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Corporate DispatchPro

Issue No.10 | September 2020

Corporate DispatchPro The Journal of CI Group

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Issue No.10 | August 2020

Corporate DispatchPro The Journal of CI Group

EDITORIAL TEAM Andrew Azzopardi Isabelle Micallef Bonello Jesmond Saliba

CONTRIBUTORS Karen Kwok Keith Zahra Peter Thal Larsen Robyn Mak Tonio Galea

CONTENTS Editorial

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Week Highlights

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Beneath the bottom line

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Malta Insights

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The last of the dinosaurs

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CommuniqEU 31

PRODUCTION ASSISTANT Laura Grima Shirley Zammit

Brexit brinkmanship revives risks

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Fintech payment pioneers face war

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What is Ant really worth?

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DESIGN TEAM Matthew Borg Nicholas Azzopardi

SOURCES

Published By

ADDITIONAL SOURCES

Design Produced

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Corporate DispatchPro Editorial

The social vocation of business For all the slick project management tools and the smart agility techniques, organisations still function in automatic mode most of the time. Much like an ant colony, companies organise their lifecycles around a modus operandi that, although continuously transformed by new talent, technology, and the wider business environment, establishes a sophisticated way of doing things that becomes difficult to interrupt. The pandemic itself is a stark example of the natural tendency of companies to stick to the course they are familiar with, even when everything around them is quaking. For this reason, corporate governance is both an opportunity and an urgency. It is an opportunity because, if the processes are well thought-out and focused, the company will reap the rewards well into the long term. It is urgent because the chains of causality across business and society are becoming ever longer. The principles of good governance often have greater resonance with issues of public life, where political influence may blunt accountability and the press corps are always sniffing around for traces of impropriety. But the business community is coming under increasing internal and external pressure to conform to higher standards of transparency, leadership, and compliance. The tangible impact of public outrage at the misbehaviour or shortcomings of businesses if pushing companies to seriously assess the way in which they are directed and controlled. Nevertheless, a commitment to sensible corporate governance is not simply a reaction to social media takedowns; on the contrary, a solid system of checks of balances provides a strategic advantage that makes

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companies leaner, more effective and, above, more relevant to the public. Good governance in the private sector and the public sector is not a chicken-and-egg question: improvements in both spheres are needed simultaneously and a betterment in one sector ultimately leads to change in the other. As the general model of business shifts from sprints towards the maximum ROI into a relay of sustainable harvests, companies are gaining a broader understanding of the magnitude of their processes and decisions. If we can draw another lesson from ants it is that, by performing their duties diligently, the humble insect provides a critical service to the entire ecosystem by aerating soli and clearing up organic waste. While corporate governance may sound like a lofty concept at first, it is as practical a contribution to the wellbeing of society as a business can make. JESMOND SALIBA 7

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WEARING MASKS NOT ENOUGH, SAYS WHO A top scientist at the WHO has expressed concern over some people not maintaining physical distancing, warning that masks alone cannot protect against the spread of coronavirus. 28TH AUGUST

JURASSIC WORLD’S ACTOR CHRIS PRATT ‘PETRIFIED’ BY COVID-19 – REFUSES TO TRAVEL TO MALTA Jurassic World: Dominion actor Chris Pratt was reported by the Daily Mail that he’s petrified of picking up Covid-19 and is leading the charge not to join the crew in Malta ‘until it is safer’ to come. 30TH AUGUST

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Corporate DispatchPro WASPS ATTACK GERMAN SCHOOL, INJURING 16 CHILDREN A wasp attack at a school in the western German city of Lüdenscheid sent at least 16 students to the hospital. 27TH AUGUST

PRESIDENT TRUMP NOMINATED FOR THE 2021 NOBEL PEACE PRIZE Donald Trump has been nominated for the 2021 Nobel Peace Prize following his efforts to broker peace between Israel and the United Arab Emirates (UAE). 9TH SEPTEMBER

