Ping An ups the digital stakes in China and beyond

By Allen Cheng

With $1 billion at his fingertips, Jonathan Larsen has the exciting and enviable job of engineering a transformation at one of China’s biggest financial groups.

Larsen, a former Citibanker who used to run the US firm’s global retail banking operations, is chief innovation officer at Ping An Insurance (Group) Company and manager of the group’s new $1 billion financial and health technology fund; his role is to invest in the kinds of technology and platforms that will equip Ping An to take on the big internet names in China, such as e-commerce firm Alibaba and social media group Tencent.

Ping An started off in 1988 as a property and casualty insurance company, later diversifying into life insurance, banking, asset management, brokerage services and private equity investing. But it is Ping An’s embrace of technology, with an array of financial technology platforms and services for customers, that has made it a diversified financial conglomerate and turned heads in the financial and investing community.

Larsen says he is making good progress in helping Peter Ma Mingzhe, chairman and chief executive, to further strengthen Ping An on the innovation front. The group already has several successful offerings, including the largest online medical service platform in China and a leading online wealth management platform.

So far, Larsen has deployed about $100 million, or 10% of the Ping An Global Voyager Fund, in seven deals. These include participating in a £34 million fund-raising by London-based fintech firm 10X Future Technologies, which was founded by former Barclays chief executive Antony Jenkins and which helps banks to revolutionize their back-office functions and how they interact with customers.

Ping An also took part in a $25 million fund-raising by TytoCare, an Israeli health technology firm that enables doctors to conduct medical examinations and diagnoses of patients remotely, either online, or via videoconference.

Even though Ping An is willing to take a view over five, 10 or 15 years, the technologies that Larsen has invested in so far can be put to use immediately in Ping An’s existing subsidiaries or affiliates. For instance, Larsen says, Ping An Good Doctor, an online clinical healthcare platform that has 230 million users, has already begun applying TytoCare technologies.

Since joining last year, Larsen has worked with Ma and other senior executives – among them more than a dozen foreigners – to help transform Shenzhen-based Ping An into a financial technology group that operates website platforms providing online wealth management and credit financing marketplaces, as well as online health insurance and medical services. Such platforms provide a virtual environment where consumers can interact with Ping An and other financial service providers.

The strategy already seems to be paying off. In the first half of 2018, Ping An reported record earnings as net profit rose 32% to Rmb64.8 billion ($9.5 billion) from a year ago. Last year was strong too: gross earnings jumped 26%, to a record high of Rmb974 billion, while net profit climbed 38% to Rmb99 billion.

“Ping An is creating vertically integrated online to offline offerings in the growing healthcare and fintech industries to sustain revenue growth,” says Paul Schulte, founder of Schulte Research International.

The group is fixing legacy issues, Schulte adds, as top management is doubling down on fixing costs and excess headcount in slower-growth divisions such as Ping An’s banking unit.

Much of the growth in the first half is thanks to the group’s retail customer base (still heavily focused on insurance), which rose 25% to 179 million by June 30. Each customer held 2.4 contracts on average, up 4.8% from a year ago, according to the interim report, while operating profit per customer rose 2.5% to Rmb281. The number of retail customers holding multiple contracts with different Ping An subsidiaries rose 17% to top 55 million from the beginning of 2018, accounting for nearly 31% of total retail customers.

The group, which Ma founded with a dozen people in 1988 in Shenzhen – a city at the forefront of China’s reform and opening up – has shot up the ranks of the top 10 global insurers in the last five years. 

With assets of Rmb6.5 trillion in 2017, up 16% from the previous year, Ping An ranks behind only Allianz and Axa, according to Relbanks.com, a website that ranks top players across various financial industry sectors globally.

Much of Ping An’s growth and expansion has been driven by its commitment to investing in technology, says Lee Yuansiong, Ping An’s chief insurance officer and a deputy chief executive.

The group employs more than 25,000 software and hardware engineers, including dozens at a Silicon Valley research laboratory in Palo Alto, California, where experts are constantly developing new patents, helping the company to come up with new ways to reach and sign up new customers both online and offline.

One measure of its focus on innovation is the number of patent applications filed by Ping An’s engineers – a total of 6,121, covering technologies such as artificial intelligence, cognitive AI, blockchain and cloud, as of the end of June. They have also developed facial recognition, voiceprint recognition and disease forecasting biometrics, applications that help the insurer to quickly process claims as well as to weed out potential fraud.

Ma, now 63, has not always enjoyed success. A decade ago, Ping An made a disastrous foray into Europe. During a global acquisition spree, it acquired a 5% stake in Brussels-based financial conglomerate Fortis Group. Fortis collapsed during the global financial crisis and had to be bailed out and broken up by the governments of Belgium, the Netherlands and Luxembourg. Various parts were sold off, and the Chinese insurer eventually had to write off $2.3 billion.

