Recent media reports highlight falling fintech funding in Asia, citing new research by CB Insights. CB Insights reckons that Asia's fintechs will raise about US$4 billion this year, compared to more than US$23 billion last year. Ostensibly, it looks like a fintech winter is upon us, or at least a chilly autumn.
South Korea has been something of a fintech laggard compared to its neighbors in East Asia. Demand for native digital banking services among Korean consumers and businesses is robust, but regulators have erred on the side of protecting incumbents. South Korea's Financial Services Commission (FSC) even rejected all the applicants for virtual-banking licenses earlier this year.
The arrival of open banking could give South Korea's financial services sector a much needed shot in the arm, improving consumer choice and pushing banks to up their game. Customers would be able to manage multiple accounts and withdraw and transfer money from a single smartphone app.
The Philippines is in danger of being listed once again as a high-risk money laundering country by the Financial Action Task Force (FATF), a global AML watchdog. To avoid ending up on a list that includes countries such as North Korea and Iran, Manila must address weaknesses in its AML and counterterrorism financing capabilities.
Hong Kong's major banks have long enjoyed high profits. Competition has been limited. A few heavyweights dominate the sector: HSBC, Standard Chartered, Bank of East Asia, Hang Seng. With the arrival of virtual banks earlier this year, the market was already on the cusp of a sea change. Retail banks realized that they would have to up their game to stay dominant. Then political turmoil swept over the former British colony in June, bringing into question its viability as a global financial center.
Choppy waters lie ahead for Hong Kong's banks, which have been battered by protests, the Sino-U.S. trade war and the slowing Chinese economy. It's unlikely that Hong Kong banks' profits per employee will remain higher than any other market. That was what Citigroup analysts found in 2018, a recent Wall Street Journal report noted.
Indonesia just might have the world's hottest P2P lending sector at the moment. We haven't seen this kind of growth in P2P since before a series of huge scams marked the beginning of the end for China's P2P market. From January to May, the Indonesia P2P sector expanded 44% to reach IDR 41 trillion (US$2.92 billion), according to Indonesia's Financial Services Authority (OJK). That healthy growth represents a moderation from the 645% increase in the year to December 2018.
The Philippines is the world's No. 4 remittance market and growing fast, offering ample opportunities for fintechs. In August, Filipinos overseas remitted $2.88 billion, up 4.6% over $2.76 billion received in the same period a year ago and the highest since May, according to government data. About 10 million Filipinos work abroad. Remittances are the Philippines’ top source of foreign exchange income. A steady inflow of dollars into the Philippines from overseas helps protect the economy from external shocks, analysts say.
At present, banks and transfer services dominate the Philippines' remittance business. The Philippines received US$34 billion in remittances last year (behind Mexico, China and India), according to the World Bank. Imagine if fintechs could capture even a modest portion of that business.
Korea's Financial Services Commission (FSC) surprised some observers by rejecting all of the applicants for a virtual banking license earlier this year. The FSC had different reasons for saying no to the applicants. In the case of Toss, a peer-to-peer money transfer app owned by Korean fintech unicorn Viva Republica, the FSC worried about the ownership structure of Toss Bank and its funding capabilities.
Singapore is expecting sub 1% economic growth this year, but you wouldn't know it from the city-state's booming fintech sector. Research firm Accenture estimates that investors sank $735 million into Singapore fintechs from January-September, up 69% year-on-year and surpassing the $642 million for all of 2018. The top areas for investments are payments (34%), lending (20%) and insurtech (17%).
In Asia's red-hot fintech scene, Taiwan flies largely under the radar. That's largely because no unicorns have yet emerged among its fintech startups, or any other startups for that matter. Taiwan did introduce a fintech regulatory sandbox in late 2017 and more recently established regulations for security token offerings (STOs), but the policies have yet to activate the fintech market. Fintech investment in Taiwan remains limited, especially compared to regional hubs like Singapore and Hong Kong.
Among Asian banks, Singapore's DBS is among the most active in fintech. It has a partnership with Indonesian ride-hailing giant Go-Jek, a fintech accelerator in Hong Kong and a tech-driven Innovation Plan covering machine learning, cloud computing and API development. It has thus far created a platform of 155 APIs across roughly 20 categories. Given that DBS is well ahead of the curve when it comes to financial technology development, should it be concerned about Citibank's recent deals in its neighborhood?
If there ever was a market that could benefit from open banking, it would be Hong Kong. A small group of powerful incumbents has long dominated retail banking in the former British colony, leaving consumers frustrated with the lack of options. Data from Goldman Sachs show that HSBC, Standard Chartered, Bank of China and Hang Seng Bank account for 2/3 of retail banking loans in Hong Kong. Those four banks are even more dominant in the credit card and retail mortgage markets.
Demand for cross-border remittances is surging across Southeast Asia, home to a sizeable migrant worker population and many of the world's fastest growing economies. The amounts being remitted by the region's 21 million migrant workers are considerable - $68 billion annually, according to Siam Commercial Bank (SCB). Given their modest earnings, migrant workers need affordable banking services. They cannot easily absorb the high fees associated with some traditional remittance services.
Two years ago, Laos was removed from the Financial Action Task Force's (FATF) money-laundering grey list after the landlocked Southeast Asia country showed some improvement in its AML policies. Since then, however, progress has been limited. Laos's casinos, property market and money exchange shops remain at high risk for money laundering. No money laundering case has made it to court. The onus is on Laos to better control financial impropriety ahead of a 2020 evaluation of its AML policies. Failure to do so could result in a return to the grey list.
Not even the failure to obtain a virtual-banking license can dampen investor interest in South Korea's fintech unicorn Viva Republica and its digital banking platform Toss. In mid-August, Viva Republica announced it had raised $64 million from a group of investors led by Hong Kong-based Aspex Management. The latest capital injection brings Viva Repubica's total valuation to US$2.2 billion and follows an $80 million funding round in December co-led by Korean investors, Kleiner Perkins and Ribbit Capital.