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POPE FRANCIS DESCRIBES GOSSIPING AS A PLAGUE WORSE THAN COVID Pope Francis has described gossiping as “a plague worse than Covid” which is seeking to divide the Catholic Church. 6TH SEPTEMBER

AUSTRALIA EXPECTS TO RECEIVE ASTRAZENECA’S COVID-19 VACCINE WITHIN MONTHS Australia expects to receive its first batches of a potential COVID-19 vaccine in January, Prime Minister Scott Morrison said on Monday, as the number of new daily infections in the country’s virus hotspot fell to a 10-week low. 7TH SEPTEMBER

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Corporate DispatchPro HUNGARY TO CLOSE BORDERS ON SEPTEMBER 1 Foreign citizens will not be able to enter Hungary starting September 1, the Hungarian government announced Friday, returning to a policy implemented during the first wave of the coronavirus crisis. 28TH AUGUST

RESULTS OF RUSSIA’S COVID-19 VACCINE PRODUCED ANTIBODY RESPONSE – THE LANCET Russia’s “Sputnik-V” COVID-19 vaccine produced an antibody response in all participants in early-stage trials, according to results published on Friday by The Lancet medical journal that were hailed by Moscow as an answer to its critics. 4TH SEPTEMBER

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GIRLS ALOUD SINGER SARAH HARDING REVEALS SHE HAS ADVANCED BREAST CANCER Girls Aloud star Sarah Harding has revealed she has advanced-stage breast cancer. The 38-year-old singer, who shot to fame with Girls Aloud in 2002, thanked fans on Twitter and Instagram for “reaching out to check in on me” and apologised to fans for not posting for so long as she revealed the news.

26TH AUGUST

LUXEMBOURG RAISES €1.5 BLN IN EUROPE’S FIRST ‘SUSTAINABILITY’ GOVERNMENT BOND Luxembourg became the first European government to sell a ‘sustainability’ bond on Monday, which raised 1.5 billion euros ($1.77 billion), according to a lead manager memo seen by Reuters. 8TH SEPTEMBER

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Corporate DispatchPro ASTRAZENECA PUTS LEADING COVID-19 VACCINE TRIAL ON HOLD OVER SAFETY CONCERN AstraZeneca Plc announced it has paused a late-stage trial of one of the leading COVID-19 vaccine candidates after an unexplained illness in a study participant. 9TH SEPTEMBER

“ALL BROTHERS” : LATEST POPE FRANCIS ENCYCLICAL TO BE SIGNED IN ASSISI Pope Francis will visit the Italian town of Assisi on 3 October to sign a new encyclical. In a statement released on Saturday, the Director of the Holy See Press Office, Matteo Bruni, said the encyclical is entitled Fratelli tutti or “All Brothers” on fraternity and social friendship.

5TH SEPTEMBER

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Corporate DispatchPro CI CONSULTA

Beneath the bottom line The last decade started with a human, environmental, and financial catastrophe that literally spilled over from a short-sighted decision to cut costs. The BP Deepwater Horizon rig explosion in April 2010 discharged more than four million barrels of oil into the Gulf of Mexico, severely harming marine life and coastal communities living in the surrounding regions. The incident killed 11 employees on the spot and cost the British multinational upwards of $60 billion. A US Government investigation traced the catastrophe back to poor safety standards driven by ‘systemic root causes’ bent on reducing corporate costs. The oil spill was neither the first nor the last failure at corporate governance; from Lehman Brothers to Wirecard, and from FIFA to Cambridge Analytica, reputable organisations have repeatedly been caught red-handed engaging in corporate fraud, corruption, mismanagement, and other untoward behaviour. But besides the devastating immediate impact to a company’s performance, to its brand equity and partnerships, bad corporate governance is a threat to democracy, too. The cogs and chains that allow an irresponsible business decision to grow into a massive disaster are fixed to the same mechanism that makes public life go round. It is not unreasonable to argue that dozing watchdogs or toothless enforcement agencies germinate deficient corporate governance, but it is also true that the business community has a crucial part to play in making sure that institutions carry out their work diligently. In many areas, in fact, it is only the private sector that can bring about the needed reforms in the public sector. As the primary agents of economic activity and distribution of wealth, businesses are in a strong position to demand accountability, transparency, commitment and integrity of political leaders and the civil service 15

