Breaking Down Ant Group’s Proposed $200 Billion IPO
Today, we’re joined by a pair of fintech analysts, Max Friedrich of ARK Invest and Lex Sokolin of ConsenSys, to break down Ant Group’s highly anticipated IPO.
Ant, a spinout from Alibaba and the parent of Alipay, one of China’s leading payments companies, filed papers to IPO in Shanghai and Hong Kong.
In this conversation, Max, Lex and I break down Ant’s business, from the origins to today, discuss growth opportunities and potential headwinds and explore the multi-faceted relationships between Ant and other big tech companies and national governments.
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Full transcript:
Will Beeson:
Max Friedrich and Lex Sokolin, welcome to Rebank.
Max Friedrich:
Thank you.
Lex Sokolin:
Pleasure.
Will Beeson:
It's great to connect with you both again. Last time we talked, it was Square and the Cash App, and we're probably due for an update on them. I think they've released new results, and user growth continues to boom, and thanks to some kind of weird accounting, they're showing insane Bitcoin revenues, but today I thought it would be actually more interesting to pick up something hugely topical and hugely relevant for all things FinTech, the upcoming Ant Group... Is that the name? Used to be Ant Financial. Until recently Ant Financial. Now I think Ant Group, IPO. So this is the kind of payments spinoff from Alibaba, which has kind of grown into a FinTech behemoth on its own right. Arguably the biggest FinTech company in the world. 1.3 billion users, mostly in China. The rest spread throughout Asia. And there's just so much to dig into here, and couldn't imagine two better people to have that conversation with: Max, analyst at ARK and Lex, independent analyst, free thinker and head of FinTech at ConsenSys.
Will Beeson:
So look, let's just dive in. Max, maybe to start, you can help just set the scene. So what is Ant and where did they come from?
Max Friedrich:
Sure. So, Ant Group is the mother entity of Alipay, and Alipay grew from kind of a digital payments service for Alibaba's e-commerce empire to this digital wallet that now offers a range of different financial and commercial products to customers. And the story kind of started in 2003, where Alibaba was looking for a way to build trust between the sellers and buyers, and then built out Alipay basically as kind of an online escrow payments service, where the payments were on hold until the buyer received his or her purchase. You can think about it as PayPal helped eBay scale and build trust on the platform, that's also how Alipay... it's kind of how Alipay impacted Alibaba. And then from there, it really was a primarily just online payment service. In the late 2010s though, Alipay launched a mobile app and in 2010, Alibaba started also to use Alipay to start facilitating some loans for Alibaba merchants. And we see that this is... it's grown to a huge business for Alipay later.
Max Friedrich:
Along the timeline you can also mention, and I think you just mentioned that Alibaba spun-off Alipay in 2011, and the backstory to that is also kind of interesting. There was a new regulation issued by the Chinese Central Bank in 2010, which required non-bank payment companies to obtain a license in order to operate in China. And at the same time it said it would clarify the rules for foreign companies later. And Alibaba at that point was a foreign company. It was incorporated offshore. So Alibaba argued that they had to spinoff Alipay, it was called Alipay at that point, in order for Alipay to become a Chinese company and then be regulated. The interesting thing is that Yahoo at the time owned 43% of Alibaba and said it was not informed of the spinoff and wasn't really pleased. And in the spinoff, it turns out that Alibaba owned 37.5% of Alipay.
Max Friedrich:
Jack Ma basically controlled the company and Yahoo was still involved via the stake in Alibaba, but not directly in Alipay. So you can think about this what you want, but looking at the scale that Alipay has now, this probably was a smart move by Alibaba. And it's also interesting that Tencent at that point also had Tenpay, respectively WeChat Pay and did not spin out or spinoff Tenpay, and it still was able to operate. So that's kind of interesting. And then basically through to 2010s, Alipay just built out their wallet continuously, and you can kind of go down different routes here, they purchased an management company that would then later turn into their, what they call investment tech offering, which also at some point was home to the world's largest money market fund. Then they got more into lending. They changed their name to Ant Financial and actually kind of symbolizing... Ant symbolizing a lot of smaller parts working together, with that they're symbolizing the marketplace nature of their app, where they're putting together all these different providers.
