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Future of Money: Ant Group’s upcoming IPO and the global battle for electronic payments

Ant Group’s IPO could beat the record set by SaudiAramco’s $29.4 billion landmark IPO in late 2019. But whereas Saudi Aramco is struck in a sunset industry with little growth potential over the long term, Ant Group is spearheading a business and technology revolution with far reaching consequences for China and for the rest of the world.

China has a long history of technological innovation, including in monetary matters. The Chinese were the first to invent paper money, as early as in 800 BC during the Tang dynasty. Later on, paper bills embedded with the seals of the Emperor were enforced and gained legal tender throughout the Song, Chin and Yuan dynasties. When Italian merchant and explorer Marco Polo visited China in the XIIIth century BC, he described with great details this innovation that was unknown in Europe: “With these pieces of paper, made as I have described, he [Emperor Khubilai Khan] causes all payments on his own account to be made; and he makes them to pass current universally over all his kingdoms and provinces and territories, and whithersoever his power and sovereignty extends. And nobody, however important he may think himself, dares to refuse them on pain of death. And indeed everybody takes them readily, for wheresoever a person may go throughout the Great Kaan’s dominions he shall find these pieces of paper current, and shall be able to transact all sales and purchases of goods by means of them just as well as if they were coins of pure gold. And all the while they are so light that ten bezants’ worth does not weigh one golden bezant. ” 

Fast forward to July 2020, it should come as no surprise that news about the imminent IPO and dual listing – in Shanghai and Hong Kong – of Jack Ma’s Ant Group, a non-consolidated subsidiary of Ali Baba Group, came quickly to dominate the headlines. The company could seek to rise more than SaudiAramco’s $29.4 billion landmark IPO in late 2019. But whereas Saudi Aramco is struck in a sunset industry with little growth potential over the long term, Ant Group is spearheading a business and technology revolution with far reaching consequences for China and for the rest of the world. As Aaron Klein writes in a report published by the Brookings Institution in April of this year, “While America led the global revolution in payments half a century ago with magnetic striped credit and debit cards, China is leading the new revolution in digital payments.”. The changes are radical. As Klein points out, the players behind the new players in the Chinese payments system have done something far more revolutionary than just embedding new technologies in existing transactions, they have largely dis-intermediated the banking system. Hence, from its previous bank-centric nature, the payment system has moved almost overnight to become merchant-centric and customer-centric.

This revolution has been made possible thanks to the use of QR codes which is much cheaper and convenient than card-based payments that require the merchants to connect to a card payment processor – typically Visa or Mastercard – through a Point-Of-Sale (POS) terminal. Instead, through QR codes both merchants and customers can skip the hassle of processing card payments and the associated fees. Over the years, the huge Chinese payments market has essentially become a duopoly between Ant’s Group Ali Pay system, which held a whopping 55% market share as of 3Q 2019, and Tencent’s Ten Pay system – including WeChat Pay – which boasted a 40% market share.

While the Chinese government has supported the emergence of these national tech giants – as long as they fit into its overall development strategy and global leadership drive through the so-called “digital silk roads” (one American commentator went as far as to call it “Digital Leninism“) -, they have also tightened their regulatory scrutiny over them. As a result, Ant Group was forced to open-up it system to third parties by including other merchants and financial institutions. In Ant’s revised ecosystem payments are considered only as an “entry door” to a multi-pronged customer monetisation pipeline. As a matter of facts, Ant’s CEO, Simon Hu expects more than 80% of Ant’s revenue will come from local merchants and finance firms in five years, up from about half at the end of 2019. Once again this is a natural consequence of the move toward a customer-centric system.

Facebook, Amazon, Google’s Alphabet alongside Visa, Mastercard and American Express will all follow with great attention these developments as they might give a flavour of things to come in the United States, perhaps sooner than most players expect it. Over the coming years, as the United States and China could become increasingly closed to each other’s companies, the battle for the world’s wallets will take place elsewhere. QR codes, delivery drones and other emerging technologies are the new weapons in an emerging global economic and financial war whose fate will most likely be determined by proxy wars waged in third-party countries. One might recall Lenin’s concept of a World Revolution. This time around it’s all about Business. Or is it?    

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