Ant files for IPO – amply proves why one should not become a bank

Become a technology led facilitator and not a traditional lender

Ant has filed for an IPO targeting a market cap of more than US$ 200 bn. The issue will be listed on Shanghai as well as Hong Kong and will be one of the largest of all time.

Key highlights –

  • Ant’s main product is Alipay – a payment tool for online shoppers used across businesses. Originally, started in 2004 for facilitating buyers to do online payments on Alibaba, over the years the platform has been implemented across businesses (online as well as in-store) and has become huge. E.g., in 2019, Alipay accounted for 55 per cent of the total mobile payments in China (estimated at US$ 49.7 trillion).
  • Financial performance of the Company has been encouraging and further continues to improve. It’s one of the most profitable start-ups. Ant reported US$ 17 billion in revenue in 2019, a jump of more than 40 per cent from 2018. Profit in 2019 was around US$ 2.5 billion. For the first six months of 2020, it made US$3 billion in net profit on revenue of US$10.5 billion.
  • More than 40% of Ant’s revenues in 2019 came from digital payment and merchant services. Balance majorly came from digital finance technology  services such as lending, wealth management, and insurance. These were all offered through Alipay. However, instead of becoming a traditional banker or wealth manager or insurance Company, Ant mainly acts as a distributor of third party products. It leverages it’s huge Alipay customer base of 700 mn users and world class analytics to do so.

Ant’s business model aptly demonstrates why it may not be necessary to become a bank.

Compared to this, here in India most of us want to become a bank… Reasons for the same are unknown !

I have had numerous discussions with people over the years. However, could never figure out the real reasons for targeting to becoming a bank.

  • Argument of low cost deposits may seem logical but has huge challenges. First, it’s extremely difficult to attract faith of the depositors and then in any case during downturns, deposits become the biggest headache to manage as they tend to move towards the large established brands.
  • By becoming a bank, one is making itself subject to established valuation benchmarks. Whereas, if one is focusing on technology led distribution, the benchmarks become very different.
  • Also banks anyway attract over compliance and attention from the regulators.

Given the above, I frankly fail to understand why anyone would want to become a bank.

Instead by focusing on technology, one can integrate and offer a much bigger suite of third party products and help customer choose the product that suits his unique requirement.

Maybe Ant’s success will finally drive the change !

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About the author

Nitin Jain

A finance professional with around 20 years of investing experience in Indian markets both on buy and sell side, equity and debt, private and public with some of the best organizations globally including Goldman Sachs, ICICI Group, ICRA and others. He is a All India Silver Medalist CA by qualification.

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Kavinder Pawahanee
Kavinder Pawahanee
2 months ago

Though I agree with you on banks attracting attention of regulators the other aspect of this is also true that the banks are rarely allowed to fail as we have seen in some recent examples. Technology led business can get disrupted due to evolution of new technology but banking might continue without huge disruptions for ages because of the regulators and governments. Hence entrepreneurs are so keen for banks.

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