Max Friedrich:
Yeah. And over the years, they've built this full fledged digital wallet where users come to... not only to do an online payment, but to order a cab, book a hotel, get a loan, invest, get an insurance policy and so forth. So they are probably the role model for any digital wallet or super app that others are aspiring to build around the world.
Will Beeson:
Yep. I think that the talk is that, we're looking at something like a mind-blowing $200 billion IPO, dual listed on the Shanghai kind of NASDAQ equivalent and the Hong Kong Stock Exchange, maybe 10% of the shares expected to be sold through the Shanghai Exchange and 5% in Hong Kong, which in the current climate has all sorts of geopolitical implications as well, which we can probably get into. So Lex, to bring you into the conversation a little bit, maybe you can just give us your quick high level description of Ant Financial. What is it that makes it interesting to you?
Lex Sokolin:
Sure. Thanks Will. And I think Max did a pretty fantastic job walking us through the founding story and where we are today, and just to anchor, in 2020 in September, we're looking at PayPal at around $240 billion and here is Ant Financial looking at a $200 billion IPO. And they are sitting, as far as tech powerhouses go, they're sitting on 700 million users, 80 million merchants in China and just a ginormous footprint of human, financial and economic activity. And it's not a finance company in the sense that Goldman Sachs is a FinTech company or a finance plus tech company. This is a tech tech company where the vast majority of employees are technologists and where the attention platform, the 700 million people and the 80 million small businesses that derive out of Alibaba's core commercial business are using Ant's super app as their daily home, the way Americans and Westerners entertain themselves through Twitter and social media and shop on Amazon, this is a similar attention nexus.
Lex Sokolin:
And think just how different that is from PayPal. PayPal grew out of eBay in some sense and so there's an analogy here, but the nature of Alipay and I think the economic transformation it has accomplished for China as well as the innovation in a much harsher environment in many senses is really phenomenal. So commercializing the QR payment, for example, is a major innovation that the West still has not done, but can be the anchor and rail for whether it's crypto payments or CBDCs or any traditional payment rail and really remove the wallet as we know it, or alternately the AI driven credit rating for a ginormous country without a credit chassis in place, using big data or social data, generating credit scores for rural farmers to get them to finance farm equipment or finance small businesses. I think some incredible economic innovation around real commerce, not just financial innovation about how to pay better has come from Ant deploying its services across the Alibaba network and now spinning out into its own company.
Lex Sokolin:
And so I hope folks can appreciate the role that this company has played, which is so much more existential and so much greater than the incremental efficiency gains or price collapses in the Western neobanks and robo-advisor industries. And so on my side, at least, I'm in awe of this company. I think one thing I want to seed as maybe a next question to you and to Max is the observation that Ant's earlier business was about this... in part, about this proprietary financial product. We are the payments rail, and we're arbing the large Chinese state owned banks, or we are the money market fund and therefore we've got a trillion of assets in our money market funds and earn net interest on that, or we are the lending underwriter of all this risk. And there's been a pretty severe change in their business model where they've shifted from most of the revenue being payments to now something like 35% of the revenue being payments and something like 64% being this lead generation into other financial products.
Lex Sokolin:
And so Ant actually isn't exposed to capital risk anymore because its partner banks are doing this. It's not exposed to insurance risk because its partner insurance companies are doing this. And so I think for me, this is a really interesting change and a step away from financial product into much more of this attention approach.
Max Friedrich:
If I could just comment on that and kind of echo what Lex said around Ant being this really like tech tech company and the use of AI, and... Those are kinds of terms that in the FinTech community, you will hear them often being used kind of in a buzzword sense, but again, I agree with Lex that this is not the case here. Ant is describing themselves as a technology provider in their prospectus, and they just changed their name from Ant Financial to Ant Group, which should underline that too. So kind of moving away from financial services, kind of more technology provider, but they're really doing this. They're not this kind of neutral marketplace where they just assemble different brands and these different brands or financial institutions can offer the user base a product, they're actually providing these partners, financial partners, banks, and whatnot with the tools to offer Alipay users customized products and assess risk and estimate repayment rates and find out which product is appropriate for which user and so forth.
