All Financial Wisdom
Chinese Fintech Companies are Eating The World
Although the alarms have been sounding for decades, there are still people of the financial sector who have not yet seen the ears of the Fintech wolf.
After today’s analysis, there will no longer be any doubt. Fintech companies are no longer just fickle start-ups with more ambitions than customer bases. They are now true competitors because Chinese Fintech companies, specifically, are here.
The fact is that both Russia and China are equipped with a cyber army with a new weapon of mass destruction: social cyber wars. In the end, given the almost total absence of these cyber-special and cyber-space forces in Europe, many leaders feel forced to start thinking about socio-economic protectionism, not as a way to enhance “made in America” technology, but to protect us from the intrusive technology of foreign powers and all that they hide under their seemingly innocuous products..ahem…Facebook.
Ant Financial: the giant Fintech company that has been devastating from China
Chinese Fintech company Ant Financial is landing in the financial sector, and is assaulting the customer bases of traditional players.
And Im not being overdramatic. As you can see in this article from Quartz, none other than co-founder and president of Blackrock, Robert Kapito, is increasingly worried about how the new Fintech companies with a strong technological base are breaking into their sector. And remember that Kapito is the biggest asset manager in the world: he knows very well what he’s talking about (he may be one of the few people in this world who knows best).
Kapito was literally shocked when he heard the news that Ant Financial has reported a valuation of about 150,000 billion dollars, with a strong increase of 50% over the latest figure available just a few months ago. The valuation of Ant Financial makes him feel uncomfortably small (something to which he is not accustomed, by the way): Blackrock is left behind, with a capitalization of “only” 84,000 billion dollars. It is not even half that of its emerging Asian rival Fintech company.
When the comparison is taken from the more general financial terrain to the banking terrain in particular, the figures also still startling. Ant Financial is in fourth place with its valuation, only behind the first three giants by market cap: JP Morgan, China Construction Bank (also Chinese, by the way) and Bank Of America. Blackrock is relegated to an unseemly tenth position.
But lets step back. There are some questions that must be answered. Are these capitalizations comparable? What exactly is Ant Financial doing? Is it in direct competition with Blackrock and part of the traditional financial sector?
The truth is that the answers to these questions are of relative importance, since giants like Amazon have shown how the borders of intersectoral competition are fading. Today, a giant with technological leadership, financial muscle, and desire to eat the world, can attack and become a leader in (almost) any sector that it targets.
Ant Financial is under the control of the almighty Chinese tycoon Jack Ma, who is also the founder of the great Chinese e-commerce giant: Alibaba. In fact, Ant Financial even has a division called Alipay, with which it has managed to dominate more than 50% of the Chinese mobile payment market, in which some 13 trillion dollars in transactions were exchanged during the first 10 months of 2017 alone.
Ant Financial also owns the largest investment fund in the world, and a bank, and an insurer, and companies specializing in loans to SMEs…etcetera. The Chinese company even tried to buy Moneygram, but the acquisition was stopped by the US administration. As I was saying, these new companies with a strong technological base want to (because they can) eat the world, and they have more financial muscle to be able to do it.
Beyond the era of the Fintech, we are in the era of the poly-omnipotent giants
And that increasingly vigorous financial muscle allows the techno-financial giants to continue gaining leadership, both technologically and in the banking and financial sector itself.
Demonstrating these strenuous technological efforts, for example, Ant Financial led an investment of 600 million dollars in the disruptive startup, SenseTime. It placed a valuation of the Chinese startup, specialized in facial recognition, at 3 billion dollars: it is the highest valuation ever achieved before by an Artificial Intelligence startup. And this happens in the back room of a significant sub-sector such as Artificial Intelligence, which is a particularly hot battlefield and key to the socio-economic future.
It is not enough to know the future; it must also be conquered in the present
As one of the possible conclusions of today, we must emphasize that, if something has been characterizing Fintech since its birth, it is that it combines a disruptive approach of the financial sector with a strong technological base. In the era of the technological society, that cocktail has a degree of alcohol that should frighten even the most sober players: today being in inferior conditions is always a competitive disadvantage, but being inferior to others in a technical sense is practically a death sentence.
In many cases, not only is it a matter of being inferior, but also that the traditional entities themselves literally depend on those other technologically superior players. It is not surprising that executives like Kapito are “shocked” by their sectorial family, although the paradox is that the deceased potential that causes this commotion are themselves. In the words of Kapito himself “these kind of stories do not end very” (for traditional players, it is understood).
The few banking and financial players who still sleep peacefully understand that their respective governments always have regulation to fall back on.
The regulation in this case is the desperate recourse of the one who defends himself with his last trick, and who finds himself in a dark cul-de-sac purging his own faults. It has been cornered precisely for not knowing how to innovate.
No matter how much regulation they impose, the future belongs to those who can write ones and zeros.