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05 Jun 2017

Optimizing the Market: Alibaba’s investment in Hong Kong's Qupital

Written by Siobhan Faloughi

There is a large financing gap in the Hong Kong market, particularly for SMEs who have become increasingly frustrated with the lack of available financing. Thus, it was not a shock when Alibaba – the Chinese e-commerce conglomerate – invested $2 million into Qupital, a Hong Kong based online platform that allows mainly SMEs raise finance against their receivables by connecting them with professional investors and family offices.

This was Alibaba’s first investment in the Hong Kong market, and was much needed by SMEs needing financing in Hong Kong. Alibaba’s investment into Qupital has enhanced their own market share, as well as Qupital’s technology platform and growth in Hong Kong, hence creating shared value for other SMEs and investors. Without Alibaba’s investment, the lack of working capital would have posed a threat to Qupital’s growth and the SMEs they serve, as the lack of financing is a barrier to growth, hindering expansion not only in Hong Kong, but also internationally.

However, Alibaba already has a successful and relatively widespread FinTech platform – Alipay. Thus did they really need to invest in Qupital? Around the same period that Alibaba invested in Qupital, they also launched AlipayHK in Hong Kong – their first non-RMB version of the popular payments platform. The launch seems to open the gates for Alibaba to bring its services to a wider market, thus expanding their reach beyond mainland China. One of the future goals of Ant Financial (backed by Alibaba) is to boost their user base by 2 billion in 10 years, thus investing in both Qupital and Alipay will help them reach this goal.

Further, Alibaba could be seeking to expand their FinTech platform due to the rise of their largest competitor in mainland China – WeChat Pay. While Alipay still has the largest market share (54.7%), WeChat pay (37%) is on the rise, especially with Tenpay (which includes WeChat Pay) having almost double the number of active users than Alipay. Therefore, this poses a threat to Alipay’s future popularity. Nevertheless, Qupital and Alipay have differences in their mission and services, thus Alibaba’s investment into Qupital is validated in their search for expansion into other services and markets. This will make them a more competitive firm in the long run.

What does the Future Hold?

Considering Alibaba’s movement and interest into Hong Kong, and other non-Chinese markets, we know that they are seeking to expand into other regions and hope to tap into a larger network of consumers, thus maintaining their position as a major world player. Their expansion is very much focused in the FinTech field, with particular interest in upgrading their Micro financial services, a key area of growth.

So, what can we expect to see in Qupital’s future? As of now, Qupital has no plan to expand their focus to new markets. However, as Qupital uses internet and technology to optimize the traditional lending industry in Hong Kong, we can see them becoming a more dominant player in the market, and potentially seeking international expansion. One of Qupital’s founders, Andy Chan, hinted that if they were to expand, countries with strong export sectors, such as Vietnam, Taiwan, and Thailand, would be among the ‘obvious choices’. This potential expansion is a real incentive for Alibaba’s investment into Qupital, as it provides greater future prospects for both companies.

Overall, the culture of innovation and forward movement in Hong Kong, as well as other markets, will help to facilitate this crusade, and can be fostered through both Alipay and Qupital. Moreover, Alibaba’s investment into Qupital acts as a win-win situation for both companies. For Alibaba, they may be able to expand their services into financing, which will help achieve their desire to focus on micro financing. For Qupital, having the backing of such a well renowned and successful company will enable them to have validation for other potential investment into their company, raising their value.

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