In 2018, Ant Financial was valued at $150 billion. It’s the largest fintech in the world and it turns 5 years old next month.
We recently wrote an article that outlined how Ant Financial grew into the fintech behemoth it is today. In English-speaking media, much has been written about Alipay, the peer-to-peer payment platform; Yue’Bao, the money market fund; and MYBank the linear SME lending arm of Ant Financial. However, relatively little is published about Ant Financial’s other platforms, in particular Ant Fortune and its investment marketplace, Zhao Cai Bao, Ant Financial’s third-party investment platform that brought wealth management products straight to China’s growing middle and upper class through their phones.
Launched in 2014, Zhao Cai Bao is a B2C third-party financial services platform that sells regulated products such as property insurance policies, mutual funds, fixed-term deposit products, bonds, and more. The main sources of supply on Zhao Cai Bao are Chinese banks, large Chinese asset managers, property insurance companies, and China’s top financial organizations. Zhao Cai Bao curates its platform by requiring a certain level of performance and sophistication. For example, only property insurers with 150% solvency are allowed on the platform.
On the consumer side, subscribers to Zhao Cai Bao input the sought after terms and rates. The system automatically matches them with the right service provider. According to TMT Post, “some cooperating banks also help promote Zhao Cai Bao, some have even integrated Zhao Cai Bao into their direct banks or online banks.” Zhao Cai Bao reached $55 billion invested in just one year after launch.
A large part of Zhao Cai Bao’s success is owed to its unparalleled access to financial products. At launch, the platform boasted over 900 commission-free funds, in addition to non-fund financial products like CDs and bonds. At the time of the platform’s launch, over 70% of the Chinese market did not invest in financial products, because most products were designed for high net-worth individuals. To overcome this, Ant Financial tapped into its wide network of users on AliPay who could be targeted with affordable and convenient wealth management products.
Over time, the platform has added more types of products have been added to the platform. In 2018, Ant Financial announced that it would provide China’s first ever target-date retirement funds.
What’s interesting about the platform is that its B2C investment marketplace is the beginning of how Chinese investors can manage their money on Zhao Cai Bao. There’s a peer-to-peer component that serves as a secondary market for fixed-income products that’s unlike anything we’ve seen in Western fintech.
On Zhai Cai Bao, holders of fixed-income contracts who find themselves in sudden need of liquidity can sell part of their holdings to peers. Take for example a user who holds cash in a 3-year CD, and suddenly needs cash at the end of year two. Instead of breaking their contract with the bank, they can sell the remaining year to a peer on Zhao Cai Bao’s platform to another user. At the time of sale, the seller receives cash. Later, when the security matures, the platform automatically splits the bank’s payout to the seller and the buyer prorated in terms with their agreement. It’s important to note that the original buyer of the security remains the owner throughout the contract’s term.
This peer-to-peer wealth management platform serves three very important functions. First, it provides security holders with liquidity, thereby making investing less daunting for novice investors who worry about future cash flow. Second, by automating the payment process, it assures buyers that they will be paid as agreed in the sale’s terms. Third, it lowers risks for banks who are selling these products down-market from their usual high-worth clientele. Before the existence of the peer-to-peer platform, a client who needed liquidity would withdraw their funds early at a penalty. Doing so not only upsets customers who resent the penalty, but also draws capital from the bank earlier than anticipated, which creates risk.
The peer-to-peer investment marketplace presents a neat solution. The security is only issued by regulated and solvent financial institutions, but the secondary market frees up typical investment constraints without passing on risk to the banks. Whichever bank or financial intermediary brings this model to the Western hemisphere will be well positioned to own the investment platform market.
Though in order for the peer-to-peer platform to work best, it would ideally be attached to an open investment platform where multiple third-party provides sell their products. A peer-to-peer platform attached to just one bank or intermediary would operate in too small a market and is unlikely to generate enough revenue to cover its own costs.