VodaPay super App.

All South Africans stand to benefit from universal access to the VodaPay platform with Vodafone customers enjoying the privilege zero-rated data use. Alipay’s consumer daily life offerings have been a key driving engagement with 60% of users coming to the app to access daily life services. This will also be a key success factor for VodaPay and is essential in driving Vodacom’s financial services business.

Alipay has been thoughtful and innovative in how it has opened up lifestyle and financial services to customers otherwise unreachable to the traditional bricks and mortar merchants and financial institutions. It has developed hugely successful advance credit products such as Huabei and Jiebei. These financial services benefit all ecosystem participants – enabling the consumer to buy now and pay later, stimulating commerce on the platform for merchants and earning commission for the financial institutions underwriting the loan, in VodaPay’s case, whether that is Vodacom Financial Services or a partnering bank.

Vodacom is already developing advanced credit products in areas such as airtime and vouchers which suggests this is the beginning for more innovation in this area.

Alipay’s ability to lower the barriers to entry when purchasing investment and insurance products has attracted not only those on low incomes, but also younger customers that may not otherwise purchase an investment or insurance product. Low entry fee products educate customers and build awareness and increase the chances of selling more advanced higher value products. Vodacom will also be looking for similar wins with its established insurance.

South Africa’s VodaPay services will be a proving ground for daily life services across other parts of Africa where M-PESA rules and offers up the potential for a larger international ecosystem for trade on the continent.

Expanding VodaPay into a digital lifestyle app

In its current form, VodaPay is a simplified payments application (digital wallet) supported by Mastercard (Masterpass) enabling customers to link their banking credit or debit card to make payments online or in-stores and where SnapScan or Zapper QR payments is supported. Anyone with a South African phone number and bank account can use the service. Vodacom Financial Services also offer a range of insurance products such as device, life, funeral, health cover and business cover as well as a range of assistance packages covering home appliance and motor assistance.

The Alipay initiative will see VodaPay application become application hosting lifestyle and digital financial services under one platform. In July 2020, CEO Shameel Joosub described the current VodaPay app as a learning experience for the ultimate solution which would test launch to a small user group around (Q4) March or April 2021, followed by a full launch soon after. Joosub described the new platform (app) as a game changer, and transformational in terms of the lifestyle services that will be available.

Vodacom has been working on the project over the last two years and announced in July 2020 it had built a team of 100 people, mainly software engineers, to work on the platform. As of February 2021, the team was actively working on three streams; the customer journey, merchant sign-up and financial services infrastructure.

Alipay (Ant Group) is providing insight and development support utilising its partnering experience from other international market partners. The Ant Group has acquired deep knowledge and expertise in design and development of financial services products in addition to its technology platform capabilities.

In May 2021, Joosub outlined the super app would launch in the coming months hosting most of South Africa’s leading retail brands across all key verticals. See section: VodaTrade: Getting merchants on board

Vodapay super app

Source: Vodacom Annual Results for year ending 31 March 2021 (May 18^th 2021)

South Africa has a well-established banking sector where 75% of South Africans have a bank account. This was one of the issues which led to Vodacom shuttering its M-PESA operation in South Africa in 2016. Joosub highlighted the dynamics of the Chinese market, the popularity of super apps and of people’s attitude towards not using cards and cash, indicating the potential transferability to the South African market.

The VodaPay super app will be similar to the Alipay App (see Figure 2) and has the potential to accelerate Vodacom’s financial services strategy in South Africa, enabling merchants to promote their daily lifestyle products and services through the app, while providing a range financial services to finance purchases and cross sell other consumer and SME finance products.

According to Ant Group, Alipay contains over 1,000 daily life services and over two million mini programs offering mobility services, local services and municipal services. The company has cited 60% of users come to the Alipay app for daily life services (as of 30 June 2020, see Figure 2).

