Kakao Bank has a history of proving wrong skeptics of digital banks. It has been consistently profitable since 2019 and is now set to expand in Southeast Asia. It has managed, for the most part, to stay out of regulatory crosshairs despite disrupting South Korea’s financial services sector. It seemed Kakao Bank’s long string of good fortune might finally have come to an end with the arrest of its parent company’s founder Kim Beom-su on July 23. He has been accused of manipulating stocks during Kakao’s acquisition of the K-Pop agency SM Entertainment last year. Yet thus far, the company’s stock price has been stable, increasing 2% to 21,900 won over the past month, while its second quarter earnings were solid.
With the September 19 deadline for Thailand’s digital bank license applications less than a month away, it is worth taking a closer look at the prospective applicants. As expected, startups are absent. Instead, the likely applicants – and winners – are a mix of Thailand’s ultra-wealthy tycoons, prominent incumbent banks and Asian tech giants. The newest would-be applicant belongs to the latter category.
There is a fundamental problem with digital banks in Hong Kong. Not only are they non-essential because the city’s population is so well banked, they also are almost all the offshoots of large incumbent lenders and/or tech companies. What that means is that most of them lack a startup ethos. While a startup mentality can result in massive cash burn – as seen with Revolut in the UK or N26 in Germany – it also can lead to genuine product innovation. In the absence of such innovation, online lenders resort to gimmicks like high deposit interest rates to attract customers. It is thus no surprise that the eight licensees together owned HK$49.9 billion (US$6.4 billion) in assets last year. That is just 0.3% of the assets owned by all the city's retail banks, according to the Hong Kong Monetary Authority’s data.
South Korea’s No. 2 digital bank K Bank had been planning to go public on the Korea Exchange (KRX) at the end of this year, but unfavorable market conditions could force the company to delay the listing. There are three main issues that could adversely impact the IPO: the softening of the U.S. economy, the legal troubles of the founder of rival internet bank Kakao Bank and the souring of regulators’ views on digital lenders.
The Singaporean sovereign wealth fund Temasek has long been one of the largest institutional investors in China, reflecting the close economic ties between the city-state and the world’s second largest economy. As recently as 2020, China accounted for 29% of Temasek’s portfolio. However, today Temasek’s investments in China have fallen to just 19% of its portfolio, below the U.S. at 22% and Singapore at 27%.
Looking at the stock price of Singaporean platform company Grab, one wonders what investors truly think about this company’s prospects. Since its Dec. 2021 Nasdaq debut in a SPAC merger, Grab has lost 74% of its market value. The stock’s 52-week high is just US$3.88. We suspect that investors are concerned about the viability of Grab’s super app business strategy – which may struggle to pivot away from a focus on growth – even if individual units of the company are doing well. Grab does seem confident about its fintech business though and foresees profitability for its Singaporean digital bank before too long.
Who needs more digital banks in Southeast Asia? If you asked us, we would say not too many countries do. Certainly not Singapore, probably not Malaysia or Thailand, and even though Indonesia is a huge market, it already has a lot of online lenders.
What to make of ANEXT Bank? On the one hand, Ant Group has been focused for years now on expanding its presence in Southeast Asia. Its Singapore digital bank, which provides multi-currency business accounts, unsecured financing with flexible repayment options, and fixed deposit accounts to SMEs, is a key part of that expansion effort. And Ant has continuously injected large amounts of capital into ANEXT. On the other, from a financial standpoint, ANEXT’s performance remains underwhelming, and it is unclear how large the company’s addressable market is in Singapore.
Kakao Bank has long proven skeptics of digital banks wrong. It has been profitable since 2019 and is now set to expand in Southeast Asia. There is just one problem: Its parent company’s founder Kim Beom-su was arrested on July 23. He has been accused of manipulating stocks during Kakao’s acquisition of the K-Pop agency SM Entertainment last year.
We remember when Australia first kicked off its open banking initiative, known as the “consumer data right,” with much fanfare five years ago. The program was supposed to increase the quality of banking services to consumers by giving them access – in theory – to more of a customized experience in which they could pick and choose which services they wanted from which providers. They only had to agree to let their data be shared with different banks. However, a recent report by the Australia Banking Association (ABA) found that just 0.3% of bank customers are using the program, suggesting that it has been a failure and that Australia needs to reimagine its approach to open banking.
Singapore’s digital banks have been underwhelming in their first few years of operation, though the likely raising of a deposit cap in July 2023 has benefited Sea’s MariBank and Grab-Singtel’s GXS Bank. It was always a risky endeavor to bet on the retail segment given how well served it already is in the city-state, but there is no turning back now for Singapore’s preeminent platform companies. The question is whether MariBank’s big loss in 2023 should be viewed as a glass half empty or half full.
The banking system in Singapore has been under greater scrutiny ever since a few banks operating in the city were ensnared in Malaysia’s massive 1MDB scandal. There is an inherent contradiction that all financial hubs face when they try to attract the ultra-wealthy and their assets, but also want to ensure the highest degree of compliance. Inevitably, some clients have something to hide. When there is possible unusual activity, banks have to make the call whether it is necessary to flag the transactions and report them. Thus it is not surprising that Singapore said in a new report that its banking sector poses the highest money laundering risks following a scandal involving more than S$3 billion (US$2.2 billion) in illicit assets.
It is hard to believe that more than five years have passed since Hong Kong first approved virtual banks. The disruption that had been forecast has not come to pass and we wonder how much longer some of the online lenders will endure. Those backed by large public companies – which have to explain to investors why they are supporting unprofitable endeavors – could be the first to throw in the towel. That said, Hong Kong-based WeLab Bank, which is backed by billionaire Li Ka-shing, has seemingly defied the odds thus far with its performance. It says it is on a clear path to profitability and is expanding strategically in Southeast Asia.
Not so long ago, when Hong Kong was struggling with the impact of civil unrest and strict Covid-19 controls, other cities in Asia sensed an opportunity to bolster their respective financial center credentials. Not Singapore, which is already an established Asian financial center – and has grown in recent years – but cities such as Tokyo and Taipei.