Below is the transcript of a CNBC exclusive interview with Ping An Group Co-CEO, Jessica Tan. The interview will play out in CNBC's latest episode of Managing Asia on 20 September 2019, 5.30PM SG/HK (in APAC) and 11.00PM BST time (in EMEA). If you choose to use anything, please attribute to CNBC and Christine Tan.
Christine Tan (CT): So, Jessica, you joined China's Ping An Insurance in 2013. Just how exciting has it been for China's largest insurer and the world's second biggest insurance market?
Jessica Tan (JT): Yes, it's really exciting. This whole kind of market, it's just growing so much. There is so much ideas and the people are very driven. You feel like you can achieve anything. It is very dynamic. There's still so much to grow. It is already US$450 billion in premiums last year. It's still growing in double digits. Penetration we're looking at is from 3 percent of GDP. Looking at the U.S., it's 6 percent right. You have continued growth in consumption, urbanization, continually growing elderly population - all these point to more demand.
CT: Ping An has the tallest building here in Shenzhen, does this symbolize the sort of growth you're looking at?
JT: Hopefully. It's quite remarkable to look at what they've done. If you look at here - Shenzhen was created from almost nothing. It's really inspiring -- if you work hard, it is a land of opportunity. You can make dreams come true. 101606
CT: Over the past few years, Ping An has been expanding beyond its traditional life insurance and financial services business. It now spends something like 10 percent of its profit on new technology. Is Ping An evolving into a tech company?
JT: Yeah. We are like a tech company in some sense.
CT: Not a life insurance company but a tech company?
JT: We are both in financial services and a tech company. In the past eleven years, we've invested significantly in technology. That was why I joined in 2013. We went through essentially three phases in our tech development. The first phase was really about investing technology -- being part of a tech company -- helping our own traditional financial services. When I joined, we had 3,000 developers. We now have 30,000 developers. The second phase that we went through, we said, "Look, we can use tech to create new lighter B2C type of models. So, we now have the largest online wealth management and lending platform in China. We have the largest health portal good doctor in China. We have the largest auto home portal in China. These B2Cs create an ecosystem. So, we now have 546 million of what we call Internet users. They at least have one app with us. It doesn't matter whether you have a financial services app….
CT: So, you have a one stop shop basically?
JT: Yeah, and then over time, you could be on our Good Doctor, you could be on our Auto Home et cetera, over time, you will buy financial services products with me. By using tech to create these new kinds of businesses, it creates ecosystem of users. The third phase we went through was then you know taking technology as a business itself. So, we started to create a SaaS company software as a service, with all the technology we invested in – basically, the technology - and encapsulate the thinking behind many of our experts, be it in financial services, health, and now, smart city. Then this tech can be used to provide to the rest of the market right.
CT: So, are you using technology to expand this business overseas? Is that the ultimate goal?
JT: Yeah, absolutely… absolutely. I think the idea is then for both our B2C tech businesses as well as the software as a service type businesses to expand overseas because it's a much more exportable model. Technology is a global thing, right. It transcends languages, it transcends market barriers. If we go to any market, no matter how big or small the market is, you've got to relearn the customer contacts, rebuild channels, you have to rebuild many of the things we built over thirty one years here. So, you've seen our Lufax, OneConnect, Good Doctor -- these are companies that basically have now expanded overseas. OneConnect is in 10 countries outside of China, serving about 27 top institutional financials. That's just in the past one year.
CT: Let's talk about Good Doctor because you recently floated that in the Hong Kong Stock Exchange. Despite strong revenue growth, the company is still pretty much in the red. How closely are you watching competition coming from Tencent-backed WeDoctor? Does that drag out Good Doctor's profit outlook even further?
JT: Yeah. So, I think the common problem with many of these traditional companies, not financial services, is that when they grow tech businesses, they care too much about profitability. Therefore, you can kill companies very easily. It's very easy, for example, for me to ask any of our companies to be profitable, because most of their investments are in new growth. For a fintech company for example, half of their expenses last year was on creating new products. They doubled the number products they have.
CT: So, you're in investment mode?
JT: Yeah, exactly. So, the way that it works-- the profile of tech companies is usually exponential as opposed to linear right. So, you tend to invest a lot in the beginning because what you invest in are people and technology, and these things are quite fixed. So, as the volume scales up, naturally you get the benefits.
CT: So, at what point do you think Good Doctor will become profitable?
JT: So, we usually have four stages for all tech companies. It is very clear at which stage they are in. Stage one is about proving value propositions. Second stage is about traffic and volume. Good Doctor is in Stage 3 where it's about revenue - we want them to have a good revenue growth because it shows that people are willing to pay for their services. So, good quality revenue before then finally, they are in the profitable stage, which is the fourth stage.