Vodacom is already in the process of developing a micro credit and lifestyle competency. Its Airtime Advance product is delivering ARPU and revenue growth with ZAR 12bn ($867m) advanced to 10.8 million customers in the financial year ending March 2021. In Q4 2020, Airtime Advance amounted to 43% of total prepaid recharges.  On the back of this momentum, Vodacom has launched Voucher Advance providing active customers with voucher credit starting at ZAR 15 ($1.08) interest free towards a restaurant meal or new appliance. The company has also launched a new lifestyle rewards program called VodaBucks in September 2020 where 24 million unique customers have so far participated.

Daily life use cases from the Alipay App

Source: Ant Group IPO Prospectus October 2020

A lifestyle app

According to Vodacom’s Joosub, the VodaPay super app would be a full ecosystem and lifestyle app enabling customers to make peer to peer money transfers, borrow, save and invest, shop online, stream music and movies, play games, book travel and movies and hail taxis without leaving the app.

Joosub has championed the data analytics capabilities underlying the Alipay (VodaPay) app saying this would benefit users inters of in-app advertising of daily offers, promotions and gifts.

Joosub provided a use case scenario, using Uber as an example to re-enforce the concept of being able hail a taxi from the App. If the customer did not have enough money for taxi ride, VodaPay could advance the [Uber] ride. The VodaPay platform’s ability to assess customer credit worthiness overlayed with partnerships from financial institutions that provide a micro credit line is a key underlying capability of the Alipay platform.

In our April 2021 report, Are telcos smart enough to make money work?  STL highlighted how most telcos have the capabilities required to develop a compelling financial services proposition, except for three – industry knowledge, consumer app development and data analytics/machine learning expertise. To address those gaps, most telcos will need to partner with specialist fintech players.

The Alipay-VodaPay initiative is a case in point where Vodacom provides distribution capability and behavioural data from its installed base while Alipay provide deep industry knowledge, technical app development capabilities in addition to data analytics and machine learning.

Figure 3 is a shortened extract highlighting the capabilities needed to provide compelling financial services. The full graphic can be found here. It may also provide illumination for the success of Alipay in China given the synergistic relationship between Alipay and Alibaba’s marketplace ecosystem.

Financial service capabilities by service provider

Source: STL Partners analysis

VodaPay is open to both Vodacom and non-Vodacom customers and this remains as the app transitions to a super app however, only Vodacom customers will benefit from a zero-rated experience in terms of data usage.

From a lifestyle perspective, CEO Jossub envisions the super app enabling users to shop from multiple (ideally thousands) of merchants on the platform, from clothing to groceries with VodaPay earning a commission from each transaction. Customers will be able to browse products (including any supported video advertising or demo) with the option to purchase the item outright or obtain credit and pay in instalments.

• Advance credit to buy now pay later for online purchases has become hugely popular as Fintech players such as Klarna and Affirm enable consumers to spread out payments for both big and small ticket items.

Retailers will continue to manage their own delivery and logistics as is the practice with other Alipay implementations across Asia according to Jossub. Services such as grocery delivery is a common feature on super app platforms and such players will likely access the platform.

Joosub analogised a South African grocer such as Pick ’n Pay or Woolies having a mini app presence on the platform, where the user orders and purchases through the VodaPay app without leaving the platform. In this except from its May 2021 annual results presentation Vodacom showcased VodaPay’s capabilities. The key challenge will be getting merchants to join the app, although Vodacom is making inroads here, too (we go into more detail in the section on VodaTrade).

Opening new revenue streams

Vodacom has highlighted new revenue streams that could be derived from payments to merchants and lending. All transactions through the app’s mini programmes (merchants) are processed through Vodacom’s own payment gateway. Vodacom charges merchants a commission (or margin) on transactions when users make a purchase on VodaPay. Monetisation opportunities will be similar to those of the M-PESA business according to Mariam Cassim, chief officer for financial services at Vodacom. Cassim also highlighted that during the first 12 months from launch of the super app, Vodacom will focus on driving downloads and developing an active user base with high visit frequency. This is necessary before monetising the customer according to Cassim. As an indication of how these revenue streams could evolve, we highlight Alipay’s services in the following sections: Payments as a primary revenue source, CreditTech services for financial institutions, InvestmentTech services for financial institutions and InsureTech services for financial institutions.