Max Friedrich:
So I think that's really one of the most interesting things about this company, is that they're empowering these other financial services providers and that results in them writing in their prospectus that 98% of the credit balances originated on Alipay were underwritten by the partners. So they offload the risks, but they give the partners the tools to make business with all these parties and then they just take a cut of that, which is probably a very smart move. And again, Lex also talked about this, just move away from payments to this diversified financial and commercial platform. I think that also really makes sense, because if you look at payments all around the world, that's a very low margin business, but especially in China so...
Max Friedrich:
There's a great Goldman Sachs report that is available for free online from 2017 that talks about the underlying economics, and they lay out that merchants in China only pay around 60 basis points for a traditional credit card transaction, whereas in the US they would pay around 150 to 300 basis points. So anywhere between 1.5 to 3% and that in a third party payment scenario, so Alipay wallet, a merchant will pay a little bit less sometimes.
Max Friedrich:
So maybe between 40 and 60 basis points, but the net take rate that Alipay or Tenpay gets is relatively low at around 10 to 40 basis points. But in fact, what actually happens is that Alipay or WeChat Pay, they will try to incentivize more merchants to sign up for their payments network so to say, so they will actually do these kind of rebate campaigns. So a lot of merchants that are falling on the certain threshold, or if there's some kind of campaign they have this month, some merchants will actually pay close to nothing, resulting in very, very low margins. And if you look at Alipay's payment volume, half of it roughly is actually peer-to-peer payments. So that's what we kind of can tell from other kind of China specific research providers. So half of it is actually free P2P payments, and the other half is relatively low margin B2C payments. And in that scenario, it's really a smart strategy to diversify your wallet.
Max Friedrich:
And if we look at... and we could probably go into challenger banks now and so forth as we've kind of done our last conversation, you look at other wallets or challenger banks or so forth around the world, I think they should look at this and say, okay, payments is a relatively low margin business, so we really have to diversify, and the first thing to point towards would be lending, that has worked very good for Alipay, but yeah, I think it's very good, kind of as Lex has done and as I tried to lay out, point to this diversification away from payments into this diversified digital wallet.
Lex Sokolin:
So I think this actually, I think there's an interesting thread that goes through this because you've got to decide if you're a balance sheet business, or if you're a commission business, and for a tech company, messaging and payments and taking some spreads on transactions, feels like it comes a lot more naturally than holding people's stuff or dealing with capital risk. So I thought your description of Alipay empowering the banks is really interesting because in some ways they're wrapping them in all of the enabling technology that in the US you might have as these third party FinTechs that do credit scoring or things like Refinitiv or whatever. And for Alipay, they're wrapping the banks around in this, and it's certainly giving the banks more customers, but it's also pulling out their teeth like... it's disallowing the banks from being anything other than a capital provider, giving them all the risk and then generating yield out of the user footprint.
Lex Sokolin:
And so this is really interesting to me as a model, because it also says that technology firms even in the East aren't looking at holding balance sheet, and even though the Chinese regulation has been behind, sort of catching up to how fast Ant and Alibaba and Tencent had gone, they are catching up and they have caught up with much of P2P lending in China, now blown up from 6,000 P2P lenders to something like 29. And with the desire of the Chinese government and the Chinese Communist Party to think about and establish virtual currencies, their CBDC, Central Bank Digital Currency, to potentially soften the capabilities of these tech giants. And so I think one of the key risks to Ant is actually this embedded regulatory risk, both internally and externally. Internally in the sense that it's only more likely that the Chinese authorities will regulate the balance sheet businesses and create more oversight and then go into payments with the CBDC project.
