AA2: What Jack Ma's Ant says about the future of finance
In Africa, digital finance and currencies have been a force to free people from the control of conventional banks.
The largest banks in the world have got a new rival - it’s called Ant Group. This fintech could be valued at $280 billion, almost as big as the world’s biggest bank, JP Morgan and 3 times bigger than the 4th biggest bank, Citigroup Inc.
It even gets bigger, Ant Group is looking to raise $35 billion from the Hong Kong stock exchange and the Shanghai stock exchange, besting Saudi Aramco’s historic record $29.4 billion in 2019/2020.
In the beginning…
Ant began life in 2014 as a payments service under the Chinese e-commerce giant Alibaba. The service then went on to raise $4.5 billion from major China-based financial institutions like China Investment Corp (CIC), CCB Trust, China Life, China Post Group, China Development Bank Capital and Primavera Capital Group.
Ant began as a simple trusted payment solution for shoppers and merchants using Alibaba’s e-commerce site. It was then known as Alipay, and it was mainly an escrow account, a trust system that reduces the payment friction between buyers and sellers. However, it got much bigger by expanding to allow merchants to accept QR codes for payment in offline stores.
Now, Ant has become what The Economist accurately describes as a “combination of Apple Pay for offline pay, PayPal for online pay, Venmo for transfers, Mastercard for credit cards, JPMorgan Chase for consumer financing and iShares for investing, with an insurance brokerage thrown in for good measure, all in one mobile app.”
Numbers
The company services over 1 billion users, and its payment system handled $16 trillion of transactions in 2019, more than 20 times larger than Paypal, the biggest online payment company outside China. Aside from payments, users can also borrow money, trade, invest and subscribe to insurance products.
Also, Ant is the biggest online investment services platform in China by assets under management, with about $613 billion invested through the platform as of June 30. As at 2017, the company’s flagship fund Yu’ebao had become the world’s biggest money-market fund by size. The Hangzhou-based company is said to own a 5% share of China’s consumer-lending market and 5% of the micro-enterprise loan market.
Online micro-lending and payments contribute a huge chunk of the companies’ revenue.
In 2019, online lending, investment services, and insurance grew 87 per cent, 22 per cent, and 107 per cent year on year respectively.
Looking ahead
In spite of Ant’s dizzying growth numbers, it still has lots to worry about, including the hawk eyes of the White House, regulatory constraints from the Chinese financial regulators, the rise of Tencent’s WeChat Pay (it has grown to account for a third of China’s third-party payments market while Ant has dropped from three-quarters to half in 6 years), and the strong stance of several western countries on data privacy.
However, the Ant business model and size could potentially transform how the financial system works around the world, especially developing markets. It also further strengthens the march of digital finance to challenge traditional finance.
Already, digital finance is increasingly growing bigger, taking over most of the non-core banking activities. Fintechs still need banks for core banking activities, as seen with Ant that has 98% of the loans it issues on the books of banks.
Right now, we have a platform that would rival the biggest public financial institutions in less than 20 years. Just like Nigeria’s Paystack, worth more than most Nigerian banks in just 5 years.
Digitisation could help spread access to finance more efficiently and also connecting small businesses and individuals to the digital economy. In Africa, digital finance and currencies have been a force to free people from the control of conventional banks that offer very limited value and weak national currencies.
Let’s make some money…
If you are outside China, you might not be able to buy Ant’s IPO directly yet but you could use some specific Exchange Traded Funds that invest in IPOs or those that track the biggest Asian or Chinese companies like Renaissance Capital’s International IPO ETF (IPOS), iShares MSCI China ETF (MCHI) and the SPDR S&P China ETF (GXC).
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