Ending up on the Financial Action Task Force’s (FATF) grey list is unenviable. For developed economies and FATF members like Australia, it is not a common occurrence. However, FATF has previously found certain elements of Australia’s anti-money laundering (AML) controls deficient, and many of the same problems keep occurring. In recent years, several of the country’s largest banks have been slapped with massive fines, while its casinos are not doing enough to fight financial crime.
Indonesia is the most important market for Alibaba in Southeast Asia and arguably its most important market outside of China, period. Increasingly, Alibaba is focused on Indonesia’s burgeoning digital financial services market. Yet Alibaba recognized early on that it would be impossible to replicate the Alipay model outside of China and instead chose to take strategic stakes in various Indonesian fintech firms or companies with financial services arms.
No country likes to end up on the Financial Action Task Force’s (FATF) grey list. It means that FATF has determined a country’s anti-money laundering (AML) and/or counterterrorism financing (CFT) controls are somewhat deficient. It could be worse – they have a black list too – but that is reserved for the likes of North Korea. The Philippines has been on the FATF grey list since June 2021 and is hoping to exit by January 2023. But it will not be an easy task given persistent concerns about the country’s Bank Secrecy Law, inadequate regulation of the casino gaming sector and seeming reluctance to use the law to fight financial crime more aggressively.
We cannot think of a single Asian market where the arrival of digital banks has upended the competitive landscape. That’s not to say that digital lenders cannot put pressure on incumbents, especially to up their digital game and do something about that clunky legacy IT infrastructure. It is just that getting people to switch banks is much harder than doing the same for say, ride-hailing or food-delivery apps. With the arrival of digital banks in Malaysia, most incumbent lenders will feel some pressure, and consolidation may be in some of their interests, but the big players are unlikely to lose significant market share.
Despite being recent arrivals to the Philippine financial services market and not having – at least for the most part – a large deposit base yet, the country’s digital banks are shaking up the market, prompting major fintechs without banking licenses and traditional lenders alike to step up their game. The Philippine central bank recently greenlighted one more digital bank, GoTyme, to start its operations while both UNObank Inc. and Aboitiz-led UnionDigital Bank Inc. started commercial operations last month.
South Korea’s Toss Bank is experiencing exponential growth amid strong demand for digital financial services and weak digital offerings from incumbent lenders. From the time of its launch in October 2021 through the end of June, online bank had opened 3.6 million accounts. Toss has added 2.5 million accounts this year, a pace of growth that more than doubles its first three months of operation, when it signed up 1.1 million customers. Further, Toss’s loan books have reached 4 trillion won.
Japan’s Rakuten first announced plans for an initial public offering of its online banking unit in September 2021 amid fierce competition with Amazon and as it faced steep costs from building a mobile network. 10 months later, the Japanese platform company said that it had applied to list its online banking unit on the Tokyo Stock Exchange. It has not yet, however, given any specific guidance as to when the IPO will occur.
The demise of yet another Australian neobank brings to mind Queen’s hit 1980 song, “Another One Bites the Dust.” With the abrupt collapse of Volt, which said in late June it would cease operations and return AU$100 million in customer deposits after failing to raise AU$200 million, the Australian neobanking experiment’s last chance for success is Judo, which listed on ASX last year and has reached profitability. Otherwise, now both Xinja and Volt have collapsed, while 86 400 was acquired by National Australia Bank (NAB) in early 2021.
Hong Kong is battling a surge in financial crime committed both online and by telephone. The uptick in fraudulent activity coincided with the city’s worst Covid-19 surge, which occurred in the first quarter of this year. At the time, Hongkongers were largely confined to their apartments; the economy was in its worst state of the pandemic, shrinking by 4%, and the government imposed especially harsh measures to slow the spread of the hyper-infectious omicron variant. These conditions led to higher unemployment and greater desperation in the population, making some people easy prey for fraudsters.
2022 is turning out to be the year that Asia’s super apps must swallow their pride. For Korea’s Kakao, whose digital bank became the country’s most valuable lender following its IPO in August 2021, the fall from grace has been swift and painful. Both Kakao Bank and the company’s payments arm Kakao Pay have struggled with falling market capitalizations since late 2021, while a scandal in which Kakao Pay executives swiftly sold off their shares in the company after the IPO undermined public trust in the Kakao brand. Ant Group’s decision to reduce Alipay's stake in Kakao Pay has dealt another blow to the Korean platform company.
Chinese fintech giant Ant Group announced the soft launch of its Singapore digital bank ANEXT with fanfare earlier this month. The announcement came nearly three years after the Monetary Authority of Singapore (MAS) said it would issue up to five digital banking licenses. Now that ANEXT has finally gone live, it is worth assessing its prospects. The bank holds a digital wholesale banking (DWB) license, which allows it to serve non-retail customers only. ANEXT plans to develop an open framework for financial institutions together with MAS-backed Proxtera, a hub connecting B2B marketplaces, trade associations and service providers. While Ant has high hopes for ANEXT’s potential to serve SMEs in Singapore, it is likely to face some significant challenges in the city-state’s ultra-competitive financial services market.
Asia’s platform companies had a great run, but amid a shaky global economy they have no choice but to make substantive changes to their business models. For most of these companies, the biggest problem is that they do not make enough money to offset their costs. Until very recently their primary focus was on user numbers rather than profitability. Indonesia’s GoTo, despite some strong fundamentals working in its favor, probably will have to undergo a painful transition if it expects to thrive in the long term.
While digital banks are all too often hyped, in the Philippines’ case online lenders truly have a large market opportunity. Incumbents have limited reach and there is a large unbanked population, estimated at 47% of adults (31.5 million people) as of early 2021 by Bangko Sentral ng Pilipinas (BSP), the Philippine central bank. Of the 53% with bank accounts, there is undoubtedly a considerable underbanked population. The Philippine digibank Tonik reckons that the country’s retail savings market is valued at up to US$140 billion and its unsecured consumer lending market at US$100 billion.
In August 2021, The Bangkok Post ran an article entitled “Thailand ripe for a digital banking battle” that captured the conventional wisdom about the prospects for online lenders in the kingdom, which is that there is a significant market opportunity for them due to lagging digitization among incumbents rather than the existence of a significant unbanked population. About 82% of Thais have a bank account, though by one estimate 48% of the population is underserved. Yet the opportunity for digital banks could be shrinking as big traditional lenders accelerate digital transformation and the government introduces real-time retail payments possible with only a mobile number.