CT: So, it's close to becoming profitable?
JT: I think they're in the third stage where they are reducing their losses, so you can see in the half year earnings result, they doubled their revenue and reduced their losses.
CT: So could that happen next year?
JT: I wouldn't comment on that. But if you look at Lufax and Autohome, they are in the fourth stage where they are profitable and you can see Autohome doing beautifully. Its profits is increasing very well. It's about doing the right things in technology than chasing for profit right in the beginning.
CT: In May last year, Good Doctor was the target of a short seller report, raising concerns that it was a Ponzi scheme, raising concerns about the number of real doctors that is within the company's inhouse staff. What have you done to address these allegations?
JT: I think many of these will sort itself out. It is incredible what you read in the market rumors and very exciting interesting stories that they come up with right. I think that we didn't feel there was a need to clarify anything. It was quite evident what they have in terms of having you know professional doctors, not just online but also across the 650,000 people who ask every day...
CT: Where are your doctors from?
JT: We have a staff of doctors which are from our own staff and then we also signed up in various hospitals who are basically referral doctors or specialists that we work with.
CT: Within China or outside China?
JT: Within China, within China.
CT: Let's talk about the other Fintech unit as well which is OneConnect. That has recently been receiving a lot of attention, because everyone's wondering, where are you going to list? Will it be in Hong Kong or New York?
JT: I usually don't comment on such things. We will disclose when it's time.
CT: Which one will give you a higher valuation?
JT: I think that... I wouldn't comment on that.
CT: Timeframe for listing?
JT: No comment.
CT: So OneConnect essentially provides technology solutions to small- and medium-sized financial institutions. You already work with some 400 banks in China to offer ways to assess the credit worthiness of borrowers. What's the next stage of growth for the company? Are you targeting markets outside? What sort of progress have you made?
JT: It doesn't serve just small and medium financial institutions. It actually works with almost all the large banks or 99 percent of the regional banks here in China. Essentially, if you look at the amount of investments we've pumped into the technology. Last year's I.T. budget - not even our innovation - was US$5 billion, and then, on top of whatever you said the 10 percent profit which was our innovation budget. We've done that now for 11 years. There are very few financial institutions in the entire world that can support that sustained level of investments. So the idea is very simple: everybody needs technology for transformation. It's very clear now that financial services themselves really need that and they need solutions to do it. So, that's why we see a huge demand in doing so. I'll give a very simple example. Contact Centers are probably one of the oldest things in the world. The technology we use is an AI voice robot. People want to talk to a person? Fine. We have a voice robot that basically learn our best top 10 percent contact sales agents or service staff about what the right scripts are, and then, ultimately learning and understanding what's there. So, a simple example like -- we used to call our customers insurance policy customers whose agent had left, and said, "I'm really sorry your agent left. As a service, here's a free rider for you – a free insurance rider for you." In the past, when people called, out of 100 people, only eight people would take up that free rider. Insurance is a really, really a tough business. Now, after our voice bot learned the best way to do that, now 35 percent of the people do that. So now, all those service calls to offered policy holders are done by voice bots. That's the kind of technology that nobody can provide. That's the type that OneConnect provides to the organizations here in China. So, there's still huge growth, and then hopefully, outside as well.
CT: Which markets are you targeting outside?
JT: We're doing the Asia right now. So, Southeast Asia. We're a bit in North Asia. We have a joint venture with SBI in Asia. In Japan, there are a lot of large regional banks. So Asia - we hope to have an impact.
CT: So, no timeframe for listing?
JT: No comment. I'll be the first to let you know.
CT: Let's talk about your online wealth management platform, Lufax. There's a lot of speculation that it has exited its core peer-to-peer lending, and now it's applying for licensing for consumer finance. Has there been a change of strategy at Lufax?
JT: We are actively, basically following the guidelines of the regulatory whereby the P2P kind of industry is under transformation, where it will be restructured. And we are actively doing that. I think the regulators have issued guidelines about "Shan Jiang": you have got to reduce the volume, reduce the number of customers, reduce a number of points that you have and stuff like that. So, we're actively doing that as part of the regulation.
CT: And what are your plans to expand Lufax overseas?
