By Fanny Potkin
SINGAPORE, Oct 29 (Reuters) - China's Ant Group Co Ltd
688688.SS 6688.HK has been cutting funding and staff support
to many of the overseas e-wallet firms it has invested in as it
pivots away from earlier ambitions of becoming a global payments
leader, people with knowledge of the matter told Reuters.
The shift in strategy by the Alibaba-backed BABA.N
9988.HK fintech giant came late in 2019, brought on by a
change at the helm and a reworking of priorities as it planned
for its IPO and grappled with regulatory challenges at home.
It has made large cuts to the hundreds of millions of
dollars it spent each year to subsidise user growth at overseas
e-wallet firms offering digital payment and other financial
services, and is repatriating Ant staffers, according to more
than a dozen executives who work or have worked with Ant in nine
countries.
All declined to be identified due to confidentiality
agreements.
This year, Ant also quietly halted an ambitious plan to
create a global payments infrastructure based on a common QR
code system connecting all the e-wallets it has invested in,
despite efforts to make it a reality throughout 2019, the
sources said.
The network would have enabled the e-wallets to be used
outside their local markets in other countries covered by Ant's
partners, they said. It would have also likely made Ant, best
known for its Alipay service that serves mainly Chinese
customers, a global payments leader.
Ant said in a statement it "has always been and continues to
be committed to working with global partners, including e-wallet
operators, to make financial services more inclusive for
consumers and small businesses."
The Chinese firm has invested in more than a dozen fintech
companies with e-wallet services, which allow consumers to store
funds and make digital payments even without a bank account,
beginning with a $500 million-plus stake in India's Paytm in
2015. Most are in Asia and include Mynt in the Philippines, DANA
in Indonesia, and EasyPaisa in Pakistan. Paytm, DANA and EasyPaisa did not respond to requests for
comment on Ant's change in strategy. Mynt declined to comment on
the specifics of its relationship with Ant but said the Chinese
firm was a committed shareholder.
To be sure, Ant is continuing to invest overseas. According
to the prospectus for its dual Hong Kong and Shanghai listing
that is set to raise at least $34.4 billion, Ant has earmarked a
tenth of the proceeds for cross-border expansion.
It also said in May it was investing $73.5 million in
Myanmar e-wallet firm Wave Money and has applied for a digital
wholesale banking license in Singapore. But further aggressive
investments in overseas e-wallet firms are unlikely, sources
say.
A person familiar with Ant's thinking said its current plan
is to offer initial support to overseas e-wallet firms and then
see them succeed on their own terms.
CONTRASTING CHIEFS
While Ant will maintain a large international presence, it
is scaling back its earlier aim of becoming a global payments
leader in favour of cementing its position as China's top
payments firm, company sources said.
The change in thinking accelerated after Simon Hu replaced
Eric Jing as CEO in December. In contrast to Jing, the architect
of its international plans, Hu doubled down on China, where Ant
faces antitrust and financial risk control questions from
authorities, the sources added.
"Simon felt he needed to shore up the battle locally and
deal with regulators," one person told Reuters.
China's antitrust agency has been eyeing a possible probe
into Alipay and Tencent's 0700.HK WeChat Pay, prompted by the
central bank which argues they have used their dominant
positions to quash competition, separate sources have said.
Hu's approach contrasts with Jing's who had pushed for Ant
to hold half of its meetings in English and attended board
meetings at key overseas partner firms. "That's all gone away,"
the person said.
Ant declined to make Hu and Jing, who is now executive
chairman, available for comment, citing IPO disclosure rules.
Some of the company sources said Hu's approach made sense,
given the increased regulatory scrutiny and as Ant also faces
intense competition from Tencent Holdings Ltd's 0700.HK WeChat
Pay and from super-app operator Meituan 3690.HK .
SUPPORT SHRUNK
Ant's first setback abroad came when the U.S. government in
2018 blocked its acquisition of Moneygram on national security
grounds. A number of its U.S. hires, drawn from Google and
various banks, have now departed, sources said.
Amid escalating tensions between Washington and Beijing, the
U.S. State Department has submitted a proposal for the Trump
administration to add it to a trade blacklist, sources told
Reuters this month. The move comes as China hardliners in the
administration seek to discourage U.S. investment in Ant.
In other parts of the world, Ant's new leadership believed
the company was spreading its resources too thinly, several
company sources said. It concluded many of its e-wallet partners
would struggle to become the dominant player in their market
amid fierce competition, and the amount of money it was spending
to support them would reflect badly on the company when it
listed, they added. Its overseas operations account for just 5%
of revenue.
The funding cuts were described by sources at the e-wallet
firms as sizeable but Reuters was not able to determine the
precise extent for each partner firm. Prior to the cuts, Ant was
spending $30-40 million per year in Pakistan, two sources said.
This year, Ant has also repatriated at least 200 engineers
and other experts dispatched to work with partner e-wallet firms
and has started to ask the firms to pay for its technology,
sources said.
This caused temporary technical issues for some of its
partners, including Mynt, operator of the GCash e-wallet.
"Before in 2019, Ant was there for three weeks of the month,
then it was every other week, then by the last quarter, you
could barely see any Ant Financial guys there," said one former
Mynt employee.
The person estimated that with the help of some hefty Ant
funding, Mynt spent around 10 billion pesos ($200 million) in
2019, helping it triple its number of users, but added Ant has
severely curtailed funding this year.
Mynt said in a statement GCash has been cooperating closely
with Ant whose support had helped it reinforce its position as
market leader in the Philippines.
Ant is also reducing its influence in some markets, enabling
others to take more control. In Indonesia, it is finalising
plans to merge DANA with rival OVO, according to two people with
knowledge of the matter.
Ride hailing company Grab, OVO's top shareholder, will
become the largest investor in the merged entity, with Ant
holding a 20-25% stake, the people said.
OVO and Grab declined to comment, while DANA did not respond
to a request for comment.
($1 = 48.5430 Philippine pesos)
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FACTBOX-Ant's overseas investments
ANALYSIS-Stepped up Chinese scrutiny increases investment risk
of 'Beast' Ant administration to consider adding China's Ant
Group to trade blacklist -sources
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