Payments and transactions

Users will be able to move funds to the wallet or stored value (similar to M-PESA) on the VodaPay app or have transactions pass through on a linked credit or debit card. A virtual card will also be available where customers can link to their bank account.  Customers can also fund the wallet through an electronic funds transfer (ETF) or by visiting a Vodacom outlet.

The Vodacom/Alipay relationship

Ant Group’s relationship with Vodacom regarding Alipay is exclusive in South Africa. Joosub pointed out it is the first time the partnership with Alipay does not involve an equity stake. (Ant Group holds a 30.33% stake in Indian e-wallet PayTM.) Joosub described the deal as having no revenue share but instead pure vender software (and maintenance) agreement.

The service is being rolled out in South Africa only, at least initially. In terms of expansion and roll out across the group, there will be no revenue share across international markets according to Joosub. While the full (Alipay) platform is being rolled out in South Africa, elements of the software (service) will be rolled out on M-PESA (again with no revenue share).

VodaPay South Africa and M-PESA across Africa

Although Alipay platform will be exclusive to Vodacom in South Africa, Vodacom intends to further develop and evolve M-PESA into an open lifestyle app similar to what is being launched in South Africa. According to Joosub, “the Alipay deal is separate from M-PESA establishing a lifestyle platform and a super app capability which is not what M-PESA does today”.

M-PESA has 41.5 million active customers and operates in seven markets; Democratic Republic of Congo (DRC), Egypt, Ghana, Kenya, Lesotho, Mozambique and Tanzania.

Joosub highlighted that the fact M-PESA does not operate in South Africa makes it easier for Vodacom to roll out the VodaPay (Alipay) platform super app in a greenfield site and in a market where smartphone penetration is higher.

Vodacom intends to introduce elements of the VodaPay (Alipay) super app service into M-PESA. Joosub highlighted this would involve an upgrade of the underlying Huawei platform (G2 to G3), which once in place will enable Vodacom to implement the equivalent mini app capability on top of M-PESA, to give users a similar service experience to that on VodaPay.

The aim is to share best practice between the two services, drawing go-to-market lessons from the lifestyle capabilities launched in South Africa when expanding into M-PESA and other markets.

According to Joosub, M-PESA has already been evolving through the introduction of lending and overdraft facilities such as Songesha and Fuliza across its markets and through its expanding merchant capabilities. Where M-PESA is currently open to a small number of vendors, the new implementation will enable thousands of vendors to sell through the platform, aggregating a variety of services. In Kenya, M-PESA already works with 300,000 merchants.

The following graphic highlights Vodacom’s M-PESA Vision 2025 and how it plans to scale and develop the opportunities from VodaPay to M-PESA.

Vision for M-PESA

Source: Vodacom Annual Results for year ending 31 March 2021 (May 18^th 2021)

VodaTrade: Getting merchants on board

Vodacom Financial Services has been building up a competency in South Africa’s small, medium and micro-enterprises (SMMEs) sector, including among merchants that offer the daily life services which will be key to driving engagement on VodaPay.

Its VodaTrade unit introduced VodaPay Max – a vending and lending point of sale solution for SMEEs that not only accepts payments but also offers a merchant portal for monitoring transactions, loans and invoice financing with the ability to connect with FMCG suppliers and access legal assistance.  The device will soon be able to vend prepaid airtime, electricity and other services according to Cassim.

VodaPay Max is part of the company’s payment strategy in developing new sources of revenue outside of voice and data. Updating investors in February 2021, Cassim highlighted the company signed up just over 1,200 active merchants in the last few months since launch and currently process approximately ZAR 100 million ($7.22m) worth of transaction value per month.

