Below is the transcript of an exclusive CNBC interview with Douglas Feagin, President of International Business at Ant Financial. The interview was first broadcast on CNBC’s Squawk Box Asia on 26 June 2018.
All references must be sourced to a “CNBC Interview’.
Interviewed by CNBC’s Akiko Fujita
Akiko Fujita (A): Let's go with the product that you rolled out today, Blockchain based remittance. For those who were not in the room, walk us through exactly how this product is used.
Doug Feagin (F): Yup, we're very excited about the product. So when you look at the money transfer market internationally, this is the first time that anyone has introduced a blockchain-based solution for a mobile wallet to mobile wallet money transfer. And this is using the technology of blockchain in a way that we think will be particularly effective for consumers. Now you ask how does it work. You know traditional money transfer kind of operates like a relay race, someone kind of comes in and they have to go to a particular store or location, put the money in, fill out a bunch of forms, transfer through various institutions and then eventually get to the person who is receiving the money. It takes multiple steps. It can end up taking hours, maybe even days for that to happen. And it's very high cost. Through using blockchain we're able to introduce a solution that is much more consumer friendly, low cost and secure. And so here's how the blockchain works. It's what we call a consortium blockchain and there are four parties to this; there's AliPay Hong Kong, Standard Chartered, who's helping us with the clearance and settlement, and then G-cash in the Philippines who receive the money and ANT Financial is providing the technology solution. What happens is that each person, each party, has a different role in a transaction. They post on the blockchain their role to that and they go through their compliance and verification. Once that is verified on the blockchain which can happen simultaneously, the money can transfer instantly. As you saw on the screen, you put in the number, the person you know and then the money shows up in the G-cash wallet...
A: It's scary how quickly you can transfer 10,000 right, it's like if you did...
A: You know this is an issue, when you talk about the long lines, you know the hurdles that you have to go to send money, something you see in every emerging market, really. Maybe not just EMs. Why focus on this Hong Kong-Philippines channel?
F: As you know, our mission as a company is financial inclusion. And when we looked at the markets where we could roll this out, we saw a real need amongst the Filipino community here in Hong Kong, transferring money back to their family and relatives in the Philippines. And so it fits very much with our mission as a company, and it was a situation where we also had the benefit of two very strong local partners: AliPay here in Hong Kong. We have a partnership with Cheung Kong and then G-cash in the Philippines, the partnership with Globe and Isla Globe. So we were able to implement this here for a community that was really in need of a better solution for the consumers, a lower cost solution and for a kind of very secure and safe form of remittance. And so that's why we chose this corridor as the first introduced.
A: Do you see this as a template that can be replicated in other markets? I know you've made investments in India in places like Indonesia or Thailand. Is this something that you see Ant Financial offering?
F: Yes, we think this could be applicable in many different situations. Wherever international money transfer is needed and in particular markets where there's a strong need for remittance. In many of the markets that you can see where we have many customers through these partnerships, remittance volumes are very high. And so, we can see this probably applicable amongst our existing kind of local wallet partnerships but also more broadly around the world.
A: Any other markets in particular that you see this expanding to?
F: We haven't made decisions today as to exactly where we want to roll it out. The nine partnerships that we have extend from Korea and North Asia all the way through to Bangladesh and Pakistan. In the far West, are all markets where we could see potential applicability here. And so, we'll be deciding in the coming months in a year or two as to exactly how to roll that out.
A: Blockchain is just one of several tech services we've seen Ant Financial move into and so you know people think about Ant Financial, they think the payments platform first. But we've seen increasing investments that you've made in AI as well, as you see the broader strategy and the mission here, how do you see this breaking down between financial services, wealth management and tech services. Do you see tech services a bigger part of the revenue moving forward?
F: Yes we definitely see tech services become much more important to our company and we're focused on doing that. Let me give you a couple of examples. In China, we have a lending product called 310. Three minutes to make an application, one second to make a decision, zero human intervention. We're rolling out that 310 model to other financial institutions to be able to utilize it. So for example in China, the Bank of Guilin is one of our partners who has utilized that model and they use it to serve farmers in their community. Today, they've already made over 50 million dollars of loans to farmers. These are mostly small ticket loans that perhaps the bank wouldn't have been able to do efficiently before. But using our technology with the 310 model, they're able to offer that to these consumers, to these farmers. And now over 20,000 farmers are actually borrowing from Bank of Guilin. We're going to do this type of technology enablement. More broadly, we are doing it also with our wealth management platform with Yoobao, and enabling other partners to be able to utilise our technology to better serve their customers.
