The dual listing of the operator of China’s largest mobile payment app, Alipay, in both Shanghai and Hong Kong is expected to be one of the biggest offerings ever. It may surpass the record set by Saudi Aramco’s US$29.4 billion IPO last year. Analysts have estimated the company could be offering up to US$35 billion.
Compared to 346 million active PayPal accounts worldwide, Alipay today has 1.3 billion annual active users, mainly from China. Over 300 million users are from India, Thailand, South Korea, the Philippines, Bangladesh, Hong Kong, Malaysia, Indonesia and Pakistan. According to iResearch, Alipay has a 54% share of the Chinese digital payments market (volume of about $33 trillion) last year. Tencent on the other hand is the second biggest player with 39% market share.
Ant Group however is not only about digital payment. Unlike Western mobile wallets, Ant Group provides nearly all aspects of financial services. The Economist describes the group as a four-legged insect. Ant’s platform is like 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 all in one mobile app.
Bernstein analyst Kevin Kwek sees the payments component as a “hook product” for the company that may have limited profit potential but helps the company bring in new users who can then try out more lucrative services.
App-based payments are commonplace in China, even for in-person transactions, and this is perhaps the most well-known aspect of Ant’s business. But other areas of the business are more interesting, Bernstein’s Kwek argued in a note to clients, particularly the company’s credit business, in which Ant originates loans that are almost entirely underwritten by financial partners, giving the company useful loan insights without requiring it to take much balance-sheet risk.
The credit business is “maybe the gem” of Ant’s business, Kwek wrote. By his math, with a “conservative” assumption that the company only made one loan to each of its 500 million loan customers over the past 12 months, Ant would have originated 16 loans per second.
What are the risks?
Ant Group tripled its value in just three years. In order for the Group to sustain its growth, Ant needs to continue to expand overseas. Those growth markets are likely to include Southeast Asia, South Asia, Africa and the Middle East. Hence, the U.S.’ restriction on Chinese technology firms is unlikely to hurt the Ant Group in the short term.
Another risk is the dependency of the Group on financial institutions to offer credit. Microlending is the backbone of Ant’s profit. The IPO prospectus identifies the risk of Ant unable to maintain healthy partnerships with financial institutions. How long will these banks continue to trust Ant, as it hoards all customer data?
1. What Ant Group’s IPO says about the future of Finance, The Economist, 10 Oct 2020
2. Emily Bary, Ant Group IPO: Five things to know about the Alibaba affiliate aiming for the largest offering in history, www.marketwatch.com
3. What’s the real risk in Ant’s IPO? www.digfingroup.com