JT: For Lufax, we are already in Hong Kong, Singapore, Southeast Asia and I think we'll continue to do that. It is this very much needed. If you think about this -- with the global interest rates going down and the yield going down, for the individuals like ourselves, most people don't get good wealth management yield. If you go to traditional financial services, a huge part of it goes to sales redemption right. Even before you get any yield, you minus off one percent, one point five percent which is quite significant. A lot of that goes to human advisors and stuff. So for Lufax, we've created really online wealth management. We actually have an AI RM (relations manager), so we tried to take out both the operating and the human costs, so a third of what the traditional financial services is, and then, all the yield basically goes to you as an individual. So, it's really meant as a wealth management for the mass people, and that's something that we think has value in Asia.
CT: Any plans to take Lufax public?
JT: Oh we will... I will also be the first one to let you know.
CT: Could it go pubic first before OneConnect?
JT: I'll let you know. I'll absolutely let you know.
CT: So, in the way, these online initiatives are simply a way to help Ping An generate alternative sources of income than just life insurance?
JT: Yes, for long term growth. That's correct, that's correct. So. It's supposed to be long term growth. It's also a much more scalable growth without heavy balance sheet. If you look at financial services a very much linear growth -- I do $100 of business, I need $10of capital, and then I make $3 or whatever that is the amount of ROE. So, in this tech business, it's completely different. It's very capital light and it's much more scalable long term sustainable growth. And for us this is something that we look at 10 years as a good growth.
CT: So, Ping An is trying to be a tech company but as you expand overseas, there are all these sentiments concerning data security, data privacy, something that Huawei is now going through, and there's a lot of controversy around that topic. Do you think that could impact Ping An in any way as you expand overseas with your new technology, as you try to penetrate new markets?
JT: This has surprisingly helped us because as a financial services (company), for the past 15 years, we have to set up very strict rules and infrastructure to protect data because...
CT: So there are firewalls that you put in place?
JT: In China actually, even between our insurance and bank, they're not supposed to share data. So, we have a very robust set over the past 15 years on how do you still do analytics without compromising privacy. That has helped us basically scale our business. So, that's how we're able to serve 600 banks with no problems over the past four years, because we are able to have no physical and virtual private networks in the way that we do it. Outside of China, we've also basically set up now five data centers outside of China. We have two in Hong Kong, two in Singapore, and in Indonesia as well. And we'll continue. We've basically made a commitment -- business outside China, data resides outside China. Business in China, data resides in China. So I think we've set that very clear upfront and that's the commitment we give to regulators as well as to all clients.
CT: So, when you look at Huawei and what it's going through, any lessons learnt there for Ping An that it can avoid?
JT: I think we're in slightly different kind of business. We are in the services business. Services business tends to be more practical in some sense right. If you talk about financial services, even healthcare, I talked about ASK BOB – our AI assistant doctor serving doctors in 3,000 hospitals here. We're actually in Singapore. We signed something (in July) with Singhealth a national health group using that. I think in services industry, it's a lot more practical because if there is a value and a need, it is very simple. We have a diabetes tool. Diabetes is a huge problem everywhere. You could help predict the likelihood of you having diabetes in the next three years. It has a tailored recommendation – there are a thousand over medicines that you can take for diabetes. It helps the doctors to say which one would be better for you. So these are very practical things that make things easy for people to use. So, I think we tend to focus more on the value of the problem that we're trying to solve. And then, I think the lesson is less of a concern. All these things about privacy etcetera can be addressed through technology set-up such that that gives people the assurance.
CT: Ping An recently posted its strongest first half profit growth in over a decade. You added 20.1 million new customers. What does the second half of the year look like? Could you do even better?
JT: I think very strong and robust. Well, naturally, we are cautiously optimistic in some sense as you know the overall climate is quite tensed. And so we are always very cautious, always. That's also our style in that sense. I think it will be very healthy. We seldom give any forecast or whatsoever, but we have repeatedly since last year, said that this year's value of our new business will definitely be more than last year. We've given that guidance and we'll continue to stick by it.
CT: Ping An is listed in Hong Kong. Hong Kong is an important hub for Ping An. When you look at the massive demonstrations, are you worried? Has it somehow disrupted business in any way at Ping An?
JT: I think we are of course concerned. I think everyone is but we continue to think that Hong Kong is one of the important hubs of China linking to the rest of the outside international world - so, something that we'd continue to have presence on. We have roughly five of our companies with their regional offices in Hong Kong, and I myself continue to travel through Hong Kong every week. So, we hope that the situation will improve for the better of everyone. But you know we think that it's still a long term important hub of China.
CT: So, no disruption so far to business in Hong Kong?
CT: Here in China, at home, Ping An has been buying stakes in Chinese property developers - China Fortune Land and China Jinmao, responding to a call by China Banking Regulatory Commission to really increase holdings of top public listed companies. Is it the right move when the slowing Chinese economy is putting a strain on these mainland developers?