Since 2008, however, Ping An has bounced back with a strategy focused on onshore acquisitions and organic growth in its home markets.

The management diversified beyond life, property and casualty insurance with three deals that led to the creation of Ping An Bank, now the 12th largest in China by assets. They invested in securities, asset and wealth management, real estate, venture capital and private equity, and began to focus on technology 10 years ago.

Among Ping An’s best-known technology incubation successes is the founding in 2011 of Shanghai Lujiazui International Financial Asset Exchange Co.

Lufax, as it is known, runs the leading online marketplace for wealth management products and is the financial product equivalent of Alibaba, China’s leading consumer products e-commerce market operator.

By the end of last year, Lufax had more than 33 million registered users, up 19% from the beginning of 2017. Its assets under management topped Rmb462 billion, up 5.3% since the start of 2017.

Lufax has become a core part of Ping An’s new focus.

In consumer finance, Lufax provides a range of financing solutions to salary-earners and to the owners of micro and small businesses, helping many in China who normally cannot get access to bank financing. 

Last year, a total of Rmb616 billion in loans were made via the Lufax platform, of which Rmb399 billion were unsecured and Rmb217 billion secured. Loans under management grew 97% from the beginning of 2017 to Rmb288 billion.

In institutional trading, according to Ping An, volume via the Lufax platform rose 28% to reach Rmb5.4 trillion last year. Lufax’s sister company, Chongqing Financial Assets Exchange, is even branching into public sector finance, helping Chinese municipal governments to adopt the latest fintech applications for city-related transactions, including blockchain technology. For instance, last June, it launched a smart cloud platform for public asset and liability management for the government of Nanning in Guangxi province. By the end of 2017, according to executives, the platform had saved the Nanning government Rmb37 million in financial administration costs.

At the core of Ping An’s success is the strategic application of technology across all business units to spur cross-selling. Lee points to continuous efforts to provide the group’s 179 million insurance customers, both online and offline, with a range of applications and campaigns that in the end entice most customers to buy more than just one product.

Offline, the company has 1.8 million employees, including 1.4 million agents, spread across China’s 23 provinces and four mega-cities. These agents sell only Ping An Insurance products. They also offer consultation services on funds, bonds and other interest-bearing certificates of deposit, or other investments issued by Ping An’s affiliates, including banking, securities, asset management, trusts and various online platforms.

Online, Ping An conducts marketing campaigns via a database of more than 440 million registered users – including a large number of high net-worth individuals and many of China’s young, middle-class consumers – on Lufax and other platforms.

Ping An also caters to the mass market via Ping An Puhui Investment Consulting, which operates an online lender for lower middle-class consumers.

Another successful technology investment, Lee says, is the group’s online-to-offline Ping An Good Doctor website.

This is a WebMD-like service that directly employs 1,000 doctors and has 4,650 external doctors who work on contracts and offer simple online medical diagnoses before referring registered users to thousands of clinics accredited by Ping An.

More than 230 million Chinese – in other words, a number exceeding the entire population of Brazil – have signed up to Good Doctor; the unit was spun off and listed on the Hong Kong Exchange in May, raising $1.12 billion in an initial public offering priced at the top of its range.

Even before the IPO, Good Doctor had seven cornerstone investors, including sovereign wealth fund Government of Singapore Investment Corp, Canada Pension Plan Investment Board and the US asset manager BlackRock.

In July, the company that operates Good Doctor, Ping An Healthcare and Technology Company, announced that it was expanding beyond retail customers and into corporate healthcare management, signing up nearly 200 large companies, including real estate groups China Vanke, Evergrande Group and Greentown China Holdings, the Bank of China, telecom services group China Telecom Corp and China National Nuclear Power Co. It now provides services to a total of almost 1.5 million employees.

Good Doctor is also expanding offshore, with a first step into southeast Asia. Ping An Healthcare and Technology announced recently it was forming a joint venture company with a Singapore-based internet services company, Grab Holdings, to deliver online healthcare services in southeast Asia.

The joint venture will provide integrated medical services such as AI-assisted online medical consultations, medicine delivery and appointment bookings; it will use GrabPay, southeast Asia’s leading digital wallet, to complete transactions from the first quarter of 2019, according to executives, who add that by 2030, southeast Asia is expected to become the world’s fourth-largest regional economy with rapidly growing healthcare needs.

To give an idea of the size of the shortfall in the region’s healthcare, there is only one physician for every 5,000 people in Indonesia – lower than in high-income countries, where there are as many as four physicians for every 1,000 people, according to Good Doctor executives. Larsen says the recent investment in TytoCare gives Good Doctor physicians – not only in China, but across Asia – access to sophisticated technology, enabling them to diagnose and treat simple ailments, online or via video links. The service means that patients can get help quickly online without having to queue up or wait at a doctor’s office, and can pick up medicines at the local pharmacy.

