Asia Banking Research

Singapore's Grab reckons it can become the first loss-making ride-hailing firm to reinvent itself as a viable digital bank. So confident is Grab in its fintech endeavor that it has applied for a digital full bank license in Singapore with telecoms giant Singtel. If Grab succeeds as a digital bank, it will be an outlier. China's Didi launched a fintech unit in early 2019, but has yet to make any progress in digital banking. Uber too thinks fintech can help it monetize and created a dedicated division about a year ago. Like Didi's, it has gone nowhere yet. And of course, there's Gojek, an Indonesia-based variant of Grab. It too is dabbling in digital banking. 

The coronavirus pandemic is a day of reckoning for overvalued, overhyped and overextended fintechs. With a "go big or go home" ethos, these firms are finding that amid the virus-induced downturn they may have nowhere to go. Not so for South Korea's Viva Republica, the country's only fintech unicorn, which has been steadily building a business in its home market for nearly a decade. In fact, Viva Republica's mobile banking platform Toss just broke even in April for the first time in its five-year history. That's impressive given that the South Korean economy is in recession. South Korea's GDP contracted contracted 1.4% year-on-year in the first quarter, its worst performance since the 2008-09 global financial crisis.

Myanmar is gradually opening its banking sector to foreign investment in a bid to boost the economy. International lenders see strong potential in the Southeast Asian nation's underdeveloped financial industry. Myanmar has been one of the region's fastest growing economies in recent years. Thus far, it has not been hit hard by the coronavirus pandemic either. In April, the Central Bank of Myanmar approved seven Asian banks to enter the country: Taiwan's Cathay United Bank and Mega International Commercial Bank, South Korea's Industrial Bank of Korea, KB Kookmin Bank and Korea Development Bank, Bank of China Hong Kong and Siam Commercial Bank.

Indonesia's P2P lending sector has been growing fast for several years now, providing a vital credit channel for cash-strapped consumers and SMEs. In February, online lending increased 225% annually to reach US$6.1 billion, 80% of which was in the P2P segment, according to data compiled by the Indonesian government. Then the coronavirus pandemic hit the country of 267 million, plunging it into a technical recession. While several of the largest P2P lenders are weathering the coronavirus pandemic well, others are not so fortunate. The economic fallout from the virus may end up having a more profound impact on the industry's development than regulatory measures enacted last year to reduce compliance failures and protect consumers. 

Xiaomi is the first Chinese smartphone maker to foray into digital banking. The Beijing-based firm secured a digital banking license in Hong Kong last year and began a trial period in late March. It also applied for a digital wholesale bank (DWB) license in Singapore, which allows the holder to provide non-retail banking services.

The Philippines has long been one of the most promising Asian markets for fintechs. The archipelago of more than 7,641 islands has a population of nearly 107 million, second only to Indonesia among Asean countries. Nearly 70% of adults in the Philippines are unbanked, while smartphone penetration in the country is growing steadily. Given the Philippines' geography - with many people living far from retail banks - and development stage, fintech adoption can drive financial inclusion.

Digital banking had been growing steadily in the Philippines prior to the coronavirus outbreak. The pandemic hit the country in early March, resulting in the government implementing a lockdown in the metro Manila area beginning from the middle of that month. Some banks have seen online banking grow more quickly since the restrictions were imposed than previously. Rizal Commercial Banking Corp. (RCBC) posted a 117% increase in new sign-ups for its online banking services from March 17-26 according to fintechnews.sg. RCBC also recorded a 633% increase in the number of times its cardless ATM withdrawal function was used during that period.

2020 started well for Australia's neobanks. Deposit bases were growing quickly. Some Australian neobanks were on track to reach their deposit goals well ahead of their sales forecasts. That was before the coronavirus became a global pandemic. The virus has spread like wildfire globally in the past few months, sickening 2.5 million people and causing more than 170,000 fatalities. Australia has not become an epicenter of the outbreak, but it has still had to contend with thousands of cases and entered a strict lockdown on March 23. It is highly likely that the Australian economy will soon enter recession for the first time since 1991.

Under this scenario, neobanks may face a tough uphill climb. Grim economic conditions could affect Australians' willingness to switch their primary banking provider or even open a new account with a different provider.

Hong Kong issued eight digital banking licenses more than a year ago, but just one of the new virtual banks is fully operational, ZhongAn Insurance-backed ZA Bank. ZA Bank began operations this month after completing a mandatory trial in March. Three other Hong Kong digital banks recently began trials: Ant Financial's Ant Bank, Xiaomi and AMTD's Airstar Bank and Standard Chartered-backed Mox Bank. The other four Hong Kong digital banks have not announced when they will launch trials.

Initially, it seemed Hong Kong's virtual banks had arrived in the right place and at the right time. The city has plenty of banking options, but innovation among incumbents has been limited in recent years. Retail customers are eager for new digitally forward banking platforms. But last year's protests and the coronavirus outbreak have delivered a punishing blow to Hong Kong's economy. The city fell into recession well before the global economic malaise brought on by the coronavirus. Hong Kong's digital banks have struggled to gain momentum under these circumstances.

Singapore-based Arival Bank is one of the less high-profile applicants for a digital bank license in the city-state. It's easy to get lost in the crowd when you're competing against names like Ant Financial, Xiaomi and ByteDance. Arival Bank, a fintech startup, has applied for the same digital wholesale bank (DWB) license as those Chinese tech giants. In a nutshell, that license allows the holder to serve non-retail clients in Singapore. The Monetary Authority of Singapore (MAS) has said it would issue three DWB licenses.

China's ByteDance, best known as the owner of the popular TikTok video-sharing app, is reportedly now the world's most valuable startup with a US$75 billion valuation or more. That's quite a price tag. Of course, since the valuation is occurring in private markets, it is difficult to assess its accuracy. WeWork was once worth US$47 billion too. Now the company is fighting for its survival.

To be sure, ByteDance is on firmer footing than Adam Neumann's troubled company. In the quarter ended Dec. 2019, TikTok's short-video app revenue increased 310% annually, according to research firm Apptopia. Overall, ByteDance recorded between US$7 billion and US$8.4 billion in revenue in the first half of 2019, data from Reuters show.

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