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Corporate DispatchPro as well as of their employees and private citizens in general. But first, they must themselves deliver on their corporate values and nurture a culture of good governance. Market systems are fundamental to the democratic infrastructure, and cracks in corporate governance quickly develop into the collapse of the social contract that ensures the fair and equal treatment of individuals. More dangerously, the democratic landscape of shared power becomes vulnerable to attacks when governance standards are ignored, ultimately undermining economic growth itself. Good corporate governance is an investment in the public relationships that provide the context and opportunity for success. A sound governance strategy understands that the bottom line, actually, lies deeper than financial profits.

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TRADE DEFICIT CUT BY TWO-FIFTHS IN JULY Malta reported a trade deficit of €231 million in July 2020, narrowing the gap by 43 percent compared to the same month last year. Provisional data by the National Statistics Office indicates that both imports and exports recorded a year-on-year decrease, with the former down from €687.9 million to €466.2 million and the latter down from €278.3 million to €235.2 million. Mineral fuels, lubricants, and related materials contributed the biggest decline in the value of imports, falling by €100.3 million over the twelve months. The next largest drop was observed in machinery and transport equipment, with a decrease of €79.3 million. These two commodity groups also registered the sharpest declines in exports: a dip of €29.9 million in machinery and transport equipment, and of €29.3 million in mineral fuels, lubricants, and related materials. In the first seven months of the year, trade deficit stood at €1,470.9 million, slimmer than that registered during the same period in 2019 by €1,120.5 million. The value of imports fell by 40 percent to reach €3,236.1 million while the value of exports amounted to €1,765.2, a decrease of 10 percent. Just under €2,076 million of imports arrived from the EU, 50.5 percent of total imports. Meanwhile, exports to the bloc amounted to €770 million, 43 percent of all dispatches. The greatest value of imports between January and July arrived from Italy (€534M), followed by China (€269M) and ahead of Luxembourg (€207M) and Germany (€205M). 19

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The value of exports to Germany was €286 million, the highest among importers of Maltese commodities. France (€119M), Italy (€81M) and the United States (€76M) were the next three biggest destination countries for exports. MALTA REGISTERS HIGHEST INCREASE IN INDUSTRIAL PRICES IN THE EU Industrial producer prices in the EU fell by 3.0 percent in July, compared with the same month last year. Decreases were observed in every member state except for Slovenia and Slovakia (both +0.3%) and Malta (+1.7%). Figures by Eurostat show that, year-on-year, producer prices for energy dropped by 11.2 percent across the EU and by 11.6 in the euro area, the industrial category with the largest decrease in both zones. Prices for durable consumer goods, on the other hand, registered the biggest rise both in the EU (+1.7) and the euro area (+1.6%). Lithuania saw the sharpest fall in annual industrial prices, down by 8.5 percent, followed by Cyprus (-6.7%) and Italy (-5.4%). European domestic market indices for total industry grew for the second consecutive month in July, rising by 0.4 percent in the EU and by 0.6 in the euro area, compared with June. The highest increase was recorded in Belgium (+2.3%), followed by Spain (+1.8%) and Bulgaria (+1.6%). Cyprus, Estonia, and Sweden were at the other end of the scale, registering decreases of 2.2 percent, 2.1 percent, and 0.8 percent, respectively. Malta registered no change month-on-month for the third time in a row.

