In mid-September, Tencent opened a Singapore office that will serve as its regional hub, reflecting the Chinese tech giant's growing focus on Southeast Asia. Tencent aims to build a digital services ecosystem in the Asean countries that replicates the success it has achieved at home. Digital banking forms one cornerstone of that strategy, although less overtly than in the case of Tencent's rival Alibaba. Rather than applying for its own digital bank license in Singapore, like Ant Group, Tencent is instead relying on strategic stakes it has taken in internet companies, such as Singapore's own Sea.
Neobanks like to talk about disruption, but in Hong Kong, they're actually putting their money where their mouth is. Five of the eight virtual banks approved to operate in the former British colony have gone live: ZA Bank, Airstar, WeLab, Fusion Bank and Livi Bank. While none of them has a game-changing value proposition yet, their low fees, digital agility and high deposit rates (at least during a promotional period) are bound to attract customer interest. Their digital acumen is taking on new importance during the pandemic, which recently flared up in Hong Kong.
Grab isn't just Southeast Asia's most valuable startup: It's also the most ambitious. Grab aims to give digital banking pride of place in an ecosystem heretofore reliant on ride hailing and food delivery. The user base is there to make the digibanking gambit work, Grab says, pointing to its millions of passengers, drivers and food-delivery customers.
China's ByteDance is quietly deepening a push into fintech in Asia as the future of its U.S. operations hangs in the balance. ByteDance's popular short-form mobile video platform TikTok has become a major front in the U.S.-China technology war. Now more than ever, ByteDance needs to monetize its services. Fintech could be a way forward for the company, whose US$100 billion valuation makes it the world's most valuable startup in private markets.
Singapore may be the Lion City, but there's an elephant in the room when it comes to digital banking: Incumbents are readier than ever for the challengers. Singapore's Big Three of DBS, OCBC and UOB have been digitizing for years with varied degrees of success. The pandemic gave them an opportunity to fast track the process. After all, when retail branches are closed and everyone stays home, banking digitally becomes a necessity, not a convenience.
The Taiwanese government recently announced its intention to transform Taiwan into a regional finance hub. Wealth management is an area of focus. One would think that the government would see a chance to simultaneously bolster fintech development in Taiwan, which has lagged compared to the other Asian tiger economies: Singapore, Hong Kong and South Korea. Yet the Taiwan government remains wary of disruption in the financial sector. As demonstrated in the Financial Supervisory Commission's (FSC) new three-year fintech roadmap, Taiwan remains committed to a cautious, prescriptive approach to fintech that prioritizes strengthening the digital capabilities of incumbents.
Gaming firm Razer is about as far from a bank as you can get. While it has a fintech arm, Razer's bread and butter lies in gaming hardware, software and services. Fintech, which refers primarily to payments in Razer's case, is a means for gamers to make in-game purchases. Razer sees a big opportunity though: Turn its many millennial gamers into banking customers. After all, they're already spending money digitally in the Razer ecosystem.
In addition to the digital full bank (DFB) license it has applied for in Singapore, Razer is also aiming to develop a larger international digital finance network. A logical first step would be to apply for a digital bank license in neighboring Malaysia, where Razer already has a strong presence. Malaysia is the only market besides Singapore where Razer's e-wallet Razer Pay is in wide use. Malaysia also recently signaled its willingness to apply more non-financial firms to apply for digital bank licenses.
Capital requirements for a Malaysia digital bank license are fairly stringent, with an absolute minimum of RM 100 million (US$23.7 million) necessary during an initial three to five-year period and later RM 300 million. As a listed company, Razer, however, could easily meet them. It has about US$500 million in cash on hand, according to an August statement.
Razer is also reportedly considering expanding its digital finance business to other Southeast Asian markets, India and Latin America.
Razer would not be the first gaming giant to become a digital banking juggernaut. Tencent has made that transformation, although it wasn't a straight shot from gaming to fintech. The WeChat messaging app played a paramount role.
Tencent-invested Sea is also trying to make the jump from gaming to banking, but unlike Razer, Sea has a large e-commerce business. That makes Sea's bid to support SMEs more convincing than if it were a gaming company alone. Sea already has many small businesses in its ecosystem, while Razer has primarily potential retail banking customers.
Sea and Razer have one thing in common though: Both are ascendant but still loss-making. Hong Kong-listed Razer posted a net loss of US$17.7 million ($24.2 million) from January to June, a 64% improvement over the US$47.7 million it lost a year earlier. Revenue rose 25% annually to US$447.5 million on the back of strong demand for its gaming products.
