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As Ant Financial Rises, So Does China

Here comes China. Again.

The recent $14 billion worth of fresh capital for Ant Financial — the China-based firm that is now the most valuable privately held tech firm in the world, ahead of Uber — comes amid fresh fears among some banking professionals in the West that China is passing them by. Will China follow the United Kingdom and the United States as the leader of payment services and FinTech?

That’s hardly a new question. But it has gained new focus, according to a recent article from Bloomberg that notes the increasing popularity and power of payments conducted through Alipay and WeChat.

“The future of consumer payments may not be designed in New York or London but in China. There, money flows mainly through a pair of digital ecosystems that blend social media, commerce and banking — all run by two of the world’s most valuable companies,” Bloomberg reported. “That contrasts with the U.S., where numerous firms feast on fees from handling and processing payments. Western bankers and credit card executives who travel to China keep returning with the same anxiety: Payments can happen cheaply and easily without them.”

That anxiety likely was not eased when Ant Financial — the Jack Ma-owned financial subsidiary of Alibaba and home to the Alipay product — recently overshot its $9 billion target for its Series C funding round. That round put the value of Ant Financial at $150 billion. By comparison, Uber is worth an estimated $70 billion (and possibly less, considering a recent funding round with SoftBank valued Uber at $48 billion and a more recent round valued it at about $64 billion).

Ant reportedly plans to put the capital toward international expansion and such technology as artificial intelligence, blockchain and the Internet of Things — moves that could further expand China’s global influence in payments and commerce, which are merging into a hybrid creature.

Consider the scales involved. Ant Financial’s technology was used by around 870 million people in the year up to the end of March. Alipay said it has about 520 million active monthly users, with WeChat boasting of about 1 billion. According to the Aite Group, Alipay and WeChat accounted for $2.9 trillion worth of payments in 2016.

“For now, no company in the U.S. commands the kind of clout that Alipay and WeChat wield back home. Instead, everyone is trying to replicate their success,” the Bloomberg report said.

In fact, the best is yet to come.

“This is going to be the battle of all time — like who dominates all those services — and it’s still not known,” Jamie Dimon, CEO of JPMorgan Chase & Co., said earlier this year. “Everyone wants to be the place that is the one place you go to do that.”

The battle is not only in China, as Bloomberg noted in its report. “The nightmare for the U.S. financial industry is that a technology company — whether from China or a homegrown juggernaut such as Amazon.com or Facebook — replicates the success of Alipay and WeChat in America,” it said.

That’s not to say everything is going smoothly for the Chinese companies. Ant Financial reportedly is moving away from consumer finance and payments and toward technology efforts, as Chinese authorities crack down on financial risk. Five years from now, technology services could make up 65 percent of Ant Financial’s revenues. That would be up from 34 percent in 2017.

“New regulations are likely to reduce Ant’s business scale as well as its profitability,” said Sara Hsu, associate professor of economics at the State University of New York at Platz, in a recent column in Forbes. “Regulations may pose a threat to Ant Financial’s ambitious expansion.”

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