Asia Banking Research

While a certain amount of hype surrounds digital banks, one thing about them is for sure: Their very presence intensifies competition in the market, drawing attention to incumbent complacency. Now that Malaysia’s central bank plans to issue five digital banking licenses in the first quarter of 2022, the country’s traditional banks are moving to head off the challenge – or at least prepare themselves well.

The digitization of life since the coronavirus pandemic began has made  life more convenient in many respects. However, there is a downside to all of the digital activity: Criminals are now more active online than ever, and Singapore is no exception. The city-state known for its low crime rate – extremely low when compared with other developed countries –  is a grappling with a surge in online crime, with loan and investment scams especially problematic.

South Korea’s fintech crackdown has delayed Kakao Pay’s IPO and likely will force the company to do some restructuring to meet regulatory requirements. Kakao Pay’s parent company has also felt regulatory ire. Yet Kakao Bank, the digital bank unit of the platform company, has continued to perform well, as have its competitors K bank and Toss.

Given that Indonesia is Southeast Asia’s largest economy, the decisions it makes about digital banking will have a large effect on fintech development in the region. To date, Jakarta has moved cautiously, despite the pandemic-driven transition to online banking that has swept the region. There are signs, however, that Indonesian regulators are keen to get the ball rolling. They will take a somewhat different approach than their counterparts in Singapore, the Philippines and Malaysia though.

Just a few months into its digital bank fast-tracking experiment, the Philippines decided to slow things down by limiting the number of digital bank licenses to seven for the next three years, effective September 1. Interest in the digibanking licenses has been strong among both digital upstarts and incumbent lenders, perhaps even stronger than the Philippine central bank (BSP) had expected. The newest winner – and perhaps the last for some time – in the country’s digibanking race is Voyager Innovations’ PayMaya, one of the Philippines’ leading e-wallets.

 

Never short of ambition, Revolut is aiming for an Australia banking license roughly a year after formally launching its app Down Under. The UK neobank unicorn is in discussions with the Australia Prudential Regulation Authority (APRA) as it seeks approval to take customer deposits and provide lending services.

Digital banks are fast becoming a fixture of the Asia-Pacific fintech boom, in many ways a manifestation of Big Tech’s desire to become Big Fintech. In contrast to the United States and Europe, where ascendant digital lenders are usually pure-play operations that began as humble startups, APAC has an increasing number of so-called digibank startups backed by the region’s largest tech companies and some major incumbent financial services firms.

Sea Group just can’t lose when it comes to investor sentiment, even though the company’s losses widened on an annual basis to US$433.7 million in the second quarter from US$393.5 million a year earlier. The day before it reported Q2 earnings, Sea’s share price was about US$291 and as of August 23 it had reached US$315. Over the past year, the stock has risen more than 105% while Sea’s market cap now stands at US$168 billion.

The Philippines has returned to an unenviable position: It is once again one of the only East Asian countries on the Financial Action Task Force’s (FATF) Grey list, alongside Cambodia. Countries on the grey list have been flagged by FATF for insufficient anti-money laundering and/or counterterrorism financing controls. Being on the list creates regulatory headaches for financial institutions – such as higher interest rates and processing fees – and can be detrimental to a country’s business environment.

With 37 retail banks for a population of 23.5 million, Taiwan is not the easiest market for digital banks to crack. Just about every Taiwanese adult has a bank account; in fact, many have more than one because of the tendency of companies in Taiwan to require employees to open a bank account with the company bank. Nevertheless, near ubiquitous smartphone penetration and the popularity of certain platform companies’ ecosystems offer digital banks an opening in Taiwan, especially given the effect of the pandemic on people’s banking habits.

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