Razer's fintech business recorded US$1.8 billion in total payment volume in the first half of the year, up 114.3% year-on-year. The business grew briskly thanks to rapid customer acquisition, both on the merchant and consumer sides - rising digital entertainment consumption amid the pandemic helped drive growth in the latter market segment.
"The fundamentals of our business remain as solid as ever," Min-Liang Tan, co-founder and CEO of Razer, said in a statement. That, "coupled with our strong operating cost discipline and our strong cash position of over US$500 million, put us in good stead, even during times of challenging global economic conditions."
After a rocky 2019, South Korea's Toss has performed strongly thus far in 2020. Despite the pandemic, Toss broke even for the first time in April. In late August Toss's parent company Viva Republica announced it had raised US$173 million, bringing its total war chest to US$560 million and its valuation to US$2.6 billion. Investors in the fundraising round include Aspex Management, Kleiner Perkins Digital Growth Fund, Altos Ventures, Goodwater Capital, and Greyhound Capital. Toss will use the cash to support the next stage of its expansion.
The Covid-19 pandemic has created a new normal that is affecting the livelihoods of billions of consumers and businesses globally. Singapore is no exception as the fintech industry faces unprecedented challenges. However, the Singapore government has been very supportive of the industry and there are a number of public and private initiatives that have been launched to help the industry along. As part of Kapronasia's work to help companies through this time, please do not hesitate to reach out for a conversation of how we might be able to help your business weather this time. As a Singapore-based firm, we are able to work through many of the programs that are listed below which provides clients with the same Kapronasia quality at often a much lower cost through grants and incentives.
The Monetary Authority of Singapore (MAS) threw FinTechs a lifeline in April following a survey of Singapore FinTech Association (SFA) members which found that 47.8% of respondents felt that Covid-19 has had a significant impact on their business.
As part of the S$125 million “Covid-19 FinTech Care Package,” funded by the Financial Sector Development Fund, the MAS announced a new Digital Acceleration Grant (DAG) under the Financial Sector Technology and Innovation (FSTI) scheme. The DAG seeks to help smaller financial institutions (FIs) and FinTech firms in adopting, customizing, or collaborating on digitalization projects to streamline processes and deepen capabilities.
The DAG scheme consists of two tracks: The Institution Project track and the Industry Pilot track.
The Institution Project track supports the adoption of digital solutions to improve operational resilience, enhance productivity, manage risks more effectively and/or serve customers better. Eligible FIs and FinTechs are entitled to 80% of qualifying expenses up to a cap of S$120,000 per entity over the duration of the scheme.
The Industry Pilot track supports collaborations among at least three smaller Singapore-based FIs to customize digital solutions for implementation within their institutions, by co-funding 80% of qualifying expenses, capped at S$100,000 per participating FI per project.
The MAS’ Covid-19 FinTech Care Package consists of three main components. The DAG scheme falls under “strengthening digitalization and operational resilience.” The other two main components of the MAS support package are:
Supporting workforce training and manpower costs: Under this component of the package, the MAS will launch a new Training Allowance Grant (TAG) to encourage FIs and FinTech firms to train and deepen the capabilities of their employees. Self-sponsored individuals and employees at FIs and FinTechs can apply to receive a training allowance and subsidized course fees, while FIs are also eligible to receive a salary grant under the Finance Associate Management Scheme (FAMS).
Enhancing FinTech firms’ access to digital platforms and tools: Under this component of the package, the MAS will provide all Singapore-based FinTech firms six months’ free access to the API Exchange (APIX), an online global marketplace and sandbox for collaboration and sales. The MAS will also work with the SFA to set up a new digital self-assessment framework for MAS’ Outsourcing and Technology Risk Management (TRM) Guidelines hosted on APIX. Completing the self-assessment will help FinTech firms provide a first-level assurance to FIs about the quality of their solutions.
MAS-SFA-AMTD FinTech Solidarity Grant
In a separate initiative introduced in May, The MAS, SFA, and AMTD established a S$6 million MAS-SFA-AMTD FinTech Solidarity Grant to support Singapore-based FinTech companies amid the Covid-19 pandemic. The grant will help FinTechs manage their cashflow better, support them in generating new businesses, and provide greater support for FinTechs to pursue growth strategies.
The grant is made up for two parts:
The Business Sustenance Grant seeks to tide over Singapore-based FinTechs during this Covid-19 period and save jobs. It offers both wage and rental support.