Lex Sokolin:
And then external to China, the list of risks is that the geopolitical tension and conflict between East and West is locking out a lot of high quality Asian companies from the Western markets, TikTok and Tencent and so on, are getting hurt all over the place. And so for me, this is I think, one of the biggest risks and kind of frustrating, because you can logic all these things about how good the FinTech model is here or how good the tech model is here and then it still ends up being a play thing between these powerful nations.
Will Beeson:
All right. So I have so many thoughts and places I would like to go, but to maintain this thread, Lex, maybe you're best positioned to help us think this piece through around the relationship, multifaceted, I would imagine, between Ant in this case and the Chinese government. So you talked about on the one hand, this... maybe it was Max right before we started recording saying that the transaction volumes that Ant is powering are some order of magnitude greater than China's entire GDP. So we're talking about a core component of the Chinese economic machine, which I imagine is very positive for the country as a whole and the government. At the same time for the monetary system payments are very strategic for any country. They certainly are in the West, and I don't imagine it's any different in China, and this Central Bank Digital Currency initiative by the Chinese government, which Lex you and I have dug into on a previous episode, seems on one hand to be almost a move or potentially leaves space for a move to wrest some control of the payments network back from these private tech companies.
Will Beeson:
And then I guess to complicate matters further, we talked about the credit scoring piece providing access to financing to both merchants and consumers: obvious positive economic implications there. And the piece that really jumped out to me, which I read in one article or another preparing for this conversation, was that if you have a credit score in the Ant ecosystem, I think it's called like a Sesame Credit score, kind of the English translation, above a certain number, then you don't need a visa to travel to certain countries outside of China. So that direct bureaucratic link, which clearly requires some sort of coordination with the government, that just suggests how deeply embedded these companies are with the government, with the broader economy and therefore how nuanced truly these relationships are. So Lex, how do you think about any potential tension between big tech companies in a country like China and the government and the parallel, but also in some cases differing, interests of those two sides?
Lex Sokolin:
I really appreciate the question and any answer on my part comes with the obvious disclaimer that anything I say is a hallucination based on some things I read on the internet and not from my lived experience. There's a lot of great resources about the lived experience of people relying on these applications that I would recommend you check out. So again, I haven't been in that environment. So everything I say is really just a reflection on information. From what I can understand, the narrative has shifted quite a lot in terms of what the West thinks of the social credit system, the role of artificial intelligence in China, the role of surveillance, the current conflict between China and the US and then the demonstrations that were in Hong Kong earlier in the year and then now of course, the tragedy and the rioting in the US that's occurring. So there is a lot of symmetry, but it's also quite different at a structural level what's going on.
Lex Sokolin:
And then there's also a lot of misinformation in some sense, or purposeful misrepresentation that's flying around, that's positioning each others' tech giants as certain types of bad actors, right. So the positioning of TikTok as a surveillance mechanism by the Chinese government to extract some sort of personal data around the American populace and therefore the fire sale of TikTok, and now the war about the artificial intelligence algorithms that are embedded in there, what can and cannot be sold, and I see now a lot of commentators positioning Google and positioning Facebook as these similar massive surveillance machines that are part of capitalist surveillance and similarly potentially unethical. And I think if we get too wrapped up in the story, we miss maybe the real value that the technologies add and the purpose for which they were built, which again, I think in the case of China was to generate underwriting decisions to people who literally had no access to other credit and no other history and no digitization around them.
Lex Sokolin:
And the heavy lift that companies like Alibaba and others, Ping An and a number of others, had done was around creating digital avatars and digital scores in order to underwrite that. And they perform in an environment where there is no choice but to partner with the government. I mean, this is the fabric of the society in which they operate and so the surveillance aspects are sort of the things that in the West would creep you out about a social surveillance score, that if you're rich and you always pay your debts, you get the good seat on the train, and then if you are in debt and were part of the P2P lending scandal, then you get placed on a map like a sexual predator and people are told to avoid you, and when your phone number is called a robot announces that you are a P2P scammer, things like that when they're reported in the West feel very, very off to us. But I do think we should pause and reflect on sort of like the different environments in which this digital giant grew up in.
