How Ant Group built a $200 billion financial empire

Ant Group, a Chinese financial technology company, is reportedly looking to raise a record-breaking $30 billion dollars in an initial public offering later this year. The current IPO fundraising record is held by Saudi Aramco, Saudi Arabia’s state oil company, which raised $29.4 billion by this January. 

That Ant Group can surpass that record is an indication of the scale and significance of a company that has become a fundamental component of China’s financial system and consumer economy. Its listing will be split between the Hong Kong Stock Exchange and the STAR Market, a year-old Shanghai-based bourse that was billed as China’s answer to the Nasdaq — a landmark moment for the exchange, and another sign of the Chinese technology sector’s decoupling from the United States.

“You’re essentially buying an option on the entire economy,” says China tech analyst Rui Ma. “It’s that big. It almost doesn’t matter what the valuation is.”

Why is it worth so much?

What is now Ant Group started with a problem for the Chinese e-commerce pioneer Alibaba. 

Buyers and sellers on its eBay-like platform, Taobao, rarely trusted each other enough to actually agree to deals. The only available means of payment were cash on delivery, or a basic online transfer service, which offered no protection in case of a fraud. To overcome this, Alibaba created Alipay, a mobile payment channel that held the buyer’s money in escrow until they confirmed they had received the goods as ordered. 

In a market where most small retailers were cash-based, the mobile wallet that Alibaba had created had much wider potential, as businesses and consumers saw it as a way to leapfrog debit and credit cards.

By the time the platform spun out of Alibaba in 2011 as a new company, it was already the world’s largest digital payments platform. In 2014, it was rebranded as Ant Financial Services. In 2019, Ant Group processed $17 trillion of transactions in mainland China, and a further $90 billion overseas, according to its preliminary regulatory filings in Hong Kong. 

Alipay continued to drive Ant’s business, but it expanded well beyond simple payments.

“As they got deeper into the ecosystem, they started seeing these opportunities where they could positively effect change and address these points of friction,” says Zennon Kapron, founder of financial technology consultancy Kapronasia.

Ordinary consumers in China were often unable to invest their money into funds, because it was uneconomical for traditional managers to manage anything less than $10,000 on their behalf. In 2013, Alibaba launched Yu’E Bao — or “leftover treasure” — which let its customers invest cash left in their Alipay accounts into the money markets, with low minimum investments and easy access to the money, if they needed it back. By 2017, Yu’E Bao was the world’s largest money market fund, with more than $250 billion in assets under management. 

In a market where banks rarely lent to small businesses, Ant Group’s MYbank, launched in 2015, could approve a loan in under four minutes. That was made possible by the enormous database of transactions that Ant held on its customers, which fed into a credit-scoring system that was far more comprehensive than that of the banks.

Many low-wage workers in China have struggled to get access to affordable healthcare; in 2018, Ant launched Xiang Hu Bao, a mutual insurance platform where users sign up for free and pay premiums only through Alipay when one member of the scheme needs treatment. It attracted 100 million users in its first year.

Each new service that Ant Group has added to its platform has further integrated it into the everyday life of consumers and businesses in China. The company’s IPO documents show that the company has turned this dominance into profits: In 2019, it brought in more than $17.5 billion in revenues and made profits of more than $2.6 billion; profits in the first half of 2020 were close to $3.2 billion. Analysts estimate that Ant’s IPO could value the company in excess of $200 billion.

“This is not a nice venture capital story, this is real value,” says Mark Greeven, professor of innovation and strategy at IMD business school and an expert on Chinese tech companies. “They solve real problems for their consumers.”

Why is it listing now?

Ant Group is now the dominant player in one of the most sophisticated financial technology markets in the world. However, it is fast running out of road and looking for a capital injection, so that it can pivot its business into growth markets and more-profitable activities. 

Alipay and its main rival, Tencent’s WeChat Pay, make up more than 90% of the payments market in China.

To grow within that saturated market, Ant is reinventing itself as a provider of services to other financial companies. Rather than offering loans, investments, or insurance directly to consumers and companies, it has turned itself into a platform that connects banks and insurers to potential customers. The company’s lending platform can still offer its “three-one-zero” service — three minutes to apply, one second to get a credit decision, and zero people involved in the decision — but now the loan is syndicated out to a mainstream bank. The debt will sit on the books of the bank, with Ant taking a fee.

This moves Ant off the path of becoming a replacement to mainstream finance companies, enabling it to return to its roots as a less capital-intensive technology business. 

Becoming a platform has an added advantage for Ant. The Chinese government has generally taken a laissez-faire attitude to financial technology. Now, however, companies have become such a fundamental part of the financial system that the regulators have to treat them as they would mainstream banks. Reorienting its business to service, rather than replacing banks, could relieve that pressure.

Ant is also likely to spend on acquisitions and investments overseas. It has already taken stakes in at least 10 similar fintech companies across Asia, including Paytm in India, bKash in Bangladesh, and Ascend Money in Thailand.

“In all of these developing countries, you’re seeing the same technological leapfrogging as China; they’re going straight to mobile, and they’re not doing the credit card stuff,” Ma says. “Presumably it’s going to be the same playbook.”

What is the STAR Market?

In another era — maybe four years ago — Ant Group would probably have been listing on Nasdaq. Its parent, Alibaba, which still holds a 33% stake in the company, is listed in New York, along with more than 150 other Chinese companies, whose combined market capitalization is in excess of $1 trillion.

For technology companies in particular, Nasdaq offered access to a huge pool of tech-savvy investors. Political tensions between the U.S. and China have changed the atmosphere, however, and there have even been calls from American lawmakers to delist Chinese companies from U.S. exchanges.

Ant Group has already come up against the Trump administration’s hostility to China. In 2018, its $1.2 billion deal to buy MoneyGram, a payments company based in Dallas, Texas, was blocked by the Committee on Foreign Investment in the U.S., on grounds that it could not reassure regulators that American user data would be secure. 

Instead of Nasdaq, Ant is planning to split its listing between the Hong Kong Stock Exchange and the STAR Market.

Many analysts were initially sceptical that STAR could attract the kind of big listings and liquidity to make it anything more than a second-tier exchange. But concerns about political risk in the U.S., combined with support from Beijing, have driven major Chinese tech companies to list there. 

“I think this is a sign … that more and more Chinese originated sci-tech focused companies will consider STAR as alternative to Nasdaq, given the certainty of support and of regulation in the STAR Market, as opposed to the imminent risk on the Nasdaq market,” says Wanli Min, founder and CEO of China-focused VC firm North Summit Capital. 

Ant Group’s listing is a further boost to STAR’s attempt to become a genuine alternative to its U.S. rival. 

“It is a monumental moment for Star, because [Ant] is such a gigantic giant, a monster by sheer size,” Min says.