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The Alibaba Group has closed a deal which guarantees the company 33% equity interest in Ant Financial. The deal means that Ant Financial will no longer pay any pre-tax profits to Alibaba.
After the close of a successful deal, a third of Jack Ma’s online financial services provider, Ant Financial, is now owned and controlled by Alibaba Group Holding Ltd (BABA). The deal is more than a few years in the making as it was first proposed that both giant companies initiate much stronger collaborative efforts more than five years ago. Both companies were started by Ma.
Originally starting as Alipay, Ant Financial was founded back in 2004 and by 2013, it had overtaken PayPal as the largest mobile payment platform in the world. It was rebranded as Ant Financial services in October 2014 and about a year later, it had raised $4.5 billion through a successful funding round which involved major firms like China Investment Corp (CIC), China Life, China Post Group, CCB Trust, Primavera Capital Group and China Development Bank Capital. By 2016, Ant Financial already had an estimated 450 million active annual users and controlled an estimated 58% of all online transactions in China.
Today, the company offers several services including credit scoring, microlending, insurance, and is currently China’s biggest money market fund. The company is now valued at about $150 billion and is already making specific efforts to expand to other countries like Thailand and India and is also expected to initiate an initial public offering (IPO) sometime soon.
This dogged thirst for growth has been iterated by Alibaba Holdings Executive Chairman, Daniel Zhang, who during the company’s annual investor conference, said:
“Every year we generate new stuff and we acquire new stuff. We never stop. Payment and financial services are very important pillars in Alibaba’s system.”
According to Bloomberg, Zhang hopes that by 2023, Alibaba will be able to boast of at least a billion active users annually, who will run up to 10 trillion Yuan ($1.4 trillion), in Alibaba transactions. Alibaba also projects a 33% growth by the end of its current fiscal year in March 2020.
Shortly before Alibaba went public in 2014, the company went into an agreement with Ant Financial, which mandated that 37.5% of the latter’s pre-tax earnings will be paid to the Alibaba Group. This new deal now invalidates that, meaning that Ant Financial does not need to pay Alibaba anymore.
Ant Financial is however not without its own issues. Firstly, it is in serious competition with Tencent Holdings Ltd., another major Chinese online company that also handles payments and financial services as well. Secondly, Bloomberg reported earlier this month that Yu’E Bao, a Chinese fund operated by Ant Financial, is set to lose up to $120 Billion over the next year.
Furthermore, just like many other companies, the firm is struggling to fight off crippling effects of the currently ongoing trade war between the U.S. and China, which is said to be the major reason behind a significant reduction in the Chinese economy.
BABA is currently at $176.98, losing 3.03% from it’s $182.51 previous close.