JT: So, I think the way to put this into context is that -- we are a very big insurer. We manage US$1 trillion of money. I think our insurance kind of amount of capital… the fund that we have is I think over RMB 3 trillion. Our investment in property of that is around 7 percent - I think about 7.2 percent to be exact -- our results recently released that. It's a very small percentage of the investment. We have to invest somewhere. Property is a good investment for us because it's a long term infrastructure type of investment. The limit that the regulator set for insurance funds going into real estate is 30 percent. We're only 7.2 percent, so it's a very small drop. So, I think that's putting into context. The second thing is that we do this for financial investment. A lot of people start to make headlines: is there greater ambitions and stuff? No. When we invest, we are a passive financial investor. We don't send people into it. It's very different from investments like Autohome where we think it is a strategic company. We actually send people. We actually run it because we want to make sure it integrates into our business. Property for us is like a passive financial investment. So, this is something that we do as part of whole portfolio.
CT: So, you haven't hit your 30% portfolio, there's more to come?
JT: Well, we'll see. If there are good companies, we'll do that, be it property, real estate or in any other sector. These days, this is harder to find – a really good asset -- be it in the bond or the equity market. So, we're always on the lookout for good, good areas to invest.
CT: The current US China trade war is adding a lot of uncertainty out there. As the country's largest insurer, are you and senior management worried about the growth prospects in China?
JT: We're obviously very watchful of what's happening in the U.S. and China. It really has greater impact in the entire region actually. For us, thankfully, we're a very retail focused company. You'll see that more than 90 percent of our profits are from retail customers. We are much more tied to the domestic consumption rate in China; and by various signs etc, it's still a rather healthy growth. By and large, our core business is doing is relatively less affected.
CT: You are 42 years old, Singaporean. You graduated from MIT with a degree in Electrical Engineering and Computer Science, spent 13 years working for McKinsey & Company where Ping An was one of your clients. You joined the Chinese insurer in 2013, two years later, made Co-CEO. How would you describe your leadership and management style?
JT: Wow. Well, I would say that people who worked with me described me as two polar opposites.
CT: Two polar opposites - what does that mean?
JT: Yes, two polar opposites. I remember when I was made Partner in McKinsey, they gave me presents. One was a sword, and one was a cute teddy bear. So, it was really two polar opposites, and I think I've been stuck with that throughout the past years. So, with work, I am ruthless, zealous if you will. With work, I have very high standards and quality, and therefore, I give very tough feedback. People know there is a certain bar to work with me. So, I'm very ruthless that way. If you're not performing well, I tell you straight in the face. On the other hand, by nature, I'm a person who actually likes people. I am personally very caring to myself and to my folks. I'm very family oriented. So, individuals who have worked with me -- be it at McKinsey or Ping An -- I care about them deeply. It takes a certain acquired taste to work with me. But I think those who work with me, we enjoy working together because I really believe in building high performing teams. I think as a leader, it's really about creating the environment that you're meritocratic. It doesn't really matter what the background is, it's really about the quality of your work and thinking.
CT: What's it like working for Peter Ma? What is he like as the boss?
JT: Intense… intense.
CT: How intense?
JT: I work harder here than in my 13 years at McKinsey, and I think that was really hard already. I think what you'd find is - he's a very inspirational founder and CEO. He sees far further than what people see.
JT: Absolutely. I used to describe this about him - he stands on a tall mountain and he sees that mountain over there, and he would say, "You should be there, right? You should really be there." And I would say that the rest of us are mere mortals. We're at the bottom of the mountain, and there are a lot of rivers and rocks that we've got to cross through and get there. So, give us time. No, you're absolutely right, but it's going to take us time to get there. I think he's absolutely visionary. He's seldom wrong on many of things. My gut would say, "Oh no, it's wrong." I would tell him a hundred reasons why not but he's always proven right. The second one is that he really leads by example. Even with his kind of tenure, he's very hands on. When we first started in artificial intelligence, when I first joined, he and I interviewed many chief scientists together. From every one, he learns. Whether we hire the person, it's less important but we learnt from the ground. We really found out what's happening in hospitals, and his eagerness to learn has just inspired all of us. The third thing is that he's very open minded, to take in folks like myself. Many of us, firstly, we're non-Chinese. I was not in insurance. Yet, he was willing to take us on, willing to take a risk. If you have potential, he's willing to give you opportunity and resources to try and get there. If you're successful, you get more and more. So, my portfolio every year has increased because he gives you space, platform. I consider myself still relatively young. A lot of us you know grow up with the mindset that we want to have impact and do things right. Compensation says just one aspect of it. If I'm spending so much time away from my precious family, I'd better do something that I think is meaningful. I think he fulfills that a lot more than even some of the folks outside I've seen. So, I think that helps to bring in talent. So, we have great people who want to work here because there's opportunity for them to actually realize good ambition. He takes a chance on you.