Cassim has previously highlighted its trading business, includes over 4,500 small merchants and all of South Africa’s major FMCG players processing over ZAR 200 billion ($14.45bn) worth of transaction value per annum.

“Connectivity with merchants is an important part of our ecosystem approach and our trading platform [VodaTrade] will form the basis for these interactions.”

VodaPay Max terminal for merchant SMMEs

Source: Vodacom Business South Africa

Alipay: A formidable financial services partner

In 2004, as China’s e-commerce economy was taking off, Alibaba created Alipay to resolve the trust issue between buyers and sellers transacting online. Ant Group’s Alipay was spun off from Alibaba 2011 however the relationship with Alibaba e-commerce remains highly synergistic and is a key element of an ecosystem that consists of consumers, merchants, financial institutions, third-party service providers and strategic alliance partners. The Alipay platform provides utility and value to consumers and small businesses whose financial needs are significantly underserved in China.

Ant Group’s Alipay platform is a leading digital payments provider and lending digital finance platform in China based on total payment volume (TPV) and total transaction volume (TTV) according to iResearch and Oliver Wyman[1]. In the twelve months to June 30, 2020, total payment volume on the Alipay platform in mainland China amounted to CNY 118 trillion ($18.46trn). It also has an international payments business with a TPV of CNY 622 billion ($97.3bn) over the same period.

• The Alipay app reaches over one billion users (711 million monthly active) and 80 million merchants. 729 million users transacted one or more digital finance services in the 12 months to June 2020.

iResearch estimated Alipay’s market share in digital payment services to be 55% in June 2020, compared to Tencent’s 40% share. Tencent operates Weixin Pay and WeChat Pay within its own app ecosystem.

• The Alipay platform is built on three pillars: digital payments, digital finance, and daily life services.

The platform overcomes the constraints of traditional bricks and mortar financial institutions that cannot reach underserved consumers and small business and lack market reach and customer insight to underwrite risk to provide of credit loans and insurance.

The Alipay super app delivers value to three principal ecosystem participants:

Consumers can make payments, access digital finance, such as consumer credit, investment and insurance products. Access third-party daily life services such as food delivery, transportation, entertainment as well as municipal resources.

Businesses can receive payments, access digital finance such as SMB credit and investment products. Use the Alipay app and its mini program app infrastructure to promote daily life services which can be easily discovered on the app through search or with customised icon placement.

Financial institutions can issue credit, investment and insurance products over the Alipay utilising the platform’s intelligent decisioning, dynamic risk management solutions and technology infrastructure. Alipay acts as a collaborative partner to financial institutions as opposed to a competitor.

Ant Group cites ease of access and frequent customer engagement with a broad range of digital life services within the Alipay platform as key to the app’s stickiness and retention. The app’s digital finance services complement its digital payments and daily life services creating a virtuous growth cycle with strong network effects across the ecosystem of services.

Alipay’s deep expertise in financial services and analytics

Alipay’s ecosystem participants (consumers, merchants, financial institutions) benefit from the company’s deep domain knowledge and expertise in financial services, its unrivalled customer insights and intelligent decisioning systems as well as its superior technology infrastructure.

• Vodacom has previously commented that it will receive support from Alipay as part of its vendor agreement. Vodacom stands to benefit from Ant Groups knowledge in financial services and super app product development in addition to the access to the Alipay platform’s technical capabilities in data analytics, proprietary algorithms and technology resources. Ant Group also has the experience of partnering with others internationally such as with PayTM in India.  We discuss the varying capabilities telcos and fintech players can share in developing new products and services in our April 2021 report: Are telcos smart enough to make money work?.

The company’s domain expertise consists of payment specialists with knowledge of payment network architecture, and security. Banking personnel with experience in product design, credit assessment, fraud protection, and monitoring. It’s investment services team also offer product design, suitability, asset allocation and risk management. The insurance team also possess product design knowledge, underwriting and claim management experience across a range of insurance products.

