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Business Unusual

The Ant Group may become the most valuable IPO in history

4 November 2020 7:15 PM

At the moment, the IPO has been postponed, this is the story of how we got here.

The Ant Group operates the Alipay platform. Alipay was created to facilitate payments for Alibaba’s various online retail sites in 2004. It has grown to provide payments on just about anything with 80 million merchants and a billion users.

The initial challenge was how to allow buyers to trust that the seller would actually send the promised items once they had paid. Alipay would hold the cash for the seller until the buyer received the goods.

It also solved the problem of not having credit cards. Many in China when Alibaba was founded in 1999 did not use credit cards, most transactions were in cash. In solving an online payment problem they also changed how all transactions were made.

A phone app using the camera scans a QR code which is like a barcode to reveal the unique id that allows you to make the payment.

Besides the QR code payments, Alipay began offering options for small loans, insurance and now even investments.

This makes it the largest bank that is a not a bank

When it became a stand alone company in 2011, Jack Ma retained 51% control. He had not only founded the incredibly successful Alibaba, but another multi-billion dollar group.

It may prove to be even more successful that Alibaba.

Regulator trouble

By 2017 it is massive and making more money from fees relating to credit products than transactions.

Visa for comparison can do 65 000 transactions per second, Ant handled 6 times that during the singles day events. Over 400 000 transactions per second.That is the equivalent of processing a payment by every South African in under 3 mins.

It was going to buy MoneyGram in 2018, but US authorities raised issues with Chinese ownership of a US financial company.

Chinese banking regulators may not have had issues with the MoneyGram purchase but it did have issues as it was not a bank and despite working with banks to supply many of hte products

The sheer size increased the risk to the banking sector, there may not be a clear reason for something to go wrong, but it is precisely the unknown element that makes the risk harder to account for.

It was not the only thing that gave regulators a reason to be critical of Ant Group, it was how critical Jack Ma has been of regulators.

It appears that Ma’s most recent comments may have been a bridge too far and saw authorities summon Ma and top executives which resulted in the IPO postponement.

The pause resulted in a sharp drop in the Alibaba stock price that may only recover once the listing is given the go ahead again.

What happens next

Regulators would not want to completely restrict a company that is able to extend Chinese influence into the global financial market.

When it is cleared to proceed at some point the IPO will likely still be very well supported.

Despite its size there is still a lot of room for growth in China, but its global ambitions are what make it the one to watch as rather than trying to compete with local payment options, it appears it will partner with them, using the existing payment methods and combine it with their processing muscle and big data deep learning abilities.

You may have never used a QR code and they were touted to be a game changer years ago which did not happen, but it appears the time is right for an ambitious and innovative company that is not in banking to shake things up. Card payments are huge but rely on the 2G mobile network which is unlikely to survive the arrival of 5G. Rather than using a card machine, merchants might opt to simply use a QR code. The Ant Group has been building partnerships in Asia, but the opportunity for expansion in Africa and South America and the potential to not just make sales easier, but investments and business loans might trigger a much needed economic boost for the developing world.

4 November 2020 7:15 PM

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