Citibank is calling it quits in many of Asia-Pacific’s retail banking markets, including mainland China, India, Indonesia, Thailand, Vietnam, South Korea, Taiwan and Australia. Citi’s performance across these markets varies greatly, but overall, the US banking giant feels it lacks the scale to compete in them. Citi plans to focus its Asian retail banking business in the financial centers of Hong Kong and Singapore.
The arrival of digital banks in Hong Kong and Singapore has put some pressure on incumbents to up their game. At a minimum, traditional banks in Asia’s two main financial centers have slashed some unpopular fees and invested in more digital technology. Now that Malaysia has decided to introduce digital banks, its incumbent banks face some similar challenges to their counterparts in Hong Kong and Singapore.
At long last, Line Bank has arrived in Taiwan. On April 22, the Japanese messaging app’s virtual bank went live, becoming the second digital bank in Taiwan after Rakuten Bank. Line Bank had been hampered by both pandemic and regulatory related delays. It originally planned to launch in mid-2020. Of the three virtual banks approved by the Financial Supervisory Commission (FSC), Line Bank has the strongest digital services ecosystem thanks to the popularity of its messaging app, e-wallet, entertainment and social commerce with Taiwanese consumers.
Singapore is steadily carving out a niche for itself in the emerging green finance segment. Much as it has done with fintech, the Monetary Authority of Singapore (MAS) is taking steps to make the city-state a hub for this up-and-coming area of financial services. MAS reckons that Asean will need annual green investment of US$200 billion annually. Given its role as the region’s leading financial center, Singapore is a natural choice to lead green financing efforts.
The Philippines is determined to speed up financial inclusion through digitization. By 2023, the BSP aims to digitize at least 50 percent of total retail transactions and bring 70% of Filipino adults into the formal financial system. To that end, it introduced guidelines for digital banks in December 2020 and has thus far received two applications. The rules require licensees to hold at least 1 billion pesos in capitalization, operate a head office in the Philippines and offer only-only banking services. Licensees are not permitted to set up physical branches. The review process will likely carry on through 2021, with the winners being announced on a rolling basis. Yet some fintechs are determined to enter the market earlier.
Singapore’s digital banking race had far more losers than winners. Of all the failed bids, Razer’s must have been among the hardest to swallow. The gaming hardware firm was a strong contender and had Sea and Grab not both been in the running, may well have prevailed. The question now is, can Razer still become a digital bank? The answer is maybe in Malaysia and/or the Philippines.
Thailand is one of the few major Southeast Asian economies that has not unveiled a digital banking roadmap. Singapore's digital banks will go live in 2022. Malaysia will accept applications for licenses this year and issue them by early next year. The Philippines recently announced it would issue digital bank licenses. Indonesia plans to clarify digital bank regulations by mid-2021. In contrast, Thailand's central bank has been quiet about the possibility of digital banks for more than a year.
Australia's digital banking honeymoon is winding down. With Xinja and 86 400 both out of the picture - albeit in very different ways - the Australian Prudential Regulatory Authority (APRA) is moving to raise the sector's barrier to entry. It will become harder to get a banking license. Under the revised regulations, neobanks will have to be better capitalized and launch both an income-generating asset product and a deposit product in order to be approved for a full license.
Hong Kong's virtual banking field is crowded with eight neobanks that have similar value propositions. In their fledging stage, the digibanks have focused on quickly bringing customers onboard, highlighting their digital agility and offering high deposit interest rates for a limited time. The unicorn WeLab, the only native Hong Kong virtual bank, is one of the first to signal it has a broader strategy. WeLab in early March received an undisclosed investment from Allianz Group's digital investment unit as part of its Series C-1 fundraising and plans to collaborate with Allianz's asset management arm to develop wealth management products.
Japan's Line has super app potential. Its messaging app is popular in Japan, Taiwan and Thailand. It has content, e-commerce and a growing portfolio of fintech services, with Line Bank set to launch in Taiwan by the middle of the year. And a recent merger with SoftBank affiliate Z Holdings brings an additional US$4.7 billion in capital to the table. The new entity, which integrates Line with Yahoo in Japan, projects that it will post revenue of 2 trillion yen and operating profit of 225 billion yen by fiscal year 2023. It is the brainchild of SoftBank founder Masayoshi Son, who aims to build a Japanese tech juggernaut able to compete with Google, Amazon, Facebook and Apple in Japan.
Fintech is the magic glue that holds startup ecosystems together in Asia. One after another, the region's biggest platform companies have pivoted to fintech, and then declared themselves super apps, usually in that order. Indonesia's Traveloka is expanding its fintech offerings from Indonesia to Thailand and Vietnam as it eyes going public in the U.S. this year through a blank-check company.
When South Korea introduced a peer-to-peer (P2P) lending law last year, it seemed regulators had paved the way for the industry to grow stably. Seoul recognized that P2P lending could promote financial inclusion. The industry just needed proper supervision to minimize fraud and loan delinquency. However, the loan delinquency rate is rising, Korea's fintech giants are cutting their ties with P2P lenders and many of the firms are struggling to meet the law's requirements.
Sea Group's latest earnings report is packed with good news. Its gaming and e-commerce businesses grew expeditiously in 2020 as people stayed home, shopped online and played online games. EBITDA surged to US$107 million, compared to a loss of US$178.6 million in 2019. Gross profit doubled to US$1.3 billion from US$604 million a year earlier. Net income, however, remained negative. In fact, net losses widened to US$1.62 billion from US$1.46 billion. The question for Sea and investors is, does it matter?
South Africa’s TymeBank has big plans for Southeast Asia. The South African neobank plans to launch a digital bank in the Philippines and may also apply for a digital bank license in Malaysia. Measured by account numbers, Tyme is one of Africa’s most successful digibanks, claiming to have signed up almost 3 million customers since its launch two years ago. In late February, Tyme announced it had raised US$109 million from investors for expansion in Southeast Asia, one of the largest deals ever by a fintech in South Africa.