In today’s Money Morning…what does Ant Group do?…Ant Group’s data-driven, bank-killing model…a new age is upon us and an Editor converts…and more…
As Victorians line up for much-needed haircuts to banish the Tom Hanks from Cast Away look, something big is brewing in China.
In this case, I’m talking about the mammoth Ant Group IPO.
It’s the biggest IPO of all time, with an aim of raising US$34.5 billion, in turn giving it a US$313 billion total valuation.
This also makes it bigger than JPMorgan Chase & Co [NYSE:JPM] and four times bigger than Goldman Sachs Group Inc [NYSE:GS].
Make no doubt about it, this is a tectonic shift in the financial world.
You see, companies like JPMorgan and Goldman Sachs represent ‘old money’, while Ant Group is part of a rapidly growing ‘new money’ contingent.
For those who don’t know about Ant Group, Bloomberg explains:
‘Ant began when Alibaba launched the Alipay payments app in 2004 as an escrow service for buyers and sellers on Ma’s e-commerce website. In 2013, they were given the ability to save money and earn interest on the balances stored on their accounts. The firm then started offering credit to small businesses, branching out from its consumer-finance focus, and eventually expanded to services such as block chain, cloud computing and artificial intelligence.’
The ‘Ma’ referred to here is Jack Ma — an e-commerce industry titan who founded Alibaba Group Holding Ltd [NYSE:BABA].
Last year, Alibaba recorded $248 billion in transactions, making it the largest online retailer in the world.
More transactions than Amazon.com Inc [NASDAQ:AMZN] and eBay Inc [NASDAQ:EBAY] combined.
What does Ant Group do?
As Business Insider explains:
‘Alipay was spun out of Alibaba in 2011, and has since acted as an independent mobile payment service, expanding not only to a wider swath of the Chinese public but also internationally, like in Vienna. A holding company called Ant was formed in 2014 to serve as not only the parent company to Alipay but also to other financial services, like loans and wealth management.
‘Ant CEO Eric Jing told Think Business in 2017 that the company named itself after the small insect because it serves “the little guys.”’
Adding further strings to Ant Group’s bow are services in Artificial Intelligence, Internet of Things (IoT), and secure computation.
Not to mention blockchain — according to Finextra:
‘Ant Group-operated Alipay holds the most blockchain patents worldwide with 212 patents as of May 14, 2020. The firm has been investing in the technology since 2015 and claims more than 50 use cases, typically involving multi-party collaboration, including IT leasing, global shipping, medical insurance claim processing, cross-border remittance, and charitable donations.’
Hence, why Ant Group is seeking to brand itself as more a ‘technology services’ firm than a traditional financial services company.
Ant Group’s data-driven, bank-killing model
There is however a concerning aspect to Ant Group’s rise and it’s all about a global data explosion.
For instance, with a rapidly growing number of private companies using the Alibaba platform, Ant Group was able to pool the cash balances in individual accounts.
In effect turning it into China’s largest money market fund.
As the Lowy Institute explains (emphasis added):
‘With deposit rates being administratively set, and well below what private borrowers were prepared to pay, companies and individuals poured money in, getting more flexible terms and better rates than at their bank. This trend was seen in the explosion of wealth-management products over the past decade in China. The state banking system was never designed to address the needs of the private sector, only the SOE sector, so Alibaba/Ant had a ready and underserviced client base on its platform. Their use of buyer and seller data on their platform then could be leveraged to understand the credit profile of its users, which led naturally onto lending.’
Ant Group’s lending arm — ‘MYbank’ — was launched in 2015 and is able to approve a loan in less than four minutes.
This is made possible by a huge trove of data which feeds into a credit-scoring system that is far more effective than those of traditional banks.
It’s called the 310 model.
310 means three minutes to apply, one second to approve, and zero human intervention.
This data-driven model could be a real bank killer, especially if it’s adopted more rapidly in the West.
A new age is upon us and an Editor converts
I call it techno-monetary competition.
It could involve corporate digital currencies like ‘Amazon coin’, bona fide cryptocurrencies, and the potentially insidious CBDCs — which my colleague Ryan Clarkson-Ledward discussed recently.
And all of this will happen in a competitive environment while the global financial system buckles under immense strain due to wacky monetary policy.
It’s a story that more and more people are waking up to — even dyed in the wool traditionalists.
I won’t reveal exactly who in our Editorial department was recently converted — but I jokingly called it a ‘watershed moment’ for our business.
This is someone who is a big fan of gold, hates QE/low rates, and is increasingly wary of Chinese debt.
All sensible positions.
But a running joke in our now virtual office is — ‘All roads lead to Bitcoin.’
So, the fact our ‘old-fashioned’ Editor is finally onboard means that if you haven’t considered what these changes mean for your money, time is running out.
You will hear more on this ‘new money’ theme in the coming weeks and months.
For Money Morning
Lachlann is also the Analyst at Exponential Stock Investor, a stock tipping newsletter that hunts for promising small-cap stocks. For information on how to subscribe and see what Lachy’s telling subscribers right now, please click here.
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