Ping An Good Doctor is an example of how Ping An is competing against Chinese tech firms such as search engine operator Baidu, Alibaba, or Tencent, says Schulte.

Those three rivals process up to 10 times more online data daily than Ping An has acquired in total, Schulte says, but the insurer is the leader in offline data, particularly in the health sector.

“Ping An has developed the Good Doctor platform in conjunction with their health cloud to gain additional value from their actuarial expertise,” Schulte notes.

Ping An Good Doctor, like all of Ping An’s businesses, has access to data cloud services that operate from servers located in technology centres in Shenzhen and Shanghai. The company’s largest operation is the Shanghai Zhanjiang Houyuan Center, which occupies a 32-acre, tree-lined campus in Shanghai’s Pudong district. There are 3,500 staff at Houyuan, including 1,700 in the facility’s vast telemarketing and online marketing halls, which provide a 24/7 service responding to client queries.

Jessica Tan, Ping An’s deputy chief executive and chief operating officer, helped the group to design and build the entire complex nine years ago when she was a partner at McKinsey & Co. Ma was so impressed with her work that he recruited the Singaporean national to join Ping An in 2013.

Tan isn’t the only Singaporean in Ma’s circle of confidantes at senior management level. Lee, another Singaporean, began his career as an official at the Monetary Authority of Singapore, the city-state’s quasi-central bank, and was an executive with Prudential Life Insurance in Asia before he joined Ping An in 2004.

Ma saw as early as 10 years ago that disruption and disintermediation would come from new technology companies, Lee says.

“He saw the strong trend emerging – he saw how AI will change how people interact with each other, and he took the decision to invest, to build up our technology so we can compete with these big tech companies.”

Ma convinced the board of directors to allow him to invest 1% of revenues annually into technology, says Lee, which meant Ping An invested Rmb10 billion (or $1.5 billion) last year in research and development and new financial innovation applications. So far, the board has not been disappointed: for the last decade, the company has delivered 30% compounded averaged growth rate of total assets and given investors a return on equity of 18% a year.

Technology ensures that Ping An is not just an insurance-centric financial conglomerate, says Lee, as the group’s future lies in becoming a technology-enabling company that is also a specialist in finance across multiple product lines.

One example where this is happening is Ping An OneConnect, where Ping An’s engineers help external financial industry clients – 441 banks, 38 insurers and nearly 2,200 non-banking financial institutions in China – set up blockchain technology platforms.

OneConnect has also begun expanding offshore. OneConnect engineers, for instance, are helping the Hong Kong Monetary Authority, the city’s central bank, to launch a blockchain-based trade finance platform, says Lee. The initiative is one of the first government-backed trade finance platforms, and involves 21 banks including HSBC and Standard Chartered, which will share joint ownership of the project.

HKMA’s move follows HSBC’s recent experiments in blockchain – the bank conducted the world’s first commercially viable trade finance transaction with the blockchain in May.

Blockchain technology will reduce the time and complication involved in trade finance and supply-chain finance transactions by facilitating the verification process, according to Ping An’s executives, adding that some transaction times could be cut from two weeks to just a single day.

OneConnect’s technology is expected to improve the ability of small companies to access trade and supply-chain finance by reducing the cost of due diligence. The use of blockchain technology also brings the advantages of a decentralized ledger system to Hong Kong’s new trade finance platform, which includes improved resistance to hacking or fraud.

The HKMA initiative will also serve as a test ground for OneConnect’s overseas ambitions, says Lee. The Ping An subsidiary opened an office in Singapore earlier this year and employs nearly 100 staff outside China. OneConnect is more than just a subsidiary, Lee adds, describing it as a unicorn with a $7.5 billion valuation.

One area of disappointment is that these various successes are not reflected in Ping An’s valuation, Lee says. The company’s shares are listed in both Hong Kong and Shanghai; Ping An’s share price peaked at HK$98.5 ($12.55) on January 22, but had lost nearly a quarter of that by early September. It has a price-to-earnings ratio of 11.55, well below the average P/E ratio of 16.05 for insurance industry peers, according to Reuters.

“We are a financial services and technology company – that is how we see ourselves in five years,” Lee says. “Right now, the market is not giving us enough credit for our innovational financial and technology model, which is why I say we are undervalued.”

Charles Zhou, a Hong Kong-based financial services sector analyst with Credit Suisse, agrees. In an analyst report dated August 22, a day after Ping An’s interim results were released, he issued an ‘outperform’ rating on Ping An, estimating that the company share price has the potential to rise another 41% from the previous peak of HK$98.5.

Much will depend on the kind of deals that Larsen pulls off.

“We are starting to build some pretty good momentum,” Larsen says. “We have made some good investments, and we have a good pipeline of deals and innovation that we are sourcing that will be good for Ping An, relevant innovation from outside of China, and innovation that can inspire and help Ping An accelerate its trajectory for years to come.”