The Singapore digital banking race is accelerating. The Monetary Authority of Singapaore (MAS) has winnowed down the applicant field from 21 to 14. While the MAS did not say which contenders failed to make the cut, observers close to the matter say that the consortia headed by Grab/Singtel, Sea, Razer and MatchMove have all advanced to the next round. Those four applicants are all bidding for a coveted digital full bank (DFB) license, which permits holders to serve both retail and non-retail customers. The MAS plans to issue a maximum of two DFB licenses.
Hong Kong's virtual banks will not easily unseat entrenched incumbents, but the newcomers are already succeeding in one respect: They are forcing traditional banks to up their digital game. This trend started well before the coronavirus pandemic, but has accelerated as concerns about the virus impede customer visits to physical branches. The virus is acting as a catalyst for digital transformation among Hong Kong's incumbent banks just as the virtual banks are launching.
South Korea's K bank, one of three licensed virtual banks in the country, is planning to reopen in July if it can secure additional capital. K bank suspended most of its services about a year ago amid fundraising travails. It would be an impressive feat for the bank to resolve those capital issues amid the pandemic-induced downturn. South Korea entered a technical recession in the second quarter with GDP expected to contract 2% compared to the January-March period, according to the Bank of Korea.
Indonesia's Gojek is one of Asia's most ambitious unicorns. It leads the ride-hailing and food-delivery markets in Indonesia, and is steadily increasing its digital banking services. In June, it filed trademarks for new business entities that could pave the way for expansion into corporate services, live-video conferencing and electronics repair. Yet the company remains unprofitable eight years after its founding. Gojek needs to boost the stickiness of its app and speed up monetization. That's why it's a wise move for the company to partner with Facebook and PayPal, which took took respective 2.4% and 0.6% stakes in Gojek's fintech arm GoPay, a regulatory filing shows. The U.S. tech giants' investments were part of a fundraising round that reportedly values at Gojek at more than US$10 billion.
In May the European Commission named Cambodia as one of 12 nations at a high risk for money laundering and terrorism financing. The EC's move is a setback for Cambodia, which aims to attract foreign investment and develop a thriving digital economy. The kingdom will likely be added to a list that includes countries such as North Korea Iran, Yemen, Syria and Afghanistan. The EC said that it sought to better align with the international money-laundering watchdog FATF, which put Cambodia on its gray list in February 2019 for having "significant deficiencies" in its anti-money laundering and counter-terrorism financing regime.
Judo Bank has become the first of Australia's neobanks to reach a AU$1 billion valuation and just the second so-called fintech "unicorn" in the country after Tencent-backed Airwallex. Investors shrugged off the coronavirus pandemic and economic doldrums - Australia is headed for its first recession since 1991- and handed Judo an additional AU$230 million in May. Melbourne-based Judo has now raised a total of AU$770 million in equity over three fundraising rounds. Among Judo's existing investors: the Abu Dhabi Capital Group, Bain Capital Credit, Ironbridge, Myer Family Investments, OPTrust, SPF Investment Management, and Tikehau Capital.
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.