A: We've talked a bit about EMs, but let's talk about developed markets, specifically where and where Ant Financials is looking to move. And you can't help but talk about the U.S., obviously the MoneyGram deal Jack Ma mentioned this in the press conference, he was angry after it fell through. But the reason I raise this is because right now there's a real tension here where it seems like Chinese tech companies are caught in the middle between what's happening with the U.S. as well as China. Just today, there are reports that President Trump is looking to prevent any Chinese companies from making investments into the U.S. [As] somebody who is caught in the middle here about the political environment right now and how you determine what your strategy is in a place like the U.S. at a time where it's so politically charged especially as it relates to Chinese tech companies.
F: We operate in many different countries and there are different political developments and regulatory developments in the different countries all over the world. And we see the U.S. and other markets as important ones for us in terms of our expansion. To date, what we've been doing in the U.S. is expanding Alipay acceptance across the country and that's been going very well. We are working with a number of local partners like FirstData, VeriFone to enable acceptance of Alipay, and we expect to continue to do that over the course of the coming years. As it relates to kind of technology and the use of that, we are very excited about the technology that we've developed and frankly most of that is being developed based on our existing consumer base. We have 870 million consumers across mostly Asia today and we are using technology to think about better solutions for them and to offer that around the world. That is what we are going to continue to do in fulfilling our mission in expanding our business. And we believe strongly that financial inclusion is a theme that is getting more and more traction and hold around the world. And we don't think that any particular trade tension or political dynamics is going to stop that trend.
A: But as it relates to the U.S., does this basically put any kind of acquisition or merger that you may have been looking out off the table given that the government has basically made a stance to say Chinese companies just can't invest in the U.S. anymore?
F: We haven't seen what the regulations that will evolve in the U.S. We'll certainly take a look at them and obviously comply with whatever regulations that are out there. As I said for us right now, the technology that we're using is based on our existing customer base and expanding that out. We are not really even looking to go around the world and try to buy technology. We build our own technology based on what our consumers need and that is the way that we need to develop it and to serve it. And so we feel very confident that we are going to be able to continue to innovate and come up with new technology solutions for our consumers based on our existing platform.
A: When we look globally here, Ant Financial has gone for partnerships and we talk about Southeast Asia but also PayTM over in India as well. As you see it in the U.S. market right now, are partnerships still something that you're seeking out or do you see that given what's happening, it's essentially about going it alone and what's the path to success on that front?
F: We are very excited about the partnership model and we will continue to follow that in a number of different markets. Why is partnership attractive? Number one, sometimes that is needed to just comply with regulation, sometimes payment companies and things need to be locally owned, but we think in every country and region there is a benefit to a strong local presence. That is how you best understand the local consumers, how you can best protect their data, store data, and things like that locally. The partnership model kind of fits the different themes. We can provide technology and the know-how to these partners but they are responsible for thinking about what are the consumer needs. How do we roll out these products and services within those markets? It is a great partnership to best serve the needs. We can see in our nine existing partnerships. Great traction already with those consumers so we're going to look to build that, just like we mentioned today in the discussion of blockchain where we have one and a half million consumers here in Hong Kong, 8 million with our partner to cash in the Philippines. Those numbers we look to build.
A: So we've talked about India, Southeast Asia. You have expanded your footprint there. What's the next market you see as a big growth opportunity? Latin America, Africa?
F: We can see a lot of opportunities. We evaluate things in all different regions. We have followed a little bit of the Belt and Road Initiative. In addition to the partnerships we had in Southeast Asia and India, we expanded into Bangladesh and Pakistan. We are very excited about both of those partnerships with Be-cash and with EasyPaisa there. And so we're going to look to build those up. We do see opportunities in Africa, Latin America, other regions around the world and we're evaluating all those actively. And you'll see some new partnerships over the course of the coming coming year.
A: What's the challenge of a place like Latin America because it seems like Southeast Asia is the natural extension from China. In India, with obviously what is happening there. Are the hurdles bigger when you look at markets like Latin America or Africa?
F: I'd say other markets like Latin America, Africa, Russia, you know places around the world, there are different hurdles in different locations. But actually, I think there is a need for our products and services in all of those locations. So we see a real opportunity. We want to adapt the opportunity to the local market solutions and in doing that, we think it will be much more successful. The focus right now is building these nine partnerships we have and expanding the customer base amongst those. But we will look selectively and add new ones as we go forward.
A: What about a market like Europe? And how much growth do you see on that front?
F: Europe is an interesting market. There are actually a number of innovative mobile wallet players already for example, in the Nordic countries. We see a lot of things very similar to the model that we have developed, also developing there. And so we're quite engaged in Europe. We have a good sized team there who is building AliPay exceptions today. We'll think about whether or not there's opportunity for partnership or things as well down the road.
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