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INDUSTRIAL PRODUCTION INDEX UP FOR SECOND MONTH The Index of Industrial Production rose by 1.3 percent in July from the month before, driven mainly by an increase in capital goods which soared by 11.1 percent in the period. This was the second consecutive rise since a sharp -6.7 percent decline in April. Data by the National Statistics Office indicates a decrease in the production of energy (-2.7%) and in intermediate goods (-0.9%) while consumer goods edged up by 0.1 percent. Compared to July 2019, the seasonally adjusted Index was down by 2.7 percent although increases were registered in energy production (+2.8%) and consumer goods (+0.6%). The biggest drop year-on-year was observed in intermediate goods (-10.4%) while capital goods fell by -6.7 percent. The highest total production Index this year was recorded in March, which was 2.5 percent more than the July figures. 21

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UNEMPLOYMENT LEVELS DOWN FOR FOURTH CONSECUTIVE MONTH The unemployment levels for July stood at 11,195, a decrease of nearly 300 from the month before. Data by the National Statistics Office shows that seasonally adjusted rate of unemployment dropped by 0.2 percent from June to settle at 4.1 percent. The figures show a month-on-month tapering since a high of 4.4 percent registered in April. Compared with July 2019, the unemployment rate recorded a rise of 0.5 percent with an increase of over 1,800 people in total unemployment. Youth unemployment accounting for the 15-24 age group also grew by 0.3 from the previous year to reach 9.1 percent in July 2020, but the unemployment level within this bracket fell by around 200. The unemployment rate among women was 4.6 percent in the month under review and it stood at 3.8 among men. While the rate registered a 0.1 percent decrease from June among the latter group, it fell by 0.2 among women. Compared with the year before, however, the rates rose by 0.5 percent among men and by 0.6 percent among women. 23

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Corporate DispatchPro TONIO GALEA

The last of the dinosaurs When the coronavirus started ravishing various nations and was declared a global pandemic, there was hope that we might be heading towards a new era of cooperation. On the other side of the fence, others were predicting an era of hard nationalism and hostility as various leaders try to gain the upper hand in such a crisis.

Over the ensuing months, tensions between the US and China spilled over into a trade war; Greece and Turkey seem on the verge of another military confrontation; racial tensions in the US keep on escalating; Lebanon is now considered a failed state; and any hope of a peaceful solution to the North Korean crisis has disappeared. On the other hand, an important step was made when the UAE and Israel made peace. A welcome development amidst all the doom and gloom. With all this in the background, serious cracks have appeared in Alexander Lukashenko’s grip on power in Belarus. Often dubbed “Europe’s Last Dictator”, Lukashenko’s has held power for these last 26 years. The Belarusian president is a typical authoritarian leader who appears stuck in a bygone era inspired by the country’s Soviet past and stubbornly refusing to change, even as the rest of the world modernises. In Belarus, insulting the president is still punishable by up to five years in prison, and criticising Belarus abroad is punishable by up to two years. For more than two decades, Lukashenko has depended on the country’s secret service that kept the notorious Soviet era name of KGB to remain in power. Before being elected president, Lukashenko was director of a state farm and had made a swift shift to political career as an anti-corruption 25

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Corporate DispatchPro politician. The 1994 election was perceived as free and fair: probably the most credible vote ever held in Belarus. In the following years, he maintained political power through strong state control of the economy, a hand over the media, and a heavy dose of Soviet styled repression. But the solid backing by Russia was a determining factor to quarter of century of the Lukashenko regime. Recently, however, the relationship between the two countries has started to decline and, although Russia still shows public support for Lukashenko in view of the massive protests, there is no guarantee this will last in the future. Russian president Vladimir Putin wanted progress towards the Union State uniting Belarus and Russia, but despite mixed messages from Minsk, Lukashenko time and again failed to deliver on the vision. The protests in Belarus have significant consequences for Russia itself. The unyielding opposition to Lukashenko’s authoritarian leadership, has now opened a Pandora’s box right at Moscow’s doorstep. These protests stemmed from an election that was unconvincingly either free or fair, awakening an anger in the Belarusian population that cannot be easily swept under the carpet. History teaches that, one day or another, change was bound to arrive to Belarus and there will be consequences for all parties involved. The fuse has now been lit.

