Seen from the rise of Ant Financial: How has Fintech changed the world and what are the dangers behind it?

Ant’s growth is what worries the White House hawks and attracts many investors globally. In addition, the company has shown a bigger shift to the way the financial system works, not just in China but around the world.

Around the year 1300, Marco Polo – a merchant from Venice introduced to Europe an achievement in currency once used by China. The emperor, he wrote, “turned the bark of the tree into something like paper, to be used as a currency circulating across the country.”

Finally, about six centuries after China’s invention, the West also used paper money. Recently, many foreign tourists to China have returned to the next big step towards currency: paper money completely disappeared, replaced by the “pixels” displayed on the phone screen.

China’s crypto dominance is likely to become more pronounced in the next few weeks, with the massive listing of Ant Group – the country’s largest fintech company, in Hong Kong and Shanghai. In terms of the amount to be raised, this is likely to be the biggest IPO ever, surpassing Saudi Aramco of last year. Once listed, Ant may have a similar capitalization to the world’s largest bank – JPMorgan Chase, which was established in 1799.

Ant’s rise is troubling for the White House hawks and attracts many investors globally. In addition, the company has shown a bigger shift to the way the financial system works, not just in China but around the world.

Jamie Dimon – CEO of JPMorgan, and several other experts have kept an eye on Ant for many years now. As an affiliate of Alibaba, Ant’s e-payments app has more than 1 billion users, mostly in China, and the payments network made $ 16 trillion worth of transactions last year, concluding. connect 80 different vendors.

However, payments are only a small part of it. Ant also allows users to borrow money, choose from 6,000 investment products and even buy health insurance. Looking at Ant, imagine how the banks on Main Street, the Wall Street brokers, the property managers in Boston and the insurance company in Connecticut were scaled down to fit one application. Silicon Valley’s only use and is used by most of the population. Meanwhile, Tencent also operates a fintech company on an equally scale.

However, the explosion of e-payments has not only happened in China. Due to the outbreak of the pandemic, this activity has been accelerated elsewhere. With the growth of e-commerce globally, digital payments are also gaining popularity. For example, usage volumes of Venmo, the US payment network, were up 52% ​​from last year and Latin American fintech app Mercado Pago, also up 142%.

Even the agricultural markets in Paris, the pizza company and the street vendors of Singapore have upgraded the system so that customers can pay immediately without using cash and no direct contact. Accordingly, investors can feel a tectonic change, like the change that caused the retail industry to shake. Conventional banks currently account for only 72% of the stock market capitalization of the global banking and settlement industry, while in 2010 it was 96%.

If the digital finance boom was ubiquitous, then not the business models behind it. In Latin America, look to digital banking and e-commerce considered “pioneers” like Nubank and MercadoLibre – which owns Mercado Pago. In Southeast Asia, two ride-hailing apps Grab and Gojek are becoming “super apps” with a well-developed financial sector.

In addition, in Sweden, fintech companies now provide the majority of consumer loans. In the US, credit card companies such as Visa (the largest fintech company by market capitalization in the world), digital financial “giants” like PayPal and large banks all cooperate and compete. Tech companies like Appe and Alphabet have also entered the sector, attracted by the plentiful profits of the global financial industry worth $ 1.5 trillion.

Currently, fintech offers great convenience in terms of convenience. If listed banks in the world cut costs by 1/3, each person would save 80 USD / year globally. The cost of Ant payments is very low and it only takes a few minutes to create a loan. Now, there are no longer days when customers are “drained” by money changers at airports. Companies like TransferWise and Airwallex offer fast and less cost exchange services.

In addition, digitalization also promises to help finance operations expand scale. It will become easier to reach customers and the data will help ensure more accurate loans. Companies like Square and Stripe help connect small businesses with the digital economy. In India and Africa, digital finance can help users avoid loan scams and underperforming banks. By creating its own digital currency, governments can avoid using the conventional banking and tax systems, taking deposits and paying citizens at the touch of a button.

However, the “conquest” of the fintech field also brings risks. First, it can cause instability in the financial system. Fintech companies focus on the most profitable segments in the industry, while the less profitable and risky segments are usually handled by traditional lenders. All 98% of loans issued through Ant in China are ultimately on the books of banks. Ant is ultimately expected to reap a tenth or higher of the profits of the Chinese banking system.

Meanwhile, lenders in rich countries are struggling in environments with low interest rates and very high compliance costs. If they become unstable, trouble could arise because banks are still performing important economic functions, including keeping people’s deposits and converting short-term debts into long-term loans for others.

The second danger is that the state and fintech “platform” companies can gain more power from individuals. Network effect is indispensable for fintech model. The more people use it, the more useful the platform becomes and has the potential to make those around them feel attracted. Therefore, the industry tends to be monopolistic. And the more data fintech gives to governments and platforms, the likelihood of users being monitored, manipulated, and cyber attacks increase.

See the Economist