Compass Money: Ant Group’s blockbuster IPO and the Future of Digital Finance
Eric Jing (pictured right), as Ant Group’s CEO, is at the helm of the world’s most valuable fintech company. (Flickr)
Eric Jing, CEO of Ant Group, once said the company was named after the small insect because it serves the little guys. More recently, though, Ant Group has been looking like the biggest kid on the block. The company, which started as the digital payment system of Chinese online shopping juggernaut Alibaba, is set to have a record-breaking Initial Public Offering (IPO) soon, potentially making it the most valuable fintech company in the world. While Ant Group’s dominance in digital finance may signal China’s growing power in the digital sphere, it also embodies a broader shift in international business: the pivot to data as the century’s most valuable resource.
Strength in Numbers
Ant Group was initially born out of Alibaba’s mobile payment platform, Alipay, by businessman Jack Ma in 2014. It has grown from the escrow account of China’s massive population into a one-stop shop for everything finance in the country. Ant Group has become the most integrated and comprehensive fintech platform yet, boasting a diverse yet centralized array of financial services (think Venmo, Paypal, JPMorgan, iShares, and Mastercard all in one app). Its initial function as Alibaba’s preferred payment option has evolved into a full-fledged e-wallet platform. Ant Group now facilitates all types of transfers in the world’s largest market—just last year it carried $16 trillion worth of transactions, connecting more than 80 million merchants. It has also developed a powerful lending arm made of Huabei, essentially a virtual credit card, and Jiebei, which provides small unsecured loans through the Alipay app.
Ant Group also has minority stakes in some of Asia’s most lucrative ecommerce platforms, making it a force to be reckoned with, even outside China. It owns a 40 percent stake in Paytm, India’s dominant digital finance platform, and often invests in and collaborates with Southeast and East Asian e-wallet firms, such as Indonesia’s Dana, South Korea’s KakaoPay, and the Philippines’ GCash.
However, while Ant Group has achieved a semblance of regional dominance, it faces several challenges to its loftier international ambitions. Chinese regulators have attacked the company, raising concerns about the stability of its payment system and possible lending risks. Western skepticism against the Chinese tech giant has also limited its expansion. To deter U.S. investors from taking part in Ant-Group’s IPO, the U.S. State Department submitted a proposal last week to add the company to a trade blacklist. This is the latest in American efforts to sideline the company. While the Alipay app is unavailable for users in the United States, the hawks in the Trump administration fear that Ant Group may acquire sensitive banking data on behalf of the Chinese government.
Swarming the Markets
However, U.S. attempts to neutralize Ant Group’s expansion might be in vain. With its IPO valuation estimated at $280 billion, Ant Group would be valued higher than Bank of America Corp. and triple the size of Citigroup Inc. The company would also tower over America’s unicorn startups, such as Stripe and SpaceX. With Ant Group planning to sell 15 percent of its shares, it is also on course to beat the already-record-breaking $25 billion raise of Saudi Aramco’s 2019 IPO.
With Ant Group poised to beat Aramco’s record, the tech giant may also become the poster child for a broader trend in international business—a shift towards data, and not oil, as today’s most valuable resource. Many argue that data, due to the potential to extract from it insight and knowledge, has become a more lucrative resource. “Much like oil,” Therese Fauerbach of The Northridge Group, a consultancy, writes, “raw data’s value comes from its potential to be refined into an essential commodity.”
While companies like Facebook and Alphabet have led the data boom, Ant Group’s marriage of data and finance suggests a stronger push towards the digital transformation of the overall global economy. When regulators cracked down on Ant Group’s risky lending and loan securitization systems, the company pivoted. It now uses consumer data from Alibaba and other affiliated systems to screen potential borrowers and connect them to established banks for loans, while collecting a “technology service fee” in the process. Ant Group’s usage of consumer data algorithms to drive small-scale businesses and finance large swathes of the Chinese economy is indicative of the weight that digital finance can carry in business as a whole. If Ant Group becomes the model for the future—as it seems poised to (many companies like Southeast Asia’s Grab and Latin America’s MercadoLibre have adopted similar models)—how business is done may fundamentally change.
Ant Group’s massive IPO will send shockwaves across the world. For one, it may propel even further China’s international rise in digital finance and technology—building on what Huawei, China’s other tech darling, has accomplished. Ant Group’s prominence in digital finance also provides a successful model for aspiring fintechs, and will likely define the industry from here on out. Two things seem certain:
One, Jack Ma’s fintech juggernaut looks unstoppable.
And two? With wallets out and smartphones in, the digital transformation of the economy looks imminent. Ant Group and its business model may become the future of the global economy.