CT: Whether it's facial recognition, AI or blockchain, much of the Group's technology is homegrown? How do you foster that culture of innovation and creativity within the company? What does it take?
JT: So, we never take no for an answer.
CT: Never take no for an answer?
JT: Never take no for an answer. I remember the facial recognition…
CT: Anything can be done?
JT: Anything can be done. I will describe the facial stuff -- when we first started, I actually didn't want to create our own facial (tech). I want to buy it, so I actually went to visit vendors both domestically and overseas. Then, I realized, they were not very good with Chinese faces. I remember at our old building for tech, I had my team set up hundreds of cameras because the scientists told me that we basically need these 3D models of heads - we need at least ten thousand in number to create a good kind of model. I had at that time 4000 people in our tech company. So we set that up. We had people basically say, "Look, we're building this. Why don't you come? You just basically sit there and it takes a picture." And we did it. Then about one year later, we beat one of the world prized View and facial recognition with 9.9 points accuracy or something. It was a huge win. Everyone was so happy. There was another time… we do a lot of loans disbursement. We were the first to offer large ticket sized online loans - ticket size of a few tens of thousands of U.S. dollars. Then Peter said, "I read somewhere that your brain's reptilian brain is the one that controls your micro expressions. So, if you are lying, within first seven seconds, the muscles will move in certain kind of inexpressible ways. So now, the company can pick up on some of these things." At first, we thought, "Oh gosh, this looks like a detective story right? (CT laughs) But you know in Ping An, you learn to say, "Look, let's try it. It doesn't matter." So, we have this facial (recognition technology) for three years. It took three years.
CT: So, you can tell if a person is lying?
JT: Well, it basically takes science. The first time when we did it, there were a lot of false positives -- all sorts of twitches from your muscles and stuff like that. So, it took three years. We basically had our loan assessor -- as they interviewed the customer -- we deliberately had these signs and we asked them to mark if they were right or not. We had to work with psychologists for "baseline" questions because everyone's face "baseline" is different. So typically, you have to ask some questions that they will always answer truthfully, things that they will usually lie about, so you can "baseline" the thing. So, it took three years to do that, before we dropped the false positive rates down to something usable. Today, it's used as a supplementary tool to our assessor. Quite well that we use it for other banks as well. So, this is such a small example but in Ping An, you learn to release your agenda - everything is possible – it's about how you get there. But you have to first make sure that that thing is something valuable, that you want to do, and it's very refreshing and rewarding.
CT: So, what's the next big technology you and your team are working on?
JT: Right now, we are very focused on smart city. These days I spent so much time doing city related work. I think that's a lot of things they can do - from traffic to elderly home care to AI education to pollution even. The ways that we are handling now are very human intensive. You look at pollution - to make sure that companies don't pollute, people create a bunch of guidelines on paper and you have huge number of people who would go and check on that – that is a very outdated model. We're trying to use IOT, we are experimenting with 5G and stuff to see how you can do that better. If you look at AI education, I have two girls, you do the same exercise again and again. But everyone is different. So, we actually have a few hundred teachers right now mapping the knowledge points -- if you get different questions, what concepts are they actually testing on. So that every time you get like 70 marks in math right, we know what concept is there that you're not working well, and the exercises that we give you are focused around that area. I think is really going to change the way that education is delivered, really tailored learning. So, these are exciting stuff that we are working on, and I hope over the next few years, we will really make an impact.
CT: And finally, as one of the Co-CEOs helping Peter Ma grow the company, what is the ultimate ultimate ambition for Ping An? Where do you see the company in the next 10 years?
JT: I think the overall is that, we want to be a leading lifestyle financial services provider for an individual. We want our customer to say that it's kind of a one stop shop. We really understand your needs and through your financial health, housing and car et cetera, we are able to help you. I think that's on a much higher level. And from a tech company level, we want to actually show that technology can really help our everyday lives. So, like our logo, if we can make our lives better, at any level, I think you will naturally create a lot of value and that's very inspiring for us.
CT: So, will Ping An be an insurance company or tech company?
JT: We are a financial services and a tech company. As a tech company, we have over twenty thousand patents right now - the most from any financial services company. No other financial services company actually makes money from technology on its own. So, we are by far a tech company now.
CT: Thank you, Jessica, for talking to me.
JT: My pleasure Christine. Thank you.
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