Adding fuel to its ongoing battle on the e-commerce front, Alibaba and its arch-nemesis JD.com are now gearing up to go against each other on the financial turf as well. The latter has just recently announced that it will spin-off its financial business, JD Finance, into an independent affiliate organization. It is following Alibaba’s lead to build its own financial identity in a highly competitive market such as China.
JD Finance started out as an exclusive division within JD.com to provide finance, banking, and payment services to users through the use of technology. But, the company has now decided to dispose off all of its 68.6 percent equity stake in JD Finance for around 14.3 billion yuan (approx $2.1 billion) in an all-cash transaction. The e-commerce unit also plans to consume 40 percent of its future pre- tax profits when JD Finance has a positive pre-tax income. It is, however, also reserving the option to convert its profit sharing right into the corresponding equity share.
Under this transaction, Richard Liu, JD.com’s Chairman and CEO is picking up nearly 4.3 percent stake in JD Finance. He will also be acquiring these share at the same price as third-party investors and also at the same set of definitive agreements. Despite his minimal stake, Liu will be handed over a majority of voting rights in the financial arm. There is currently no more information about investors who’ve acquired a stake in the financial arm.
With the formation on an independent affiliate, JD Finance will be able to aggressively focus on building both the product, as well as user base in China. The company has a plush bank account as it had raised 6.65 billion yuan (approx $1 billion) at a massive valuation of 46.65 billion yuan (approx $6.8 billion). The investment round was led by Sequoia Capital China, China Harvest Investments, and China Taiping Insurance.
The affiliate has recently partnered with China UnionPay, the state-backed financial company, to start building innovative solutions across a range of sectors online payment solutions, co-branded credit cards, and rural financing programs. The partnership will also explore opportunities in areas such as rural e-commerce, big data analysis, and risk control. It is also looking to venture into and offer new financial services such as credit score and loans.
This development comes on the heels of Alibaba’s affiliate Ant Financial making strides into the international market with its recent M&A spree (it is looking to raise a fresh $3 billion to lead the investments). After building up its 450+ million user base through digital wallet service Alipay, the company now plans to expand their reach to wider audiences across the globe. It is also adding more users to its business while providing its partners access to their user base as well. This is a win-win situation for both the financial companies.
