The Largest Initial Public Offering (IPO) of All Time, for a Digital Payments Leviathan, is On Deck

By John Banks

Ant Group Co. — the owner of digital payments leviathan Ant Financial, a digital payments firm with 730 million active monthly users in China — is set to complete the largest initial public offering (IPO) of all time by Nov. 5, raising an incredible $34 billion via dual share offerings in Shanghai and Hong Kong.

The rise of Ant Financial says a lot about the changing state of the world, the tech-driven chill in an increasingly frigid U.S.-China relationship, and the rapidly shifting digital payments landscape.

In some ways, Ant Financial represents a particular vision of the digital payments future, in which a single, sprawling juggernaut touches all aspects of a nation’s financial network, using apps and smartphone QR codes in a single coordinated payments layer to connect customers and lenders and businesses, with government entities maintaining quiet oversight in the background.

But Ant Financial doesn’t have to be the world’s future. It could also be a solution particular to China, with the West going a different way.

In January 2017, Ant Financial tried to expand into the West with the $1.2 billion acquisition of Moneygram, a U.S-based money transfer company. But by January 2018, the Moneygram acquisition had been called off, due to regulatory objections from the U.S. government. By then it had become clear: The U.S. feared Ant Financial as a tool of Beijing.

Ant Financial got its start as a spin-off from another China-based tech giant, Alibaba. Jack Ma, a former English teacher, founded the e-commerce giant on April 4, 1999, in Hangzhou, China. As Alibaba grew its e-commerce business, it ran into a problem with customers being defrauded by strangers. Due to scammers, buying things on Alibaba had become a gamble.  

To create trust, Alibaba created a service called Alipay in 2003. Alipay held customer payments in reserve until the items ordered were confirmed to arrive in good condition. If the items weren’t confirmed, the seller didn’t get paid.

The Alipay innovation solved the trust problem, allowing Alibaba’s e-commerce business to keep growing. Eight years later, in 2011, Alipay was spun out as Ant Financial and kept growing from there.

China’s digital payments landscape is now dominated by Alipay and WeChat, the two major means of payment. Chinese consumers are used to scanning a QR code via their smartphone to make a purchase, whether in person at a cashier or buying something online at home. The QR code habit is so ingrained, roadside beggars reportedly seek donations via QR code more frequently than they ask for cash or coins.

Part of the reason Alipay and WeChat dominate so thoroughly is because China never had a legacy system that preceded digital payments. Long before e-commerce became a thing, the United States had a credit-card-based payment system that worked just fine — but with the founding of Alibaba in 1999 and Tencent (the proprietor of WeChat) in 1998, China was starting from scratch.

The expected $34 billion to be raised by the Ant Group IPO will be greater than the $25 billion raised by the Alibaba offering in 2014, previously the No. 2 largest IPO raise, and the $29 billion raised by the Saudi Aramco IPO in 2019, previously No. 1.

Ant Group’s initial market valuation is expected to be in the range of $313 to $330 billion, which would rank No. 14 in the list of the largest S&P 500 companies — just ahead of United Health, Home Depot, and JPMorgan, and just behind Procter & Gamble, Nvidia, and Mastercard.

The U.S. will stay wary of Ant Group due to its extensive ties to the Chinese government and China’s financial system. Various Chinese government entities hold sizable stakes in the company, and Ant Financial is a facilitator for hundreds of billions in consumer loans originated by Chinese banks.

China’s digital payments landscape is concentrated in the hands of just two players — or three, if you count the Chinese government as the third — because of the way China’s e-commerce foundations were built from scratch in the late 1990s.

But in the West, the digital payments future will be more distributed, in part because the landscape of financial players is already so much more diverse.

There will be the PayPals, JPMorgans, Mastercards, and Visas dominating the landscape — but the FANG giants will also get in on the payments game, if they can figure out how to do so without triggering antitrust mechanisms, and there will also be an array of smaller and nimbler crypto-based competitors.

However things shake out, digital payments innovation is entering a period of hyper acceleration, and the Ant Group initial public offering — the biggest of all time — calls attention to that reality. In the West, the involvement of cryptocurrency (and central bank digital currency) on the digital payments solution side will further underscore how rapidly things are changing, and will create opportunities to take a new direction.