Lex Sokolin:
So I think that lands us in today's paradigm, where there is a natural tension, a natural sovereign tension between governments that have the power of war and punishment, and then technology companies that have the love of their users, or at the very least the attention of their users. And so Facebook with its 2 or 3 billion people is a threat to the US as a nation. The Facebook nation is very powerful relative to what it can do to American politics and elections, as an example. Similarly for China, Ant Financial cannot be independent. I mean, it's just untenable. And so if you watch the journey of Jack Ma into the Communist Party and the role that he's had to take, whether by choice or not, you can see that this stuff is just getting more and more integrated and the response that I see coming out around CBDC is, which is the central bank of China issuing digital currency, which is fully trackable and transparent by the Chinese authorities, that project will crown various banks and tech firms as the... sort of like the default mechanism of where the money is, right?
Lex Sokolin:
So Ant has to include the Chinese CBDC. All the Chinese large banks do as well. And so I think who is handed out that permit and who runs the blockchains in the Business Services Network, those to me are signals of kind of the direction of travel and the direction of power in this negotiation between technology and the hard power of the government.
Will Beeson:
Max, feel free to dive in if you have any specific thoughts around any of Lex's comments. If not, I'd be interested in your views on... broadly speaking, what any headwinds or existential risks might look like for Ant going forward. It's easy not least fueled by internet euphoria to get very excited about any company with 1.3 billion users and billions of dollars of net profit, especially in FinTech, but it won't all be smooth sailing. In fact, the FT, I think, put out a relatively skeptical, I think, article around Ant and some competitive headwinds that it's facing even around the QR code based payments in China and then some of the regulatory changes over the past few years that have put its margins under a little bit of pressure. Any thoughts there, Max?
Max Friedrich:
Yeah, I think first to comment a bit on what Lex said, that's a sensitive debate and it's somewhat difficult to look into that from the outside, really what's going on, on the ground. I would say that there are probably arguments you can make where the Chinese government would be a little bit skeptical of Alipay's scale. And then also take the other side. So another way you can look at it is actually look outside of China or approach it, again, from this perspective. What you saw in India is that the Indian government installed the UPI, which is kind of their digital payments rails. And Brazil is just about to launch PIX, which is their kind of national digital payment system. There also is CoDi in Mexico. So you have all these kinds of emerging market economies, which did not have the financial infrastructure that a lot of Western countries have.
Max Friedrich:
And then they kind of looked to China and saw that... well, China kind of leapfrogged them and kind of looked at what happened in China 10 years ago, and what happened in China 10 years ago, or over the last 10 years, is that you now basically have a duopoly of WeChat Pay and Alipay controlling the whole market. And that's why we're talking about Ant Group, because they were able to build that out because there was not that much regulation. And maybe you can make the case that some of that growth was in favor of Chinese regulators or not, but just happened. But I think a lot of other emerging markets or emerging countries around the world are kind of looking at that saying, "We rather want to control that ourselves." I think you can also make the case that the Chinese regulators have somewhat also restricted WeChat Pay and Alipay over recent years. So in 2017, 2018, they restricted Alipay and WeChat Pay to... well, their parent companies to generate interest from the balance that are sitting round these accounts.
Max Friedrich:
And that I think amounted to around 2% or 3% of Tencent's annual revenue at that point, which isn't that much, but which is a signal. And Yu’e Bao, at some point world's largest money market fund. One of the reasons why it is not anymore the world's largest money market fund is because regulators restricted the amount of money users could put in. And there's a great Quartz article that talks about this and quotes a Chinese journalist on a state run television channel describing Yu’e Bao as a bloodsucking vampire. I think you can also look at just China letting in more payments player from the outside. PayPal has a partnership, Wirecard last year got a partnership that didn't go far, but they got let in or were able to acquire a company with a Chinese payments license there. I think American Express was also approved over recent months. So maybe you can interpret that as kind of the Chinese government kind of letting in more competition and so forth.
