Ant's IPO plans show strength amid a global pandemic

Ant Group is planning one of Asia’s largest IPOs while the world’s afflicted by a global pandemic, political turmoil and historic economic stress. Despite the chaos — or perhaps because of it — the timing could be right for Ant to challenge the global order in e-commerce and digital payments.

The company, which is affiliated with Alibaba and operates the Alipay digital wallet, plans concurrent listings in Hong Kong and on the Shanghai Stock Exchange’s technology-heavy STAR board, which is a year old and which China hopes will rival the Nasdaq market in the U.S.

Ant is reportedly seeking a $200 billion valuation, according to Yahoo Finance and other media outlets. Ant did not publicly disclose its target valuation, and did not return a request for comment by deadline.

Ant is the world’s largest fintech unicorn, with a valuation of about $150 billion. By comparison, PayPal’s market cap is about $207 billion and Visa’s market cap is about $421 billion. Affiliate Alibaba’s overall market cap, covering several different lines of business and industries, is about $5.4 trillion.

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Alipay has about 900 million annual users and, along with Tencent’s Wechat Pay, dominates China’s domestic mobile payments market. But Ant has also made major moves to expand outside of China, mostly through deals with merchants to support “same currency” payments for Chinese consumers as they travel to other countries.

The coronavirus hurt Alibaba’s financial performance earlier in 2020, though China has more recently reported improved economic numbers, along with what appears to be at least a temporary containment of the coronavirus, while it is surging in the U.S. That gives Ant and Alipay a window to get aggressive against its Western rivals in the payments industry.

“While the COVID-19 virus may have some short-term impact on their growth, it’s important to note that China is already climbing out of the pandemic trough and Europe is not far behind,” said Thad Peterson, a senior analyst at Aite Group. “This may be an opportune time for Ant and Alibaba to put the pedal to the metal and gain global presence and share.”

Alipay recently pivoted its merchant acquisition strategy in North America and Europe to focus more on domestic purchases inside China from U.S. e-commerce merchants, given the decline in travel due to the coronavirus. It also moved to obtain a banking license in Singapore to broaden beyond payments into other financial services, acquired a stake in Swedish point of sale credit firm Klarna to extend into the growing buy now/pay later market in the West; and signed a technology-sharing deal with Commercial Bank of China to fuel a $1 billion plan to invest in fintechs in Southeast Asia and India.

“Ant Financial is the economic engine that underlays all of Alibaba’s efforts, and their intent is to become a global leader in digital commerce and payments,” Peterson said. “Given their reach in China, their significant presence in developing markets and initial penetration into developed markets, additional capital could accelerate their competitive presence in a number of different areas.”

Alipay enables contactless payments via QR codes and also offers a P2P app, providing an enticement for both merchants and consumers who can install Ant and Alipay's services with minimal deployment effort, according to Richard Crone, a payment consultant, adding that will be attractive to investors regardless of where Alipay lists its IPO.

“Think of Ant Financial as Visa and Mastercard having the consumer banking capabilities of a JP Morgan Chase or Bank of America,” Crone said. “Ant is building more than a global payments brand. They have a full suite of consumer services.”

Ant and Alipay still face considerable hurdles. Political tensions between the U.S. and China are escalating due to an existing trade dispute and China’s new security law, which is seen as a way for the central government in Beijing to curtail dissent in Hong Hong. The fear has been sufficient to cause Hong Kong residents to turn to alternative currencies to escape heightened government surveillance.

U.S. card networks are closer to establishing a domestic market in China, though it’s still a work in progress after nearly two decades of shifting regulatory burden as China has moved the goalposts. Ant at one point tried to buy MoneyGram to get a foothold in the U.S., but this fell through because of political pressure, demonstrating the headwinds that accompany doing business in both countries.

The extent of the economic fallout from the coronavirus shutdowns is still to be determined in the U.S., and other markets that appear to have mitigated the virus' spread could see some resurgence. There will not be a lot of visibility until there is a tangible vaccine or other medical solution that’s available internationally at scale.

“It’s not just when an approved vaccine is released but also the time it takes to make, deliver and administer a few billion doses around the world,” said Raymond Pucci, director of the merchant services practice at Mercator Advisory Group. “Answers to this will reveal what happens with expanded e-commerce markets for Ant.”