FINANCE: Alibaba’s Ant In Offline Challenge to UnionPay, Visa
Bottom line: Alibaba-affiliated Ant Financial is experiencing breakneck growth through its roll-out of a wide array of new products and services, and could be valued at up to $150 billion by the time it makes its IPO as soon as next year.
A new report is spotlighting the rapid rise of Ant Financial, the financial services affiliate of e-commerce giant Alibaba (NYSE: BABA) that looks set to challenge not only domestic rival UnionPay but also upcoming drives into China by global giants Visa (NYSE: V) and MasterCard (NYSE: MA). Much of Ant’s incredibly rapid rise is tied to its core Alipay asset, which began life as an electronic payments service but is rapidly moving into other areas like credit card-style offline payments and savings account services.
The latest reports also contain a new figure on Ant’s valuation following its first major capital raising. That figure of $45 billion is substantially larger than an earlier figure of $30 billion that was contained in initial reports on the funding just a week ago. (previous post) But those earlier reports also pointed out the low valuation was based on shares that were probably sold at a discount to a big domestic institutional investor, perhaps for strategic reasons, and that the real value could be as high as $50 billion.
The latest reports show just why Ant is getting such rich valuations, as it tries to become China’s first privately owned giant specializing in a wide array of financial services. The reports say that Ant has been quietly mounting a campaign to get Alipay accepted in traditional brick-and-mortar stores that now mostly accept only UnionPay, China’s homegrown transaction settlement network operator that is a joint venture of the nation’s major banks.
According to the reports, more than 130,000 Chinese offline stores now accept payment by Alipay, and another 900,000 taxi cabs can also accept payment via the service. (Chinese article) One of Alipay’s biggest new clients is Yum Brands’ (NYSE: YUM) KFC chain, which recently began accepting Alipay and is planning to quickly expand the program into all of its 4,500 stores in China. (previous post) Since then I’ve seen similar reports saying Alipay is also moving into KFC’s fast-food rival McDonald’s (NYSE: MCD).
The taxi initiative looks different from anything I’ve seen to date, and shows why Ant is quickly gaining ground on the stodgier and more conservative UnionPay. Most taxis in China don’t accept any payment besides cash, though my adopted hometown of Shanghai has for years allowed payment using city-backed subway cards. UnionPay could have easily tried to tap this market at any time, but instead has focused on building up a retail-based network similar to those operated by MasterCard and Visa.
New China Challenge for MasterCard, Visa
Meantime, the real MasterCard and Visa are probably looking increasingly at Alipay and Ant as their top competitor for the day when they can finally enter the China market for domestic yuan-denominated transactions. The pair recently won permission to enter China after filing a complaint at the WTO. But even so, they will have to wait until 2018 to offer such yuan-denominated services due to a Chinese law that prohibits companies from offering such services for the first 3 years after they enter the market. By that time, Alipay could easily overtake UnionPay and become the main rival for the 2 western giants.
As to Ant’s valuation, the latest $45-$50 billion figure is roughly in line with reports from earlier this year when word of the funding first splashed into the headlines. Ant has said it’s not in any hurry to make an IPO, even though reports last week indicated the company was being pressured to list on a new strategic industries board that could launch in Shanghai as soon as next year. (previous post)
I was always a bit skeptical about valuations for Alibaba during the company’s meteoric rise, even though I was often wrong. I still question the big figures, but clearly others think the company is quite valuable due to its vision and aggressive practices. Investors are now applying similar thinking to Ant, and I wouldn’t be surprised to see the company’s value easily double and possibly triple by the time it makes its highly anticipated domestic IPO as early as next year or in 2017.
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