The future of fintech world seen from Ant Group

With Ant Group, China can once again lead the financial industry revolution, as long as there is a secure, easy, and secure solution.

Around 1300, Marco Polo, a businessman from Venice (Italy), told the Europeans of the monetary miracle he witnessed in Asia. Accordingly, the Chinese emperor “used the bark of a tree to create something called paper money and circulated all over the country”. Finally, about six centuries after China’s invention, the West also used paper money.

Recently, foreign tourists returning from China are enjoying the next big step in monetary terms. It is paper money that is slowly disappearing and being replaced by pixels on a phone screen, or more understandably, mobile payments.

China’s crypto preeminence is likely to become more evident when Ant Group, China’s largest fintech company, listens in Hong Kong and Shanghai. This will likely be the biggest IPO in history, beating Saudi Aramco’s record last year.

After being listed, Ant – a company founded in 2004 – may have the same value as JPMorgan Chase – the largest bank in the world, was founded in 1799. Ant’s development worries White House officials. shy, but enthralled by global investors. This represents a larger shift in the way the financial system works, not only in China, but worldwide.

One point accepts payment by Ant Group Alipay application. Photo: Reuters.

JPMorgan CEO Jamie Dimon and others have been looking at Ant for years. Separated from Alibaba, Ant has more than a billion users, mainly in China. Ant’s payments network made $ 16,000 billion in transactions last year, connecting 80 million merchants. Payment is just the beginning. Users can also borrow money, choose to invest from 6,000 products, and buy health insurance.

To make it easy to imagine, imagine that the big commercial banks, Wall Street brokers, Boston property managers and Connecticut insurance companies are all scaled down, integrated into one application. Unique Silicon Valley-designed uses that everyone can use. Other Chinese companies, like Tencent, operate the same advanced financial technologies.

Of course, China is not alone. The pandemic has also increased this activity elsewhere. With the growth of e-commerce and remote work, digital payments have exploded. For example, the 52% increase compared to last year of Venmo – an American mobile payment service, and the 142% increase of Mercado Pago – a financial technology company in Latin America.

Farmers markets in Paris, pizzerias and Singapore street vendors have upgraded the system to make payments immediately without direct contact or cash. Investors are seeing a tectonic transition. Meanwhile, traditional banks currently only account for 72% of the market capitalization of the global banking and payment industry, down from 96% in 2010.

Business models based on the digital finance boom are also on the rise. Notable in Latin America are digital banks and pioneering e-commerce companies like Nubank and MercadoLibre (which owns Mercado Pago). In Southeast Asia, two ride-hailing services Grab and Gojek are becoming “super apps” for the financial business.

Fintechs currently offer the majority of consumer loans in Sweden. In the US, credit card companies like Visa or PayPal and major banks are both cooperative and competitive. Tech giants like Apple and Alphabet are joining, too, lured by the financial industry’s $ 1,500 trillion in global profits.

There are many other interesting things. Fintech offers great performance benefits. If listed banks in the world cut their costs by a third, the savings would be worth $ 80 a year for every person on Earth. Ant charges negligible fees on payment transactions and only takes a few minutes to issue a loan. Besides, the period when we were deceived by the money changers at the airports. Companies like TransferWise and Airwallex offer cheaper and faster currency exchange services.

Digitalization also promises to expand the reach of finance. It will be easier to reach customers and the data will help make loans more accurate. Companies like Square and Stripe help small businesses connect with the digital economy. In India and Africa, digital finance can keep people away from rogue lenders and old banks. By creating their own cryptocurrency, governments can bypass traditional banking and taxation, take deposits and pay citizens with the touch of a button.

However, the conquest of financial technology also brings two risks. The first is possibly destabilizing the financial system. Fintech companies focus on the most profitable parts of the industry, leaving less profitable and largely risky parts to traditional lenders.

For example, Ant only acts as a broker. Therefore, 98% of loans issued through Ant in China are on the books of banks. Banks have to pay Ant a fee. Ant is expected to earn a tenth (or more) of the overall profits of the Chinese banking industry.

Meanwhile, major lenders in rich countries are being affected by low interest rates and high compliance costs. If these companies are destabilized, this can cause problems. Because banks still have to perform important economic functions, including keeping people’s deposits and turning these short-term funds into long-term loans to others.

The second danger is that countries and companies with a fintech background can reap more power. Network effects are inevitable with the financial technology model. It means, the more people use a platform, the more useful it becomes and potentially attracting more people.

So this industry tends to be monopolistic. And if fintech provides more data to governments and platforms, the ability to monitor, manipulate, and attack the network increases. Ant was accused by the West of being under government control. This is one reason they are not welcome abroad. Facebook – which has received a lot of criticism for its ethical business practices – also suffered a global backlash when it launched its Libra cryptocurrency last year.

As financial technology continues to evolve, governments should take a holistic view of risk, including banks and fintech companies. In fact, Chinese regulators have good reason to ditch Ant’s loan securitization, as it recalls the failure of subprime lending.

Governments should also lower integration barriers in order to promote competition. Singapore and India have easy, low-cost interbank payment systems that the US can learn from. Europe also has a flexible banking system that allows customers to switch accounts easily. Ultimately, fintech’s growth must be tied to innovation efforts to protect people’s privacy from giant corporations and the state. As long as financial technology can be implemented more securely, easily, and respect individual rights, the Chinese-led monetary innovation will once again make the world a better place.

Session An (according to The Economist)


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