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Ant may be more relevant to China’s banks than ever

Ant’s OceanBase is winning mandates in China, but will Ant get to keep the business when it goes IPO?

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Ant Group, the fintech arm of Alibaba, may be losing its grip on a lucrative lending business as a result of a regulatory crackdown that began with the November 2020 suspension of its Hong Kong IPO.

But it may be compensating in the deeper tech space, notably by selling database technology, operated by a business unit called OceanBase, to mainland financial institutions.

“Ant focuses on fintech, especially security and risk management,” said Michelle Li, head of research at AMTD Group in Hong Kong, in a recent report on Chinese fintech companies. “Ant inherits Alibaba’s technical strength, and its financial-grade distributed database OceanBase challenges the dominating role of Oracle.”

Initially the only customers of OceanBase were in-house entities: Alipay and MYbank, Ant’s digital bank. But a growing number of other banks and insurance companies are becoming clients, including its first customer, Bank of Nanjing, followed by state-owned ICBC, China Construction Bank, and PICC Health Insurance.

Michelle Li, AMTD

“The database localization trend in China’s financial industry will present huge opportunities for OceanBase,” Li wrote.

The partnership play

Shanghai-based consultant and writer Richard Turrin agrees. “OceanBase has garnered a reasonable following within the China banks and is a cornerstone of Ant’s efforts to develop and spin off its technology.”

The Ant IPO was famously spiked by the government immediately following Jack Ma’s incendiary comments to senior regulators likening banks’ lending practices to pawnshops.

Turrin argues that for several years, Ant has been trying to market itself as a partner to banks, not a competitor. “OceanBase is a good example of this partnership at work,” he told DigFin.

The company is positioning itself as an agent to help financial institutions digitalize, according to the OceanBase website. It says it now works with up to 200 clients.



Its brightest feather in its cap: OceanBase will provide the backbone to managing transactions in China’s digital renminbi.

Analysts note that Beijing didn’t have much of a choice. There was no way the government would allow Oracle or another foreign company to run such critical infrastructure – and Alibaba had the only mainland technology capable of handling it.

That’s not been the case for financial institutions, however, many of which use Oracle. Some sources say OceanBase had to change its tech approach. “Banks hate Ant because it’s been getting the biggest cut from loan referrals,” one analyst said. “They have been hesitant to use OceanBase.”

Open sesame

The company has changed its technology to make it compatible with outside developers. It’s not, strictly speaking, gone open-source. A true open-source database service is MySQL, but MySQL lacks the speed, reliability and data consistency required for a giant e-commerce platform like Alibaba, or a commercial bank.

On the other hand, the biggest vendors of such database management systems, such as Oracle and SAP, offer strictly proprietary services. Initially OceanBase did too, but its developers released a service called ApsaraDB, a hybrid: Ant and Alibaba have proprietary rights to all its code, but it’s compatible with MySQL and Oracle.

The unnamed source says open-source software is unusual for a Chinese technology company, even if it’s still owned in-house. “They may be responding to government pressure and not want to be seen as a monopoly,” the analyst speculated.

Ant’s OceanBase may not be a monopoly in China, but it’s the only mainland tech that can compete with Oracle. Alibaba launched the business in 2010 to provide the throughput required to handle the company’s massive transaction volumes. Any firm with complex, high-volume bookkeeping needs has to use something like this.

Thanks to Alibaba’s deep trove of consumer and merchant data, it was able to create a database business, either offered on-prem or as a cloud-based software-as-a-service, that no other mainland tech company has been able to match.

Outpacing Oracle

Yang Zhenkun is the founder of OceanBase. When he joined Alibaba in 2010, payments arm Alipay was still using Oracle’s database management system, but it couldn’t keep up with its rapidly growing workloads. By 2013, OceanBase was sufficiently developed for Alipay to use it, and by 2017, Ant had completely transitioned to OceanBase for managing the relationships among all its customer accounts.

The company’s website says, “The goal of OceanBase is to serve for financial scenarios which are demanding on performance, cost, scalability, and requires [a] database with high availability and strong consistency.”