Alipay platform capabilities for financial institutions

Source: Ant Group IPO Prospectus October 2020

• The platform offers broad and targeted reach to over one billion Alipay app users with tailored financial products
• It offers Intelligent real-time decisioning systems using AI and proprietary algorithms to assess risk and match products with customers. Through its detailed insights on customers and small business data, Alipay can deploy solutions that assess suitability of a wide variety of credit, investment and insurance product features for a given customer. They can determine a customer’s ability and willingness to repay and likelihood of a accepting an offer. Much of its data on customers is derived from its rich synergy with Alibaba.
• Dynamic risk management systems with risk-detection algorithms to assist financial institutions in their decision making. Alipay offers risk solutions for KYC, fraud, AML, credit, liquidity, operations, security and data privacy.
• Technology infrastructure in the form of AI, computing, proprietary algorithms and other technologies such as AntChain (blockchain) which enable Alipay’s financial institutional partners to serve customers. The company developed technologies to handle periods of peak volume trade (such as shopping festivals, holidays) such as SOFAStack (Scalable Open Financial Architecture Stack) a middleware architecture to support a high volume of concurrent transactions and OceanBase, a distributed relational database to deal with Alipay’s growing volume of transactions. Ant Group highlight, during the 11.11 shopping festival in China in 2019, OceanBase dealt with a peak of 60 million processes per second.

Overview of Alipay’s digital finance platform

Payments as a primary revenue source

Alipay digital payments enable merchants to transact online and offline. The company primarily makes digital payment service revenues by charging merchants transaction fees based on a percentage of the volume.

• In its 2019 financial year, digital payment and merchant services accounted for 43% of Ant Group revenues, CreditTech 34.7%, InvestmentTech 14.1% and InsureTech 7.4% of revenues.

Alipay provides the transactions on Alibaba’s marketplaces such as Taobao, tmall, and 1688.com and is the primary method used by buyers and sellers to complete payment transactions on Alibaba’s platforms. In addition to merchant fees, users also pay for personal transactions such as money transfers to bank accounts and credit repayments. Alipay also offers cross border payment and merchant services with consumers and merchants being able to transact and make payments internationally. The platform supports 40 currencies. Alipay offer payment and digital marketing solutions to merchants such as Alibaba’s AliExpress and Lazada.

Customer can fund and make online and offline payments in five ways; through their e-wallet account balance, linked debit and credit card accounts, Yu’ebao balance, and Huabei credit line. The Alipay users can set their default payment method carry out regular banking activities such as transfers to their own or other accounts and carrying out borrowing and investment transactions.

Alipay offer merchants marketing tools such as loyalty programs and the ability to organise mass marketing events. One such shopping festival consisted of a nationwide campaign enabling offline merchants to offer e-coupons through the app which could be redeemed in stores. Seven million merchants signed up for the event.

Alipay app

Source: Ant Group IPO Prospectus October 2020

With 60% of users coming to the app for daily life services merchants benefit from Alipay’s centralised app interface and the ability to engage with its large customer base. Merchants benefit from Alipay’s customer insights such as Alipay’s trust score Zhima Credit, allows merchants to access the trustworthiness of customers before offering their daily life services such as hotel booking, ride sharing, shared power bank rental or car rental.

CreditTech services

Alipay’s CreditTech services address the unmet and underserved credit needs of both consumers and SMBs in China. The Alipay platform originates loans which are underwritten by partnering financial institutions which numbered 100 partner banks in June 2020.

Alipay generates technology service fees from their partner financial institutions based on the interest income they generate on loan credit balances originated through the Alipay platform. As of 30 June 2020, approximately 98% of loans (credit balance) originating on the platform were underwritten by partnering financial institutions or securitized. This may have unnerved Chinese regulators prior to Alipay’s IPO.

