Jack Ma’s open banking strategy gets a boost from lockdown

Jack Ma’s open banking strategy gets a boost from lockdown

Billionaire Jack Ma’s Ant Financial Services Group saw a surge in Chinese banks seeking out its digital technology to keep business flowing after the coronavirus outbreak shuttered branches across the world’s most populous nation.

The number of customers paying for Ant to help them build mobile apps and provide cloud computing power jumped by 175% in the two months through April, and it’s now working with more than 200 lenders, according to the company. Inquiries to collaborate with the tech giant increased by 400% over the period.

Ant entered the banking arena as a disruptor, raising alarm bells for many of the nation’s 4,500 lenders. But about two years ago, it also expanded its strategy to sell services to banks. While that had so far met a tepid response, the virus outbreak is now providing Ant momentum, at least among the nation’s smaller, regional lenders.

“The bigger banks might want to build their own private cloud, but we’re targeting the smaller lenders who might not have the budget to build their entire online infrastructure from scratch,” Liu Xin, who oversees Ant Group’s cloud unit, said in an interview.

For Ant, the open banking push is crucial. Besides selling technology to banks, it includes a consumer lending platform and also backs MYbank, an online lender that has embarked on a spree to dole out 2 trillion yuan ($280 billion) in loans this year. Ant is on track to generate 65% of its revenue from these services by 2021, up from about 35% in 2017, according to a person familiar with the matter.

The virus outbreak came as a shock for China’s beleaguered smaller banks, who were already struggling with rising loan losses over the past years. More than 800 bank branches have been permanently shuttered as of May 4 this year, according to China’s banking watchdog.

One lender turning to Ant’s help this year is Shenzhen Rural Commercial Bank Co. Working with Ant, the bank was able to cut the loading time on its app by four, to less than half a second, at a time when its 15 million retail customers flooded online to transfer funds, check on their investments and buy wealth products. Close to all of its transactions were done online during the height of the outbreak, according to the bank.

“While we’ve always prioritized mobile development, the growing demands from our customers made us realize our existing infrastructure wasn’t enough,” said Zhan Bin, head of the Network Finance Department at the lender, based in China’s tech hub of Shenzhen.

The community lender still has most of its data on its own private cloud, but it uses Ant’s public cloud to facilitate express payments. It’s also planning to incorporate the mini program infrastructure of Ant’s Alipay, which allows users to access entertainment, dining, movie tickets and traveling services without leaving the app. In return, the bank’s users can win discounts and accumulate reward points.

The lender pays a one-time license fee to Ant for its cloud products such as mPaaS and SOFAStack and also an annual fee for software support and maintenance. Shenzhen Rural declined to disclose how much it is paying to Ant.

“The key to convincing more banks to use our technology is to prove that we can help them solve their problems,” said Liu.

Ant Financial has made inroads with bigger banks as well. It convinced China’s largest lender, Industrial & Commercial Bank of China Ltd. to agree on working together on developing fintech services in December.

Alibaba, which owns a 33% stake in Ant Financial, is expected to report earnings next week.

Lulu Yilun Chen (Bloomberg)