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Corporate DispatchPro KEITH ZAHRA

ENVIRONMENT

EU to push for further greenhouse emissions cuts The European Union is set to kickstart discussions next week on how quickly to cut greenhouse gas emissions over the next decade. Well on course to meeting its current climate target for 2030, the EU now wants to make that goal even more ambitious, to get on track for its flagship plan to reach net zero emissions by 2050.

The Commission will propose a new 2030 emissions target next week, paving the way for talks between member states and European Parliament, which must approve the goal. There is consensus on the goals, but they are split over how ambitious they should be. In a statement, the European Environment Agency recalled that air and noise pollution, the impact of climate change such as heatwaves, and exposure to dangerous chemicals cause ill health in Europe. Poor quality environments contribute to one in every eight of deaths, according to a major assessment on health and environment. Improving the health and wellbeing of European citizens is more important than ever, with attention currently focused on addressing the Covid-19 pandemic. The pandemic provides a stark example of the complex links between the environment, our social systems, and our health.

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Corporate DispatchPro KEITH ZAHRA

ECONOMY

European economy suffers double digit shrink Gross domestic product (GDP) in the eurozone shrank by 11.8 percent while the employment rate decreased by 2.9 percent in the second quarter of 2020 compared to the previous quarter, Eurostat reported. The EU statistical office estimated that in the whole of the European Union (EU), GDP decreased by 11.4 percent and the employment rate dropped by 2.7 percent in the second quarter, when strict Covid-19 containment measures were still in place in many EU countries. These were by far the sharpest declines observed since the time series started in 1995, Eurostat said. In the first quarter of 2020, GDP decreased by 3.7 percent in the eurozone and by 3.3 percent in the EU. Compared with the same period of 2019, seasonally adjusted GDP decreased by 14.7 percent in the eurozone and by 13.9 percent in the EU in the second quarter of 2020. Among the EU member states for which data are available, Spain (-18.5%) recorded the sharpest quarter-on-quarter GDP decline, followed by Croatia (-14.9%), Hungary (-14.5%), Greece (-14%), Portugal (-13.9%) and France (-13.8%). The narrowest GDP declines were registered in Finland (-4.5%), Lithuania (-5.5%) and Estonia (-5.6%), followed by Ireland (-6.1%), Latvia (-6.5%) and Denmark (-6.9%). Employment was also severely impacted by the pandemic, with the number of employed persons decreasing by 2.9 percent in the eurozone and by 2.7 percent in the EU in the second quarter of the year, compared with the previous quarter. Year on year, the employment rate decreased by 3.1 percent in the eurozone and by 2.9 percent in the EU in the second quarter of 2020.

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Corporate DispatchPro KEITH ZAHRA

BREXIT

EU-UK tensions escalate as Brexit deadline looms Over the past two weeks, since the resumption of negotiations between the European Union and the United Kingdom on a Brexit deal, little progress has been achieved, with both sides making public recriminations about the intransigence of the other party. The negotiations have taken a turn to the worse over the past few days, with Boris Johnson placing a deadline of no more than five weeks (15th October) to strike a free-trade deal with the European Union. Failure to do so, Johnson is insisting, the two sides should stop trying and “move on”, clearly implying a no-deal Brexit. The Prime Minister re-iterated again that Britain’s relationship with the EU can be based on that of Australia, where specific agreements are individually negotiated on specific aspects. Under such a scenario, Britain will first push for agreements on the most practical day-to-day issues such as flights, haulage, and scientific cooperation. While UK Brexit negotiator David Frost said that Britain was not scared of a no-deal exit at the end of the year, Johnson did however leave a glimmer of hope, suggesting there is still room for a deal to be reached, based on a standard free trade agreement if the EU is ready to rethink its current position. Among the areas which are sowing most division between two sides, is the EU’s insistence that Britain observes European internal market standards as well as Brussels’ desire to protect European fishermen’s rights to fish in British waters. However, a Financial Times story raised more concerns than these political statements which came out of London. The business paper revealed that the British government is planning legislation that will override key parts of the Brexit withdrawal agreement, risking not only the collapse of trade negotiations with Brussels, but, according to diplomatic experts that we have contacted on the matter, may even go against basic principles of international law. These plans also led to the resignation of the head of the British government’s legal department.

