Which is the world's biggest Unicorn? ... Your first guess may be wrong :-)
Which is the world's most valuable tech “unicorn” (a private company with valuations above $1 billion)? Uber? Airbnb? SpaceX? Pinterest?
At $150 billion valuation Ant Financial Services Group, which was spun out from Alibaba in 2014, and one which owns China’s biggest payments app, Alipay, is the biggest unicorn in the world.
Drivers of Valuation:
The high valuation owes a lot to the size and the growth of China's mobile payment market and Alipay's share in it. China has leapfrogged the use of credit cards and cheques to a very vibrant mobile payments market in last 5 years. According to the research firm eMarketer, 76% of Chinese smartphone users (there are about 700 million of them) made a mobile point-of-sale purchase in 2017, compared with 25% of American users (about 240 million). In total, 61.8% of all such transactions globally are Chinese. (India has about 300 million smartphone users.)Mobile payments have trickled down the value chain in China: Even the street vendors and consumers in rural areas accept the mobile payments. The mobile payments are used for a wide range of transactions, from paying for smartphone game upgrades and ordering takeaway food online to purchasing movie tickets and sending electronic hongbao – red packets with cash as gifts. Alipay and WeChat Pay (owned by Tencent) have a duopoly over this huge market.
This has, in turn, fueled e-commerce growth in the country, and has created a virtuous cycle of fueling further growth of mobile payment. In my last post on Flipkart-Walmart acquisition, I talked about the absence of such drivers/ecosystem in India.
Ant was last valued at $75 billion by CSLA Hong Kong after a $4.5 billion fundraising round in 2016, but it is widely reported that the company has now closed in on a new $10 billion round it is preparing to announce this month. The new funding round would value Ant at $150 billion. I guess Alipay and WeChat Pay valuation would go even higher as along their way they are also collecting an incredible amount of data as they are handling many other parts of consumer's social life. Ant Financial does most of its business in China. But Alipay, already has a quiet presence in the US, and is likely to expand to multiple countries apart from the following partnerships:
- Partnerships (equity stake) with India’s Paytm in 2015
- An investment in Thailand’s Ascend Money to launch a new e-wallet called TrueMoney in 2016
- An investment in payments company Mynt in the Philippines in 2017
- An investment in payments company Kakao in South Korea in 2017
Alipay All The Way
Before Alibaba’s IPO in 2014, Alibaba CEO Jack Ma spun off its payments division under the name Zhejiang Ant Small & Micro Financial Services Group, later Ant Financial. Alipay is the core product of Ant, and it is the most popular digital payments app in China, with more than a 50% share of China’s giant $13 trillion digital payments market. Alipay:
- Launched in 2004
- 520 million users
- More than 100 million transactions per day.
- Ant Financial also owns Yu’ebao, China’s largest money-market fund, which has more than 200 million users and manages more than $170 billion in assets.
Ant Financial says it is laser-focused, for now, on serving Chinese consumers—not just in China, but wherever they travel. “The Chinese tourist has come to expect that they can use Alipay wherever they go,” an Ant spokesperson says. “You can basically live your whole life on Alipay.” E.g. And Alipay is already quietly active at 170,000 merchant points in America as a payment option, including in New York City taxi cabs, and even for horse-drawn carriage rides in Manhattan.
Alipay’s app has been described as a combination of all the hottest mobile payments products in the US: PayPal, Venmo, Square, and the new Venmo-like offering from the big banks, Zelle. As an April report from DataTrek puts it, “Right now, there aren’t many analogs in US banking; PayPal and Square are the closest, and both are still working on the regulatory requirements to scale their businesses up to the market opportunity Ant already has in China.”
But it’s easy to imagine Ant more overtly entering America not long from now. Just last year, Ant made a $1.2 billion play to buy Moneygram, which would have handed Ant a major foothold in money transfers in America, but the US government blocked the deal, and just this week the two companies officially announced they have terminated the effort.
Valuations of the players in this space (including banks):
Can India do it?
China's e-commerce market, the largest in the world, driven by its mobile-first consumer behavior, innovative social commerce model, and a trusted digital payments infrastructure.
Would India reach that kind mobile payment usage? If yes, How early it can reach there? Who are the leading contenders for the top gainers in this space? That could be the topic of one of the next blogs.