Ant Financial Services Group, the Chinese fintech giant, is planning a funding round that could fetch a valuation similar to the world’s biggest and oldest banks: The digital payment company is raising as much as $5 billion in equity that may value it at more than $100 billion, according to Reuters.
Comparing market capitalizations of public companies with a private company’s valuation is an imperfect exercise. But in the broadest sense, and accepting these limitations, it shows investors think prospects for next-generation companies like Ant Financial are comparable to top-tier institutions like Goldman Sachs, which had a $94 billion market cap at the time of writing.
There are several reasons investors are betting big on fintech upstarts. Chinese firms like Ant Financial and Tencent are unencumbered by the legacy of bank branches and aging technology that older banks elsewhere are trying to streamline. These younger companies also benefit from lower regulatory hurdles and have demographics on their side, thanks to mobile-friendly, millennial-heavy home markets; China has some 520 million mobile payment users.
Ant’s latest fundraising could help position it for an initial public offering. The company was set up in 2004 (as Alipay) to provide PayPal-style payment services for online shopping. It was spun off (pdf) from Jack Ma’s Alibaba about a decade later (as Ant Financial). Alibaba recently said it will take a 33% stake in Ant, replacing the current system in which Alibaba receives royalties from Ant.
Ant’s Alipay unit is now China’s biggest online payment platform. It also has stakes in Indian mobile-payment firm Paytm (paywall) and Thailand’s Ascend Money.
While payments aren’t necessarily a cash cow (paywall), the service is a way to acquire customers and then sell them a range of more lucrative services: Ant provides services such as wealth management, lending, credit scoring, and insurance. If investors are right, Ant Financial could soon become a major force in the world of finance.