By 2016, all of Alibaba and Ant’s legacy computing infrastructure had been replaced by OceanBase and Aliyun, the cloud business of Alibaba. For example, in 2019, OceanBase processed $38.4 billion of sales in just 24 hours, for Alibaba’s November 11 shopping festival, including at peak moments 61 million transactions per second.

OceanBase opened its doors to third-party customers in 2017, and by 2019, its technology was outperforming Oracle’s in test environments, according to a Chinese media interview with Yang. It offered its first cloud-based SaaS version in 2020.

A new type of fintech

Ant appears to be positioning OceanBase as a means of remaining relevant to banks and insurers at a time when its lending business is being curtailed by regulators. Its credit apps used to be very lucrative: in the first half of 2020, Ant’s two credit businesses, Huabei and Jiebei, grew by 57 percent year on year, and contributed 39 percent of Ant’s revenue, according to AMTD research.

These apps leveraged Alipay’s unparalleled data on merchants and consumers to offer personalized loans, with about 98 percent of the capital sourced from third-party banks, and Ant’s platform taking a cut without putting up its own risk capital.

Since early this year, lending platforms must adhere to similar rules as banks, and put in 30 percent of their own capital. This will severely hamper Ant’s ability to make money off third-party loans. The margins on its core payments business could also be impacted as China rolls out its digital renminbi and as the government continues to try to force Ant and its rival Tencent to share more of their data.

Ant, therefore, is now reinventing itself as a different kind of technology provider, one based in deep infrastructure. Database management is just one aspect of this turn: blockchain is another. AMTD’s Li notes Ant has recently upgraded its blockchain-as-a-service business, and launched Trusple, a cross-border trade and financial services platform based on Ant Chain.

OceanBase’s Yang has also explained to local media that his breakthroughs in technology involved moving from Oracle-style use of mainframes to a decentralized model based on using many PC servers. This is in response to the sheer volume and complexity of online transactions as well as the need to combine managing transactions with data warehoused for business analytics.

Oracle executives contacted by DigFin for comment did not respond.

IPO inclusion?

It remains to be seen whether OceanBase can match the revenues Ant derives from digital payments, merchant services, credit, and wealth management. One thing is for sure: Ant’s lending business will be far less profitable than it would have been before the regulatory crackdown early this year.

Were Ant to list this year, it would require a 60 percent discount to what it might have raised last year, according to analysts at Sanford C. Bernstein & Co., due to both slower growth and to the need to pump an additional Rmb30 billion or more in capital to the restructured consumer financing business. Ant’s money-market fund, Yuebao, is also required to downsize.

Bloomberg analysts therefore can’t provide certainty about an Ant IPO valuation: its estimates vary widely, from $29 billion to $115 billion.

One big swing factor: whether OceanBase will still be included.

In June 2020, Ant announced it would spin off OceanBase as an independent company, incorporated as Beijing Aoxingbes Technology, with the aim to serve 10,000 enterprise customers within three years. The entity would be 100 percent controlled by Ant, with Simon Hu Xiaoming, the then CEO of Ant Group, to serve as chairman.

Hu stepped down from Ant in March 2021 amid the fallout from the cancelled IPO and regulatory crackdown. He remains partner at Alibaba Group.

The cancelled IPO now has analysts wondering how, or whether, OceanBase would fit into a revived transaction, should Ant attempt a return to the markets. “It’s not clear OceanBase is still part of Ant,” said an analyst. This may depend on how Ant, and Alibaba, want to brand Ant. It’s possible the infrastructure technology might do better on its own, at least from a marketing point of view.

On the other hand, Chinese banks and other financial institutions know OceanBase is making them more, not less, dependent on Alibaba. Ant’s restructuring may hurt its lending business, evening the playing field versus banks – but now OceanBase is becoming the primary processor of their transactions.

Ant may or may not regain its mojo, but Alibaba’s role in financial technology appears set to deepen further, and Oracle’s position in China’s finance industry looks vulnerable.


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Ant may be more relevant to China's banks than ever