The Business Growth Grant aims to foster the continued growth of Singapore-based FinTech companies and help these companies offset their POC costs. The grant offers 70% of qualifying costs related to the POC on APIX, as well as 100% internship funding for interns involved in the development and implementation of the POCs.
Consumer internet company Sea is in many ways the ideal candidate for a Singapore digital full bank license. It has a trio of digital services: the gaming arm Garena, the e-commerce platform Shopee and SeaMoney, which focuses on digital financial services. All that's missing is a digital bank license that would allow NYSE-listed Sea to offer full-fledged banking services to the many users it has across those three core businesses.
Ride-hailing Grab is pushing deeper into digital banking, launching an auto investment service similar to Ant Group's Yu'e Bao. In Grab's case, the AutoInvest service allows users to invest - the minimum is set at just S$1 - while using the company's ecosystem. Fullerton Fund Management and UOB's fixed income funds are responsible for the investments. They expect annual returns of 1.8%, similar to what banks in Singapore offer. At the same time, Grab plans to offer third-party consumer loans from licensed bank partners, with which the ride-hailing giant will integrate APIs.
Hong Kong's eight virtual banks largely represent vested banking and tech interests in the city. Most of the newcomers are actually oldcomers if you stop to think about how well established they are outside of Hong Kong's nascent digital banking segment. WeLab, a Hong Kong-based fintech startup, is the exception. Founded in 2013 by ex-Citibank executive Simon Loong and two other partners, the company has steadily grown over the past seven years, and says it now has 40 million customers and disbursed more than HK$50 billion in loans in Hong Kong, mainland China and Indonesia. WeLab's Hong Kong virtual bank went live in July.
It's good to be Kakao Bank. Kakao was already South Korea's most successful neobank story before it reported record earnings in the second quarter of 26.8 billion won ($22.6 million), a nearly 900% year-on-year increase from 3.0 billion won a year earlier. Kakao's net profit for the first half of the year reached 45.3 billion won, a more than fourfold increase from 9.6 billion in the first half of 2019. That Kakao achieved this exponential growth amid the pandemic and a weak overall South Korean economy is particularly impressive.
According to Kakao, its profits surged on the back of rising net interest income and commissions from the sale of financial products. "We were able to make more profit from increased revenues from lending and fees from partnering with credit card companies and brokerages," the company said in a statement published by South Korean media.
The picture for Kakao Bank's lending business is fairly rosy. Its outstanding loan balance grew to 17.68 trillion won in the second quarter, up from 14.88 trillion won a year earlier. Financial inclusion is one name of the game as well: Kakao said it provided 660 billion won in mid-rate loans to consumers with mid- to low-level credit scores from January to June and plans to disburse a total of 1 trillion won of such loans in 2020.
Like many successful fintechs, Kakao Bank is steadily developing partnerships with key incumbents. It has four local credit card partners in South Korea, including Shinhan Card and Samsung Card. From April to July, Kakao issued 260,000 credit cards, according to The Korea Herald.
Kakao Bank also has a burgeoning equities trading business. As of late June, it had more than 2.18 million such accounts, up from 1.14 million in December 2019. Its partners among incumbents include Korea Investment & Securities, NH Investment Securities and KB Securities.
At the same time, Kakao Bank benefits from the stickiness of the Kakao ecosystem, which is a super app in all but name. Kakao Bank already has 11 million monthly active users, more than half who are under age 50. And there are many more potential customers where those came from: The dominant KakaoTalk messaging app has almost 45 million monthly users, about 87% of South Korea's population.
Thanks to its strong brand name and ecosystem, Kakao Bank managed to reach profitability in just two years from its establishment in 2017. Further buoying its growth was when its parent company Kakao Corp became the virtual bank's majority shareholder, the first instance in Korea of a non-financial firm holding a majority stake in a bank. That change allowed Kakao Bank to issue new shares worth 500 billion won and increase its paid-in capital to 1.8 trillion won.
When it comes to Asian financial centers, Hong Kong and Singapore are no longer the only games in town. Tokyo, Seoul and Sydney have recently signaled intent to bolster their financial sectors and take on a larger regional role. Yet right on Hong Kong's doorstep there is another potential contender: Taiwan. In recent weeks, Taiwan's government has highlighted its plan to develop a more globally oriented financial sector. That will be easier said than done. Taiwan takes a fundamentally conservative approach to finance that will not be easily changed.