Max Friedrich:
I think the other side that you can take is that WeChat has over one billion users. So the whole country basically runs on WeChat and subsequently, WeChat Pay. Lex said Alipay has over 710 million users. These are platforms Chinese regulators can't really ignore. That's why they worked together with them in the past, on the credit scoring, on different projects they have worked together. So I think if I would think about this, I think that China's regulators are rather thinking about how we can use these platforms to our benefit, and you can probably think about, for example, combining the Central Bank Digital Currency and Alipay and their China Belt and Road Initiative, right. They could use Chinese workers or diplomats, or just nationals working on the Belt and Road Initiative in other countries as kind of distribution points for their currency, the Central Bank Digital Currency, via Alipay. So I think... that's from what I would say is probably more how they think about it. Africa is probably also a kind of a big topic there in terms of AliExpress and all the different initiatives Alibaba has there.
Max Friedrich:
And then touching on your other question, kind of what could be some negative points coming up. I think we could actually stay there in international expansion. I think that is one of the areas where I would say that the Alipay wallet itself is in my opinion, under that brand, I think relatively unlikely to just scale all across the world as it has in China. I think what Alibaba has done pretty good is invest in other wallet companies around the world. So obviously that's a Paytm in India, then Paytm also is involved with PayPay in Japan, which has like close to 40 million registered users. They really invested all around the world. They're even involved with some European payments companies who are working on QR codes payments in Europe, which now you can have a debate on how much sense that makes, but Alipay is involved there or Ant Group is involved there.
Max Friedrich:
So I think in terms of international expansion, that the direct kind of Alipay branded wallet in the same form as it is active in China is probably hard to export, and what they're trying to do there is probably partner with a lot of wallets, and that can be successful or not, integrate some kind of interoperability and so forth. And then I think what's just getting harder is also that this company already has a massive scale, right? That is a good thing, but in terms of growth perspectives, that also could be somewhat challenging because there's only so many monthly active users left in China that they could bring on the platform. And obviously they are I think, looking at the numbers they provided in terms of the insurance product, I think they are relatively low in penetration, I think somewhat around 1 or 2% of the market in the lending side, if you take consumer and small business together, I think the penetration is around 11% or so. And that's quite large for one player or one kind of front end, if you want to say that.
Max Friedrich:
So I think it kind of depends on what business area you look in within Ant. Like I said, maybe in insurance, they have a little bit more runway as it's a younger product, but I think in other areas of the product, they are pretty mature. So I would think about that kind of... I don't know if you want to call it the downside scenario, but just generally in terms of what challenges they're facing too.
Will Beeson:
Where everyone in the West always wants to take this conversation, and potentially a good way to round out our chat today is, what are the takeaways for Western companies? Like how does some player become the Ant Group of the US or of Europe? And firstly, I think it's... I'll be interested in your guys' views, I think it's a pretty simplistic question. I think it works in other cases, but I think specifically, if you look at the dynamics that led to the rise of Ant Group, for me, the clearest parallel in the West is Google. So the company was basically born in an era in which there was no solution to what they were... the problem they were proposing to solve. And by virtue of building something that worked and then amassing an insane amount of data and users around that solution, they were able to build out an ecosystem with connectivity between the pieces, unlike anything that anyone else could create.
Will Beeson:
I think the only difference really is that in Google's case, those ecosystem extensions ended up being kind of like information systems and email and document management and finding merchants and discovery versus in the Ant case it was financial services, but apart from the actual products delivered to consumers, I don't think there's much difference in the trajectory of those companies, in the relationships with nation states that have emerged over time. And also then in their real deep, deep investment efforts in emerging technologies, specifically AI, thanks to all the data that they have available. And so therefore in my mind, the question of asking what are the takeaways for the West of Ant? I.e, how do we build the next super app? Is equivalent to saying, how do we build another Google. That problem has been solved in this market, the web browsing problem, and it doesn't exist on the scale now that it did when Google was founded.
Will Beeson:
And similarly, how do we create the Ant of the West? Well, actually that problem set doesn't exist to deploy solutions against. It's tough for me really to go anywhere in terms of if you're Visa, what do you do after observing the success of Ant? If you're Facebook, what do you do after observing the success of Ant? I'd be interested in your guys' views on that question, maybe there are good takeaways.
