To buy Ant is to buy the China of tomorrow!

On July 20, the Ant Financial Group announced that it is preparing its simultaneous IPO on the two financial markets of Shanghai and Hong Kong. The company is aiming at a valuation of 200 billion dollars. Jack Ma, the founder of the Alibaba Group, established the company in 2014. It focuses on five activities: finance, technology, financing, insurance, and credit.

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Alipay, the front door

The online payment application, Alipay, is the gateway to its services. While Paypal has 300 million users, its Chinese competitor has 900 million people in China and 400 million abroad. Paypal has a capitalization of about $200 billion, Visa, and Mastercard more than 300.
As for financial services, the group has 740 million customers and can count on 28 million micro-enterprises. 80% of Alipay users use three other Ant services, and 40% use five services. An advantage for American companies, for the moment, the Western consumer remains more profitable than the Chinese consumer.


Alipay-We Chat

Alipay’s competitor on the Chinese market is We Chat’s wallet, which has a 30% market share in online payment. We Chat cannot make the comparison in terms of amounts as they are much lower. On offline commerce, We Chat has a higher market share with a 7:3 ratio in its favor.

Synergy with Alibaba

Alipay also benefits from all the services offered by the Alibaba group with the sale of cinema tickets, travel agency, home delivery. It intends to develop medical advice services. Both companies have invested heavily in development while collaborating with partners for the development of small applications. We Chat works with 1.5 million developers, and Alipay has set up a billion yuan fund for developers.

From finance to technology

The most profitable sector is the financial services sector, particularly with the loan. Economist Huang Qifan, former mayor of Chongqing, estimated that in 2019, Ant had a profit of 10 billion yuan, 45% of which came from two Chongqing companies specializing in “small loans” to SMEs – 36,000 yuan average. The IPO file has not yet been released, but it is believed that Ant granted 1700 billion yuan of credit in 2019, +72% compared to 2018.
The insurance sector has very important potential. Ant recorded 240 million yuan in this segment in 2019; the billion should be exceeded this year.
Ant wants to put more emphasis on technology services than on finance. Instead of Fintech in Hangzhou, we talk about Techfin. Five areas are at the heart of the research: the blockchain, artificial intelligence, security, the Internet of objects, and information.
In June 2020, the group changed its name, removing “financial services 金融服务” for “technology 科技”, and “Zhejiang 浙江” its province of origin, to highlight its core business, technology, on the one hand, and on the other hand remove the local connotation and display its global ambition.


Internationalization is an important pole; in 2018, Ant raised 14 billion dollars for international development. The objective for 2025 is to have 2 billion customers, 50% abroad. Currently, out of 1.3 billion users, 30% are outside China.
In recent years, Ant has acquired a number of companies or created alliances. In Asia, development is going rather well.
In India, in February 2015, Ant entered the capital of Paytm as a strategic investor to form the first local player in online payment. He sent 100 technicians to Delhi to share his expertise. In two years, the figures have skyrocketed, the alliance’s transactions have increased tenfold with 200 million users, including 90 million assets. By the end of 2019, the number had risen to 300 million. We’re not talking about profitability, but cash burn. Paytm posted a net loss of 500 million dollars. The Indian government, following tensions with its neighbor, in the interests of national security, banned the use of 59 Chinese applications, including We Chat and Tik Tok. On the other hand, Ali Pay and Paytm was spared. In other Asian countries and territories, such as Thailand, Pakistan, South Korea, Malaysia, and Hong Kong, the strategy remains the same: to ally, with minority stakes, with a local leader that has good Internet coverage and a vast network of users.

The United Kingdom, no United States

In the United States, the adventure did not enjoy the same success. The US government vetoed the takeover of Money Gram in 2018 for security reasons. The group led by Jack Ma fell back on the British WordFirst on February 14, 2019, with a sum of 700 million dollars. At the same time, the latter put an end to these operations on American soil. In order to avoid a blockage of the takeover by the American authorities, who takes a dim view of the data of American citizens in the hands of a Chinese company? Alipay has already made numerous agreements with most European countries.

The regulatory authorities

The regulatory authorities in several countries do not always view the establishment of the Chinese giant favorably, while the Chinese administration is keeping a close eye on developments; the Caixin site believes that it presents a real challenge. The banking sector complained that Alipay was operating in some aspects like a bank without the constraints and security obligations of a bank. By 2014, the Chinese Central Bank had already temporarily halted Alipay’s transactions. In the first quarter of 2018, the amount of money available in customers’ accounts amounted to 1690 billion yuan. The regulatory commission has banned companies from using these funds for their own benefit, a common practice in the industry. It enjoined them to deposit them as a reserve on the Central Bank accounts, without any interest. An investigation could be launched by the anti-monopoly committee into Ant and Tencent, the owner of We Chat. The two online payment giants carry out nearly 95% of the country’s online transactions.

Political support

There are many questions about how much support Jack Ma needs to “get permission” to go that high and challenge the banks on their turf. Is he part of a club of high-flying businessmen who have the support of the (declining) Shanghai group that the current president has been fighting since he came to power? It is normal for China’s big bosses to deal with politics and to comply with “patriotic demands” if they want to be able to continue to develop their society (see article).

To buy Ant is to buy the China of tomorrow!

Alipay makes money on volume, but the challenge for the group is to transform a low-margin service into a high-margin technology services company. The Alibaba Group has contributed to the profound changes in China’s society and trade over the last two decades; Ant could bring about other profound transformations. Buying Ant shares means buying the China of tomorrow!
The service sector generates nearly 60% of China’s GDP, but it is in need of major modernization and will the digitalization give another face to China? Without a doubt!

Sources :
Article by Caixin

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4 August 2020

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