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.
After four years, Cambodia has finally been removed from the grey list of the Financial Action Task Force (FATF), indicating the watchdog no longer sees the kingdom as a country at a heightened risk of money laundering and terrorism financing. It’s an achievement for Cambodia to celebrate, especially given that it coincides with the imminent end of the coronavirus pandemic and a resumption of normal international business and travel links.
Sea Group surprised many of us with its swing to profitability in the fourth quarter, the first time the Singaporean company ever recorded positive net income. The company is much better known for losing money than making it. In the fourth quarter, Sea made a profit of US$422.8 million, compared to a loss of US$616.3 million in the same period a year earlier.
Given the competition it faces from Singapore, Hong Kong cannot afford to rest on its laurels. Over the past few years, Singapore has become a bigger fintech hub than Hong Kong, an increasingly important location for the regional headquarters of both multinational and Chinese companies, and is also quietly attracting high-net worth individuals to set up family offices.
Forgive us for being a bit skeptical about Revolut’s swing to profitability. It took an awful long time for the company to release its 2021 financial report (we’re now in 2023), and when it finally did, the £26.3m profit the company reported was less remarkable than the fact the company’s auditor could not verify £477 million in revenue from subscriptions, cards, foreign exchange and wealth activities.
When Singapore announced the winners of four digital banking licenses in December 2020, one name stood out because most of us did not recognize it: Greenland Financial Holdings. To say the Shanghai-based real estate company Greenland was a “dark horse” candidate for a license would be an understatement. It was not even widely known that the company and its blockchain trade finance partner Linklogis had thrown their hats in the ring. Since winning the license, the two companies have named their digital bank “Green Link Digital Bank.”
As the most cash-loving advanced economy in Asia, Japan has not historically been eager to digitize its financial services sector – with a few exceptions. One of those is Rakuten Bank, which launched in the twilight of Web 1.0 back in the year 2000. At 23 years of age, Rakuten Bank must be one of the oldest digital lenders in Asia, if not the oldest. Gradually, other online banks are entering the Japanese market to compete with Rakuten.
Japan’s largest bank is increasingly looking to digital finance in Southeast Asia as an avenue for growth, as its home market is mature, slow to digitally transform and constrained to some degree by an ageing population. In contrast, Southeast Asia’s largest countries still have ample low-hanging fruit, especially Indonesia, a key area of focus for MUFG.
One of our favorite ironies about digital banking in Asia Pacific is that incumbent banks have a growing role in the segment, from Hong Kong to Singapore to Taiwan to Australia. It wasn’t supposed to be this way – at least not to our knowledge. What ever happened to good old-fashioned scrappy startup-driven disruption? With that in mind, we turn our attention to two digital lenders that can technically be classified as startups, but are backed by Standard Chartered, a huge incumbent lender operating in 59 countries that earns most of its revenue in Asia.
Singapore has long been seen as the Switzerland of Asia, a pro-business, largely neutral state with a huge financial services sector catering to an international clientele. Like Switzerland, Singapore is an integral part of the surrounding region yet also has a strong independent streak and never leans too far to one geopolitical side.
Hong Kong has been busy preparing to roll out the red carpet for digital assets, but there are other emerging areas of financial services that are less volatile and trouble prone, and well, more sustainable. To that end, Hong Kong way want to focus more attention on green/sustainable finance given the reality of climate change and the significant opportunities the segment is expected to provide. Bloomberg Intelligence estimates that combined ESG assets could surge to US$53 trillion by 2025, with the Asia-Pacific region driving “the next leg of growth.”
South Korea’s Viva Republica is defying the tech slump that has frozen funding for many fintech unicorns, both real and aspiring. In late December, it finalized a US$405 million Series G funding and it says it is now valued at 9.1 trillion won ($7 billion), up from 8.5 trillion won in June 2021, when it raised $410 million in pre-Series G funding at a $7.4 billion (8.5 trillion won) valuation.
Australia’s neobank experiment has largely gone awry, with three of the four original online lenders defunct or now part of an incumbent bank. To be sure, startups fail or get bought all the time – more often than they thrive as independent companies – but we dare say that was not the expectation of the neobanks’ founders, nor Australian regulators who sought to introduce greater competition into the financial services sector dominated by four incumbent juggernauts. The one neobank that remains from that first cohort is Judo, which has carved out a niche lending to SMEs, listed successfully on the ASX and seems poised to reach profitability before long.
Better late than never? That was our first reaction to the news that at long last, Thailand has reached a decision on digital banks: It will allow them by 2025, and start accepting applications later this year. By 2024, Thailand will issue three digital banking licenses. And of course, online lenders will have to satisfy certain requirements, which we expect to be stringent and effectively eliminate any scrappy startups from even bothering to throw their hats in the ring.