Asia Banking Research

Indonesia's super-app Go-Jek has borrowed a page out of both Uber and WeChat's books on its way to hallowed decacorn status - valuation of US$10 billion. Like Uber, Go-Jek began as a humble ride-hailing app. It soon expanded into food delivery, just as Uber did with Uber Eats. Go-Jek then added digital banking services as China's Tencent did with WeChat Pay and WeBank. One of Go-Jek's goals is to gain a strong foothold in internet banking as Tencent has in China. Singapore-based Grab (in the Indonesian market through its stake in Ovo) has a similar plan, and just might be a match for Go-Jek. What about Indonesia's banking incumbents though? They can't just stand by idly while the super apps eat their lunch.

Among Asian countries, Pakistan is a relatively slow adopter of fintech, but it also has great need for easy-to-access digital financial services. Pakistan has a population of more than 210 million people, just 7% who have a bank account. High banking infrastructure costs have excluded most people from the formal financial system.There are several factors that make Pakistan an especially promising future fintech market. First, Pakistan's smartphone penetration is forecast to reach 50% by 2020 - that's more than 105 million potential customers. Second, Pakistan is one of the youngest countries in the world. 64% of the population is younger than 30 and 29% is aged 15-29, according to the United Nations' National Human Development Report. Young people are typically more willing to bank with their smartphones.

South Korea's challenger banks face an increasingly tough competitive and regulatory environment despite having accrued a considerable user base. Kakao Bank, operated by Korean mobile messaging giant Kakao, and K bank, led by telecommunications firm KT, aim to offer a wider array of banking services, but past missteps could prevent them from securing the approval of Korea's Financial Supervisory Commission (FSC). At the same time, several new virtual banks are expected to enter the Korean market later this year.

China's Big Four state-owned banks, renowned for their massive market capitalization and close ties to the Chinese government, have long played a key role in the PRC's traditional financial system. An important challenge they - Bank of China (BOC), Industrial and Commercial Bank of China (ICBC) China Construction Bank (CCB) and Agricultural and Commercial Bank of China (ACBC) - face today is developing a digital-first strategy. Among the four, only CCB has has set up a dedicated fintech unit.

With a young population of more than 100 million, the Philippines is one of the most exciting Asean markets for fintechs. Just 34% of Filipinos have bank accounts, according to the World Bank, which means fintechs can play a leading role in the government's financial inclusion efforts. The Philippines is setting up a digital national identity system which should boost credit access for the underbanked. Once registered, residents will be given a 12-digit PhilSys Number that will be used as a digital identity across different platforms. Authorities plan to sign up 7 million Filipinos in 2019 and an additional 20 million in 2020 once the formal application process starts. By 2023, the government expects to have completed registration for all Filipino citizens and resident aliens.

Malaysia may launch virtual banks by the third quarter of 2020 in a bid to boost its fledgling fintech sector and improve banking services for its people. Observers expect that the launch is imminent now that Bank Negara Malaysia has said that virtual banking license requirements will be announced by year-end.

Vietnam is one of Southeast Asia's most dynamic markets for fintech. It has a young, connected population, a fast-growing economy and millions of unbanked people. In 2017, just 40% of Vietnam's adults (defined as 15 years or older) had a bank account, according to the World Bank. Investment in Vietnam's fintech startups reached $117 million in 2018, according to startup accelerator program Topica Founder Institute.

China's UnionPay is stepping up European expansion in a bid to capture business from Chinese outbound tourism and corporate travel. The Chinese payments giant has established a partnership with Barclay's, which processes almost half of the UK's credit and debit card transactions, that will allow 110,000 UK merchants to accept UnionPay beginning from the summer of 2019.

India's fintech sector has surged over the past few years, with deal value reaching $2 billion in 2018. India now has more than 2,000 fintech startups, compared to less than 750 in 2014. Most Indian fintech startups are in the payments and lending segments, a boon for the subcontinent's under-banked population. Given the importance of fintech to financial inclusion in India, Delhi is preparing to launch a regulatory sandbox that would ensure that the industry develops stably. In late March, Reserve Bank of India (RBI) governor Shaktikanta Das said that the RBI would publish the guidelines for the creation of a fintech regulatory sandbox in the next two months.

As one of Southeast Asia's preeminent markets, Indonesia offers strong opportunities for fintechs. With a population of 265 million, it is larger than Vietnam, Thailand, Malaysia, Myanmar and Cambodia combined. In 2018, the Indonesian economy expanded 5.18%, beating economists' forecasts.

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