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Corporate DispatchPro KEITH ZAHRA

EUROPEAN COMMISSION

New Irish Commissioner appointed European Commission President Ursula von der Leyen has appointed Mairead McGuinness as the new Irish commissioner in charge of financial stability and capital markets and handed over the prominent trade portfolio to Latvia’s Valdis Dombrovskis.

Both are with the centre-right European People’s Party (EPP), the largest in the European Parliament. Ireland has therefore lost the important EU trade portfolio after Philip Hogan resigned for failing to obey Covid-19 safety rules. McGuinness has been an EU lawmaker from Ireland for the Midlands– North-West constituency since July 2004 and has served as the chamber’s deputy head since 2017. She is a member of Fine Gael, part of the EPP. She will take over financial stability, financial services, and capital markets.

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Corporate DispatchPro PETER THAL LARSEN VIA REUTERS BREAKINGVIEWS

Brexit brinkmanship revives risk of worst outcome The spectre of a chaotic Brexit is back. Less than 11 months after Prime Minister Boris Johnson negotiated a withdrawal agreement with the European Union, his government may be preparing to undermine aspects of the deal. It could be a ploy to unblock stalled EU trade talks. But it again revives the possibility of a messy departure from the union.

Johnson’s exit deal, which became law in January, was supposed to settle the terms of Brexit with respect to Britain’s financial obligations, the rights of citizens, and the status of Northern Ireland. Since then, officials have concentrated on negotiating a future trade agreement. Those talks, which are supposed to be completed before Britain’s phased withdrawal ends in December, have stalled amid disputes over issues including fishing rights and the UK government’s scope to subsidise strategic industries. Failure to reach a deal would subject British exports to the EU to tariffs and quotas – and vice versa. That would be economically painful for both sides, especially given the disruption caused by Covid-19. But it would be less damaging than the chaotic “no deal” Brexit Johnson appeared to have averted last year. Now, however, the UK government may be unpicking the previous deal. According to the Financial Times, it is introducing legislation which would “eliminate the legal force of the withdrawal agreement” with respect to state aid and Northern Ireland customs. That could lead to customs controls on the Irish border – an outcome negotiators spent years trying to avoid. 39

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Corporate DispatchPro It’s hard to rationalise what Johnson’s government is hoping to achieve. It may have given up hope of a trade deal and have decided that parts of the previous agreement are unworkable. Alternatively, Johnson may be trying to shunt the EU into a trade compromise by showing how awkward the United Kingdom could be if the two sides can’t agree. However, threatening to renege on a treaty that’s less than a year old hardly seems the best way to win the trust of the EU - or other potential trade partners. Johnson is nothing if not unpredictable. Last October, he won a breakthrough by conceding to EU demands and declaring the resulting deal a great victory for the United Kingdom. A similar outcome could be on the cards this time. For now, however, the risk of the worst Brexit outcome is back.