Max Friedrich:
Yeah. If I would start on that. I think the key question to ask is how do I become the day-to-day number one utility app that I as a consumer come back to, and that I can use to manage all kinds of different activities, commercial, financial, and whatnot? And that's a pretty difficult thing to achieve. We kind of hear about the scale of Alipay and WeChat Pay, and we think, "Wow, this is just insane numbers." But how did they actually achieve that? Because if you look at the history of WeChat Pay, they launched that in 2013, 2014, where you already had a huge amount of people using WeChat, but they actually also had to incentivize the users to adopt WeChat Pay. It's not like, just because you have this huge user base, all these users are going to flock to all your other services, right. Like Google has been trying to do Google Wallet for years. Facebook had like Messenger peer-to-peer payments, but it all didn't really work.
Max Friedrich:
So what WeChat did is they came up with these red envelope campaigns where they probably spent hundreds of millions or billions of dollars enabling users to send, or to gift each other small amounts of money and that was like a habit or like a tradition rooted in Chinese cultures. A lot of people picked it up. So it actually was a super effective go to market strategy, which then Alipay also adopted afterwards. So you have to kind of think about these things, and that's why I think there are these large number of challenger banks out there, which are somewhat similar. They all kind of have a different design, but the question, and we also had that question, I think, on our last podcast, kind of, how do you differentiate yourself and how do you become top of wallet or that app that you actually come back to? And that's a hard thing to do.
Max Friedrich:
And I think in the West, the example is that Cash App was able to do that by starting with peer-to-peer payments, adding super effective marketing into that, like the Cash App Fridays, where they give away money, the Cashtag, which is basically this universal identifier where, okay, I can post this and then people can send me money and I can send them money and so forth. And then kind of using those sticky peer-to-peer payments to then also offer other products. And that really has taken a lot of years and... Like Venmo, wasn't able to go into those other product segment that Cash App now has with Bitcoin and all this other products. So the bottom line takeaway for me is that it's actually harder than you think to build these massive scale FinTech companies, if you want to call it that way, and it's not a given that only because you have large existing user base like Google or Facebook or whatnot, that people will directly adopt these financial services, you have to somehow incentivize them to do so.
Max Friedrich:
And yeah, and there aren't that many examples in the Western world, which have successfully done so. So yeah, that would be my takeaway and impact on the Western world.
Lex Sokolin:
So I definitely agree with you Will about problems left to be solved and I think Ant and Cash App and the successes that we see today, all derived from some articulated problem that was there around which they wrapped a solution. My takeaway looking at Ant and increasingly spending time on the high tech companies is that it feels that the high tech companies are in a much stronger position than banks. Just looking at the top four market caps of the tech companies, each being over a trillion really suggests to me that's where the value is and so I think the core takeaway for me is real technology firms differentiate over time in a way that banks really will struggle to do. And I think we now know the answer to that question no matter how many adjustments and strategy changes the global banks do, they don't have the attention of the world in the way that the tech companies do.
Lex Sokolin:
That said, I think the tech companies currently are chasing the Ant vision in emerging markets and might be able to compete there and might capture this emerging market growth, whether it's India, Indonesia, or Brazil and other markets that we've talked about. But I don't know any more if that's the interesting takeaway. I think the interesting takeaway much more is to focus on what is the frontier, what is not solved and try to build the large footprint there and the large user base around novel ideas. And for finance, look, I keep saying it because I keep believing it, I think that the novel ideas are not in distribution of old banking products or ETFs. The novel ideas are in digital assets and blockchain based, decentralized finance. And so I believe that the multimillion and if not billion user bases are going to be built there and not in places where already there is a good enough answer.
Will Beeson:
There's wisdom in that. Look, this has been a fantastic conversation. Max and Lex, I'm so grateful as always for your guys' time. Let's wrap it up here, but I look forward to connecting again in the not too distant future. Max Friedrich and Lex Sokolin. Thank you very much for joining us today.
Lex Sokolin:
Pleasure as always.
Max Friedrich:
My pleasure.
