How many platform companies outside of China have been able to make the super app concept work? Last time we checked, the only profitable one with a thriving fintech unit is Korea’s Kakao, and the jury is still out on that company. Unlike Korea or China though, Southeast Asia is an extremely heterogenous market – if we can even call a region with 11 countries that speak many different languages a single “market” – which means that a one-size-fits-all super app was never going to be an easy sell. On top of that, Southeast Asia’s consumers have limited spending power while competition in digital services is intense. Grab’s first-quarter performance highlights the challenge platform companies in the region face.
In East Asia, digital banks often are incumbent banks and tech giants in disguise, not so much disrupting the market as putting a new spin on an old story. There are exceptions though, and the Philippines is arguably the most prominent. A unique confluence of factors, from its unique island geography (it has about 2,000 inhabited islands) to complacent incumbents to a significant unbanked population to a central government plan that relies on digital finance to rapidly boost financial inclusion, has given online lenders a real chance to shake up the market and challenge incumbent lenders.
In its competition with Hong Kong to be Asia’s top fintech hub, it is pretty clear Singapore has won. Its linkages to Southeast Asia and India – where the fintech growth story is – are superior, while Hong Kong is more narrowly focused on mainland China, where fintech peaked a while back. Singapore also weathered the pandemic better. That said, Hong Kong is emerging as a strong player in green finance, with some analysts giving it the edge over Singapore.
Singapore has long competed with Hong Kong in asset management. While the latter’s industry is still larger, the city-state’s has been growing expeditiously, buoyed by an influx of capital from China as well as the broader global super rich. Singapore's assets under management grew 16% to S$5.4 trillion (US$404.6 billion) in 2021. More than 75% of that originated outside Singapore, with about 30% coming from other Asia-Pacific countries.
What is going on with Malaysia’s digibanks? All that hype about who would win the licenses, lots of anticipation, the announcement of the five winners, and a year later there seems to be little demonstrable progress. According to a recent report by The Ken, Malaysian digibanks have a human capital problem: That is, they are having a hard time finding the right talent. Without the right people, the five digital lenders will not be off to a strong start.
One would be hard pressed to find any market in East Asia except the Philippines where startups are major digital banking players. In one jurisdiction after the next, regulators have ensured that incumbent lenders and in some cases large technology companies win the requisite licenses to operate online-only banks.
In the battle of Southeast Asia’s platform companies, the one that never declared itself a super app is edging out the others in digital financial services. Despite a slowdown in its gaming arm Garena, Sea Group is growing expeditiously in the e-commerce and fintech segments, a proven synergistic combination if we ever saw one. Just look at Taobao and Alipay. It’s just a more compelling one-two punch than trying to turn a ride-hailing app into a bank like Sea’s competitors are set on doing.
Japan’s largest banks are increasingly looking to fintech opportunities in Asia’s emerging markets as an avenue for growth, as their home market is mature, a laggard in digital transformation and constrained by the world’s greyest population. In contrast, much of Southeast Asia as well as India still have plenty of low-hanging fruit, whether in the payments segment, banking, or both.
While most digital banks struggle to make money, South Korea’s are largely profitable. They have been able to scale up quickly, despite negligible financial inclusion needs. According to the World Bank, almost 99% of South Koreans have a bank account. The factors that have made Kakao Bank, K Bank and Toss Bank successful are unique to South Korea and are unlikely to be replicated elsewhere.
Rakuten Bank is gearing up for what will likely be Japan’s largest IPO since 2018, scheduled for April 21. The country’s oldest digital bank, which was founded in 2001 back in the days of Web 1.0 and was then known as eBank, aims to raise US$800 million at a valuation of US$2.31 billion on the Tokyo Stock Exchange with the sale of 53.95 million existing shares of Rakuten Bank Ltd to both domestic and overseas investors and the issuance of 5.55 million new shares.
Slowly but surely, Thailand’s largest incumbent banks are positioning themselves to dominate the country’s nascent digital banking segment. This is no surprise. It’s how things tend to play out in East Asia – though it’s a shame for startups. The latest Thai incumbent bank to embrace digital banking is Kasikornbank, commonly known as KBank.
In December, the Philippines' House of Representatives approved a bill establishing a sovereign wealth fund. Known as the Maharlika Investment Fund (MIF), it is an initiative of President Ferdinand Marcos, Jr. aimed at raising capital for infrastructure projects, among other things. The Philippines will likely seed MIF with its central bank’s dividends and investible funds from the country’s Land Bank and Development Bank.
Asia has been fortunate thus far in that the failures of Silicon Valley Bank (SVB) and Signature Bank have not had a significant impact on its financial sector. While some financial firms in the region had limited exposure to these defunct lenders, it was not enough to pose a serious problem. Indeed, S&P Global Ratings has found that of the 380 banks and nonbank financial institutions that it rates in the region, it does not anticipate any rating actions directly related to the SVB default.
It was not so long ago that Siam Commercial Bank (SCB) was singing cryptocurrency’s praises and preparing to invest US$500 million in the Thai crypto exchange Bitkub. Alas, it was not meant to be. The crypto market cratered, and one of the kingdom’s largest lenders thought better of betting so big on a sector of financial services with so much inherent risk. SCB is now pivoting to what is turning out to be familiar territory for incumbent lenders in Asia: digital banking.