In the 12-month period to 30 June 2020 the total outstanding credit balance originated totalled CNY 1,732bn ($271bn) for consumers and CNY 422bn ($66bn) for small businesses, making it the largest online consumer and SMB credit provider in China according to Oliver Wyman research. In the 12 months ending 30 June 2020, Alipay had arranged credit for 500 million consumers and over 20 million small business merchants.

CreditTech products include:

• Huabei:a digital unsecured revolving consumer credit line product for daily expenditure.The Huabei credit line is based on Alipay’s customer insights and credit assessment models and is instantly accessible at the point of sale. Customers get an interest-free period of up to 40 days from purchase and can make repayments over three to 12 months. In the 12 months ending 30 June 2020, the Huabei loans (users) paid an interest rate at or below 0.4% and the average Huabei outstanding balance was CNY 2,000 ($313). Huabei offers customers a convenient credit source and the ability to build their credit history. According to Oliver Wyman research, it is now the largest digital consumer credit product by credit balance in China.
• Jiebei is also an instant short term unsecured credit product for lager loans and is usually offered to users who have already established a credit history.

InvestmentTech services

Alipay’s InvestmentTech services enable partnering asset managers to provide users investment products which are transparent, personalised, easy to understand and come with low investment commitment. As of June 2020, Alipay had 170 partnering asset managers – from mutual funds, and insurers to banks and securities companies across China offering over 6,000 products through the platform.

Alipay earns technology service fees from partners based on the volume of investment products distributed (or assets under management – AUM) via the platform. The company uses AI techniques to match investment products with customers based on their risk tolerance and other customer insights.

As 30 June 2020, Alipay was the largest online investment services platform by AUM having matched and distributed CNY 4,099bn ($641.2bn) according to Oliver Wyman research. Ant Group’s own licensed asset management subsidiary Tianhong accounted for 33% of this value. In the 12 months to 30 June 2020, over 500 million users invested in Alipay’s InvestmentTech services.

InvestmentTech products include:

• Yu’ebao: an investment product where consumers can make small regular investments from a little as CNY 1 ($0.16) and earn interest (yield on unutilised cash) while still being able to redeem funds instantly for everyday purchases. The minimum investment threshold helps to ensure the widest possible inclusion of Alipay users. According to Ant Group, Yu’ebao has deepened Alipay’s relationship with its users by increasing engagement and driving higher payment volume through the platform.Alipay also offers an investment management product for SME called Yulibao.
• In April 2020, Alipay launched Bangnitou in partnership with Vanguard (an international investment company) offering users/investors customised advisory services based on user’s investment objectives, time horizon, and risk preferences. Bangnitou’s AI algorithms dynamically invests and allocates investment portfolios from over 6,000 mutual funds for a service fee. The minimum investment required is CNY 800 ($125). In its first 100 days, Ant Group said over 200,000 customers purchased the product and investing CNY 2.2bn ($344.17m).

Summary of Alipay financial partnerships

Source: Ant Group IPO Prospectus October 2020

InsureTech services

As an online insurance services platform, Alipay’s 90 insurance partners (June 2020) offer over 2,000 customised insurance products covering life, health and property and casualty (P&C) insurance which address both consumer and business needs. According to Ant Group, in the 12 months ending 30 June 2020, over 570 million Alipay users purchased insurance or were insured on our platform or participated in its Xianghubao mutual aid program.

The company earns technology service fees based on a percentage of the insurance premiums and contributions generated through the platform. The size and scale of the Alibaba ecosystem enables Alipay to develop new insurance products for consumers and businesses. Oliver Wyman research estimated Alipay is the largest online insurance services provider in terms of the CNY 52bn ($8.13bn) in premiums and contribution value generated through the platform in the 12 months ending 30 June 2020.

