Ant Group Co. Ltd. may need to double down on its investments and consider more acquisitions in Southeast Asia after its IPO, as the parent of China's biggest mobile payments app, Alipay, seeks to tap the economic growth in the region where it faces relatively fewer challenges to its expansion.

Excluding acquisitions and funding rounds that were less than US$50 million each, Ant made 38 investments globally totaling US$25.12 billion over the past five years, according to S&P Global Market Intelligence data. Although most of Ant's recent investments are in mainland China, more deals may be in the offing in Southeast Asia, due to the greater need for localization in the region with diversity in languages and cultures, analysts say.

The prize for the Alibaba Group Holding Ltd. affiliate is substantial: A young, tech-savvy population; rising incomes; and relatively welcoming governments. Competition, too, is stiff, with a clutch of homegrown unicorns jostling in the same space in Indonesia, Thailand, the Philippines and Singapore.

Not to mention archrival Tencent Holdings Ltd., which announced Sept. 15 that it would build its regional hub in Singapore to serve Southeast Asia and beyond, amid geopolitical tensions that have forced some Chinese companies to reconsider their growth plans in key markets such as the U.S. and India.

Ant, 33%-owned by Alibaba, has listed geopolitical tensions as a key risk in its preliminary IPO prospectus ahead of its proposed simultaneous listing in Shanghai and Hong Kong that could be the world's biggest initial share sale. The company, which began in 2004 as Alibaba's payments platform, has made considerable investments in Southeast Asia in recent years.

Not just payments

"I think Ant will continue to acquire and invest in Southeast Asian companies to speed up the fintech ecosystem," said Cindy Wang, an analyst at DBS Group Research. Payments is often less profitable, though a common entry point to acquire customers and increase customer stickiness. Thereafter, it could expand to other services, such as financing, investment and insurance, Wang said in comments emailed to S&P Global Market Intelligence.

Ant was reported to have established a US$1 billion fund to invest in startups in Southeast Asia and India that specialize in online finance and payments in November 2019. It owns stakes in electronic payments operators and microlenders in Thailand, the Philippines, and Indonesia.

Growing in Southeast Asia inorganically makes sense for Ant, since it is entering markets that require specific operating licenses and needs much local expertise, said Elaine Yao, a senior manager for financial services at Capgemini Invent.

Ant's partnership with local banking networks for mobile wallets and payments services will allow it to collect data that can help it design future financial products and services suited for users in the region, Yao said. "I will also view the lack of maturity and complexity in the traditional banking infrastructure as an opportunity for emerging technology such as blockchain," she added.

Mark Tanner, managing director at Shanghai-based marketing and research firm China Skinny, said Ant now generates more revenue from investment management, insurance and lending than payments in mainland China.

"They are likely to draw on this experience and technology with the aim of rolling this out in the untapped ASEAN markets, although [Ant] will have less friendly and compatible regulatory and data privacy challenges to navigate than in its home market," Tanner said, adding the support Ant has received from Beijing is unlikely to be available in other countries.

Ant also has to contend with a lack of credible data, except in Singapore, which makes it difficult to assess the creditworthiness of consumers and small businesses, Capgemini's Yao said.

Alibaba and Ant

On some occasions, Ant has also co-invested alongside Alibaba, which remains its biggest customer and supplier. For example, in 2017 Ant acquired helloPay, the payments arm of Lazada South East Asia Pte. Ltd., following Alibaba's investment in the regional online shopping platform.

Alibaba is now reportedly in talks to invest US$3 billion in ride-hailing company Grab Holdings Inc., which also has a fintech arm.

"When Alibaba makes [an] investment, Ant Group tends to come in later, chip in with its own investment and ... provide payments services through the platform. They have been working very closely and I would imagine they would continue to work very closely, be that in China or outside," said Sampath Sharma, an analyst at S&P Global Market Intelligence.

Ant's ambitions are not limited to processing payments for the companies it has invested in. In early 2019, Ant invested in Alibaba-backed PT Bukalapak, an Indonesian marketplace that also offers fintech products. Ant's strategy appears to replicate elsewhere the payments and finance model that made Alipay so successful in China, Citic Securities analysts wrote in a Feb. 26 research note.

Coexisting with Tencent

Ant's rival Tencent has also been investing in Southeast Asia, buying stakes in Indonesia's PT Go-Jek Indonesia, Singapore's Sea Ltd. and Thailand's Oakbee.

"Similar to Ant, Tencent is also aggressive on investment and controlling stakes in local companies in Southeast Asia," DBS' Wang said, adding that the likes of Grab, Go-Jek and local banks are joining the competitive landscape.

Still, the two Chinese giants will likely keep jostling in Southeast Asia, chasing a pie that may be big enough for the duo.

"They are co-existing and will continue to co-exist in the region," Capgemini's Yao said.

"Fortunately the increasing population and economic development of the region will continuously support the co-existence."