Ant Group's global expansion is at a crossroads

Written by Kapronasia || January 07 2021

Not so long ago, Ant Group looked set to build a digital finance empire in Asia. Ant has a foothold, in one form or another, in every major Asian economy. The company has invested in e-wallets across Southeast Asia. It operates fledgling digital banks in Hong Kong and Singapore, the region's two key financial hubs. It is a major backer of India's largest fintech unicorn, Paytm. Ant even has fintech investments in Bangladesh and Pakistan. Yet in retrospect Ant may have overextended itself internationally, confident that its ascent was insuperable even as regulatory problems mounted at home.

The nixed Ant IPO snatched defeat from the jaws of victory for the fintech giant, but did not stop Singapore from issuing the company a digital bank license. The Monetary Authority of Singapore (MAS) apparently did not see Ant's regulatory travails in China as a dealbreaker for becoming a digital bank in the city-state.

The jury is still out on that matter. In late December, the People's Bank of China sat down Ant's executives and told them to recalibrate: Go back to the original payments business, the PBoC said. As for the company's real moneymakers - lending, wealth management and insurance - the PBoC told Ant to "rectify" them. A break-up of the fintech giant may not be on the table, but Ant must "understand the necessity of overhauling its business," the Chinese central bank said.

That's not all though. The PBoC panned Ant's dismissive attitude towards regulations, criticized the quality of its corporate governance and accused the firm of monopolistic practices that harmed consumer interests.

None of this augurs well for Ant's digital bank in Singapore. After all, Ant's goal there is to build a business based on SME lending. We do not see that going smoothly if back home in China the company is forced to wind down every business line but payments. One the one hand, Ant will struggle to earn customer trust - never an easy task for a digital bank, even under optimal conditions. Meanwhile, digibanks without Ant's baggage will win the SME clients, like Grab-Singtel and Sea Group. Additionally, if Ant's revenue plunges in China, it could have trouble meeting Singapore's stiff capitalization requirements for digital banks.

To be sure, Ant could still double down on payments in Southeast Asia, where it has already invested heavily. The problem with that strategy is that payments are low margin. They should be a stepping stone to something more lucrative, not an end unto themselves.

Besides, Ant reportedly jettisoned a plan to develop a QR code-based global payments infrastructure to connect the disparate e-wallets in its portfolio. Without an ecosystem to tie them all together, the e-wallets are of limited value to Ant. That is likely why the company slashed funding to many of those companies.