Ant to use 40% of STAR float proceeds for innovation efforts

Ant Group, owner of popular mobile wallet Alipay, plans to allocate 40 percent of the 48 billion yuan ($6.95 billion) it plans to raise from its initial public offering in the STAR Market, China's version of Nasdaq, on innovation and technology-related investments, it said in a regulatory filing on Tuesday.

The company, which is also planning a public offering in the Hong Kong bourse, said innovation and technology-related investments are areas that "hold the key to success and serve as the foundation for an inclusive ecosystem".

Ant said it holds 26 indigenous core technology products, 18 international and national awards for key technologies, and some 26,000 patents or patent applications across 40 countries and regions, spanning multiple technology realms from artificial intelligence, risk control, security to blockchain and robot advisory services.

"China's capital market is warmly embracing new economy enterprises like Ant, which encourages the use of science and innovation to optimize the distribution of social resources," said Pan Zijian, a partner on capital market research at KPMG China.

According to the prospectus, Ant's revenues rose by 38 percent during the first six months of the year to 52.5 billion yuan on a yearly basis.

The increasing bulk, or 56.2 percent of Ant's revenue last year, came from what it called digital finance technology platform, which collects technology-service fees from banks and insurance firms. These financial institutions bank on Alipay to make loans, sell mutual funds and other products.

"Unlike traditional financial institutions, Ant charges technology service fee rather than the interest rate spreads, which banks on the power of data for monetization and is more sustainable," said You Xi, a researcher at the Beijing Kandong Research Institute, a technology-focused think tank.

"Data can pinpoint and predict customer needs, offer customized solutions, and hence gather more clients," You said. "The growing customer base will in turn generate more data it can leverage to perfect its services."

Three out of the company's nine board members are from technology-related backgrounds, including CEO Hu Xiaoming. Over 60 percent of Ant employees are in technology-related posts, whereas research and development expenditure accounted somewhere between 7.3 percent and 8.8 percent of the group revenue during the last three years.

Ant is also involved in shaping China's digital currency architecture, according to the filings, which stated it is "one of a number of powerful commercial institutions" that the People's Bank of China, the central bank, summoned in late 2017 to develop the digital currency system.

"Over the past two years, the company has been actively involved in the development and testing of digital yuan, and has been conducting closed-door pilots in cities like Shenzhen, Suzhou, Xiong'an and Chengdu to prep for the forthcoming Winter Olympics scenarios," it said.

Unlike general electronic payment tools, digital yuan is positioned as the equivalent of notes and coins in circulation outside of the banking system, including cash held by institutions and individuals.

Ant said the Alipay mobile app handled 118 trillion yuan worth of transactions in the Chinese mainland in the first half, in the year to June, while international transactions stood at 622 billion yuan. Some 80 million businesses have adopted the service till date, for which Alipay charges a fee, it said.