InsureTech products developed or co-developed with insurance partners include:

• Jiankangjin offers free health protection of up to CNY 20,000 ($3,129) for Alipay users to claim outpatient reimbursements and other medical needs. Users scan a copy of the claim form into the Alipay App for reimbursement. Alipay says the product has served as an effective tool in educating users on the benefits of insurance products and opens up the potential for further cross and upselling selling of insurance products.
• Quanminbao is pension annuity product with flexible premiums as low as CNY 1 ($0.16) which has brought pension cover to those on low incomes. When policyholders reach retirement, they can receive payments via the Alipay app on a monthly basis. Quanminbao is co-developed with PICC Life, a leading life insurance company in China
• Haoyibao or long-term medical insurance is an affordable health insurance product covering almost 100 critical illnesses. Ant Group highlight the lower priced premiums on this product compared to competitors has attracted younger customers to purchase health insurance. In May 2020, Alipay launched Haoyibao Lifetime Cancer Protection to customers under 70 with an annual premium starting at CNY 89 ($13.92).
• Xianghubao is a mutual aid insurance program covering over 100 critical illnesses.The cost of claims is shared equally by all members in the program. There is no upfront payment for joining. In 2019, the annual contribution paid by each Xianghubao member was CNY 29 ($4.53). Claims are submitted via the Alipay app for review. One-time pay-outs vary by age: with CNY 300,000 ($46,932) for those aged one month to 39 years, and CNY 100,000 ($15,644) for members aged between 40 and 59 years of age. The policy covers critical illnesses such as lung, breast and thyroid cancer as well as brain injuries. The program had 100 million active members on 30 June 2020. Ant Group say it is another product which has increased users awareness and willingness to purchase insurance
• Alipay offer shipping and return insurance for online purchases between consumers and merchants on Alibaba’s marketplaces such as Taobao. According to Ant Group, premiums for shipping return insurance are usually less than CNY 1 ($0.16) but depend on the nature of the merchant’s type of business activity. Shipping insurance lowers barriers to e-commerce transactions.

Alibaba fuels Alipay’s success: A major customer and major supplier

Since Alipay developed out of a need to process transactions between customers and merchants on Alibaba, the relationship between both entities has remained strategic and highly synergistic. In addition to its 33% share of Ant Group, Alibaba is a major customer and major supplier to Ant Group’s Alipay.

Fast and reliable payments infrastructure and innovation in digital finance products facilitate growth in commerce and consumption across Alibaba’s platforms. Ant Group’s (50 year) payment services commercial agreement with Alibaba is strategically important to Alipay.

In its IPO filing, Ant Group also highlighted Alibaba was its largest customer over recent years (2017, 2018 and 2019 track record). Alibaba generated 8.1% (or CNY 9,773 million $1.52bn) of revenues in 2019.

Consumer activity across Alibaba platforms and marketplaces both online and offline provide Alipay with valuable insights. Ant Group highlight the valuable commercial insights garnered from users interacting with the Alibaba ecosystem when buying goods and services, food and merchandise delivery, offline store visits, accessing entertainment, navigation and work collaboration. These insights are used for developing digital finance products and services for customers, improving the customer experience and enhancing the value offered to digital finance partners.

Ant Group highlights both companies collaborate in a number of areas including: (i) jointly serving consumers and merchants across consumption and daily life use cases; (ii) sharing insights derived from platform activity; and (iii) expanding cross-border activities.

While financial institutions represent important suppliers to Ant Group, Alibaba was also its largest supplier in recent years in areas such as payments, technology services (such as cloud services) and shared services.

Ant Group has a data sharing agreement with Alibaba with a term of 50 years. Both companies operate their own data platform, with independent computing and analytical capabilities and do not operate from a shared data pool.

A cross license agreement enables both parties license to elements of each other’s intellectual property rights on a royalty free basis. A trademark agreement allows Ant Group to use certain Alibaba trademarks and domain names royalty free for 50 years.

See more research reports on telco financial services:

• Are telcos smart enough to make money work?
• Cashing in on the end of cash
• Will a big bet on banking pay for Orange – and other telcos?