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Corporate DispatchPro KAREN KWOK VIA REUTERS BREAKINGVIEWS

Fintech payment pioneers face war on two fronts Fintech disruptors are starting to get disrupted. Afterpay, an $18 billion Australian “buy now pay later” company, has lost about 10% of its market value after U.S. payments giant PayPal said it would offer similar products. The faster this funky form of credit grows, the more competition - and regulation – it will attract. Buy now pay later groups let customers get goods upfront but pay for them over time in interest-free instalments. Shoppers only go through a loose credit check and pay modest fees if they miss a payment. The BNPL provider makes most of its money by charging the merchant. This new spin on consumer credit has proven remarkably successful among millennials and spawned a host of fast-growing competitors, from $5.5 billion privately-held group Klarna to Sydney-listed Afterpay. The latter’s shares have risen over 800% since the March low this year. Success breeds imitation. On Monday the $247 billion transfer group PayPal announced a similar instalment offering for its U.S. customers. Worse, it will bundle the product into the fees it already charges retailers to use its online payments service, currently about 2% of the value of each transaction. Afterpay typically charges fees of 4%-5%. PayPal’s move will make it much harder for the BNPL providers to expand in the United States, one of world’s biggest market for online goods, worth about $600 billion in annual sales. Afterpay’s American business grew threefold in the year to June and accounted for 36% of its total sales. To keep growing, Klarna or Afterpay may have to lower fees, a tall order when both are still lossmaking. And 43

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competition is just getting started: credit card groups Mastercard and American Express have recently announced copycat products. Amazon and Google could follow. The arrival of competition from bigger players may also prod regulators to look more closely at buy now pay later products. In Australia, Afterpay’s home market, the Australian Securities and Investments Commission is considering imposing the same legal obligations on BNPL companies as traditional lenders. In Sweden, regulators are increasingly worried that the product may drag consumers into debt. Despite the recent share price fall, Afterpay is still valued at 25 times forward sales, a premium to PayPal’s 10 times multiple, according to Refinitiv data. With both competition and regulatory pressure growing, investors who sell now may avoid paying later. 45

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Corporate DispatchPro ROBYN MAK VIA REUTERS BREAKINGVIEWS

What is Ant really worth? Valuing Ant is no easy thing. The hype around its initial public offering, combined with a recently restructured business model and unpredictable regulatory environment, make the Chinese financial technology behemoth’s prospects especially difficult to forecast. It also has no obvious peers.

Given the available information, though, a Breakingviews calculator suggests a reasonable place to start is about $275 billion. Run the numbers: tmsnrt.rs/2F5cS6l Since Alibaba founder Jack Ma took control of the company’s Alipay payments division in a controversial 2011 spinoff, it has morphed into a financial services super-app. The payments piece is steady, but fees collected from merchants are as little as 5 basis points. The other chunk, where Ant derives most of its value, is a fast-growing marketplace that matches consumers with providers of credit, insurance and wealth management services. As a middleman, Ant passes on most of the underwriting risk to financial vendors. Instead, it makes money by charging those partners for crunching vast amounts of customer spending data to help assess the risks. In the year to June, the three broad business segments generated over $12 billion in such “technology service fees”, roughly 60% of the top line. Based on transaction volumes and revenue it is possible to calculate how much Ant keeps from deals done over its app. In the year to June, Ant pocketed over 20% of total insurance premiums generated on Alipay. For credit and wealth management, the socalled take rates were lower, at 2.4% and 0.5%, respectively. 47

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Corporate DispatchPro

If Ant can maintain those rates and its market shares, the heady anticipated growth in Chinese online financial services implies Ant’s revenue will exceed $34 billion in 2022. Using the same 27% net profit margin that Ant achieved in the year to June and applying the roughly 30 times forecast 2022 earnings multiple that U.S. payment peers fetch gives Ant a market capitalisation of just over $275 billion. That’s nearly double the $150 billion valuation imputed during a private mega-fundraising in 2018. It is a rocky path, however. For one thing, rivals such as Chinese tech titan Tencent and online retailer JD.com are steadily muscling in on financial services. Even SoftBank-backed ByteDance, the firm behind viral video app TikTok, recently snapped up a digital payments outfit. Financial regulators are also keeping close watch: Ant’s growing heft could prompt a crackdown on the fees the company can charge. Ant may be able to hand off a lot of risk, but its investors cannot. 49

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