JACK MA WAS AT THE CUSP OF GREATNESS. IT SEEMED LIKE HE WAS DESTINED FOR ANOTHER BLOCKBUSTER IPO. HOWEVER, A PERSONAL MISCALCULATION TURNED HIS DREAMS INTO NIGHTMARE. HERE'S HOW.
All the hard work had been done. Years of disruption in the fintech arena was finally going to pay rich dividends for Ant Financial & its omnipresent figurehead. Before taking a look at their present, let's chart the meteoric rise of the Ant Group.
THE ORIGINS
After establishing Alibaba in his lucrative domestic market of China, Jack Ma noticed another void in the payment ecosystem. He observed that there was a lack of an efficient payment system for his online buyers as well as sellers. So in 2004, he launched Alipay, a Chinese and more minimalistic version of Paypal & Paytm. Alibaba's rapid adoption by the Chinese consumer also added millions of active users for Alipay. When Western nations & emerging Asian countries were dabbling in Plastic money i.e. debit & credit cards, the bourgeoisie middle class and Alipay's transformative platform enabled China to leapfrog these now outdated methods and straightaway adopt QR code enabled digital transactions.
The results of this accelerated growth are that today, China is a world leader in terms of % of transactions in the economy executed digitally without the exchange of cash. The graph below highlights how digital adoption in China is well and truly above the rest of the world.
A MODERN SUPERAPP
Apart from facilitating payment between obscure buyers & sellers, Alipay has morphed into much more. The app also acts as a source of credit for small businesses and aspiring entrepreneurs. it connects lenders with potential debtors and charges a small fee for the same. Alipay also acts as a fund manager for its users, The users can invest cash lying in their Alipay wallet in a variety of avenues in the money market. According to the Financial Times, Tianhong Asset Management subsidiary invested all of the money and it ranked as the world’s largest money market fund. The Ant Group also provides insurance through its app! Like with its other offerings, the company earns fees based on the percentage of the premiums that users pay to the insurance firms. All in all, the Alipay App acts as a major link between consumers & sellers of various financial services earning a hefty commission in the lucrative fintech market.
TROUBLE IN PARADISE
In 2017, Chinese regulatory authorities (specifically the peopel's Bank of China) realized the massive leverage Alipay might have in the future economy. After all, the company saw a billion mobile transactions in just a day in 2016! The CCP top brass was quick to act & imposed restrictions on Alipay's asset management, credit lending as well as insurance activities. Alipay had forged such an active user base that it had the power to manipulate China's money supply. Plus, it also had data access to consumer behavior, their spending habits, investments as well as their product preferences. Hence, the actions of the authorities did make sense from a certain perspective.
THE BIG BANG IPO
Even in such a restrictive environment, the Ant Group weathered the storm and blossomed in its aftermath. In 2020, the company recorded 72.5 billion in revenue in the first six months, a YOY increase by 38%. Its net profit too rose by 11 times to 21.9 billion Yuan over the same period. Another feature to be noted is that its revenue streams are quite diversified. It earns a healthy mix of revenue from insurance, wealth management & credit availability. Such numbers had drummed up quite a buzz amongst investors who were excited to buy shares of the fintech giant. Such was the euphoria that its listing was on two stock exchanges: the Hong Kong as well as the Shanghai Stock Exchange.
AND THEN THERE WERE NONE
A bullish Jack Ma was due to give a speech just days before his mega IPO. In a catastrophic moment for the company, Jack Ma criticized the very regulators who had given him immense leeway to proper! In fact, he was giving a speech to the Chinese regulators themselves! It seems like Mr Ma's shenanigans had irked some men in power. His IPO was halted just two days before its launch & now Jack Ma awaits a sour meeting with his communist masters.
LEARNINGS FROM A DEFEAT
I think we can concur a few important outcomes through these recent developments:
The Chinese Communist Party bows to none. Not even to the richest man in China. This was a statement of the CCP & the political top brass to the elites of the Chinese society that open dissent shall not be tolerated from anyone. And they have been successful n putting forth their notion.
Despite this debacle, the future is bright for the Fintech universe. A cursory look at China's neighbor will be enough. The world of finance in India is going through a technological makeover with the entry of a new exciting range of fintech startups. Apart from the populare-paymentplayers like PayTM & PhonePe, companies like Policybazaar, cred, Lendingkart, RazorPay and ClearTax have emerged as a beacon of success in the Indian startup ecosystem.
China is initiating steps to propel its digital economy. The Peopel's Bank of China will usher in a new era soon by introducing digital Yuan. A pilot program in 4 cities has already begun. If cash is sufficiently replaced, the costs of printing & maintaining physical cash would be wiped out. For an authoritarian state like China, a digital currency would be a gold mine. It would allow the government to keep a track on their citizen's activities. Another advantage would be better & more efficient economic planning powered by the data generated from its usage.
I HOPE YOU GUYS ARE DOING WELL. AFTER A BRIEF HIATUS, I AM BACK! STAY TUNED FOR MORE!
ADIOS!
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