On November 5, Ant Group is expected to raise more than $34bn in a record-breaking IPO, selling shares in both Hong Kong and Shanghai.
If successful, the Chinese financial technology conglomerate, controlled by Alibaba’s founder Jack Ma, will achieve the world’s largest ever market listing, beating Saudi Aramco’s $29bn listing in 2019.
Unlike for most other businesses, the pandemic has helped to accelerate demand for Ant’s digital financial services. Ant Group provides its predominantly Chinese consumers with quick and easy access to credit, connecting customers with fee-paying banks: users can buy insurance, borrow money, and invest all in one app. Last year, Ant handled $16trn of transactions, and with Ant’s current $300bn valuation bigger than even the world’s biggest bank, JP Morgan Chase at $294bn, investors could be thinking that Ant has even more potential for growth.
Old-fashioned banks have been hawkish about Ant’s rise, but powerless to stop it. Ant’s model is more efficient than theirs, and far more accessible. Ant doesn’t have to conform to the same regulations that banks have to, allowing the firm to push through razor-thin margins; something traditional banks are restricted from. Furthermore, the banks’ options are limited: they can either work wilfully with Ant, or miss out on Ant’s 1 billion active users.
However Ant’s rise doesn’t come without hazards. First is the obvious question of how big is too big. Ant’s sudden expansion could push out competition, leading to a monopoly which could reduce efficiency; increase exposure to cyber-hacking; or be used for surveillance purposes by the Chinese government. Secondly, Ant’s focus on the more profitable parts of the finance industry leaves less room for other banks, forcing them to work with the more risky sectors. This has the potential of destabilising the banking industry, making traditional banks more volatile to sudden changes in the economic environment. And finally, questions have been raised about whether Ant’s profitability is sustainable: the big bucks come when Ant moves away from small- and medium-sized transactions, and begins working with large corporations: will Ant be able to penetrate the corporate market as easily as it penetrated the consumer one?
For now Chinese regulators are more focused on the geopolitical landscape. In the short-term, American hostility forces China to adopt a more inwardly-focused economy, and Ant Group could be the perfect opportunity to prove that Chinese firms can withstand American opposition. However, that’s not to say that Chinese regulators are giving Ant Group full reign: certain restrictions have already been placed on Ant’s loan securitisation division (where investors buy up loans, effectively assuming the role of the lender and exposing investors to the risk of the borrower defaulting), and more regulation is expected to follow.
Previously, the White House has taken a dim view on China’s expansion, and this listing will only further prove to be a headache for the Trump administration, which so far has attempted, albeit with some success, to control China’s growing global influence.
Ultimately, Ant’s rise is a sign of what’s to come: the redundancy of traditional banks; the integration and simplification of financial services; and the choice between regulation in the short-term or long-term. But for now, it looks like the Ant-nest is managing itself just fine.
