Grab is going all in on digital banking. In the period of less than a month, Southeast Asia's most valuable unicorn has won a Singapore digital bank license and raised US$300 million in a funding round led by South Korea's Hanhwa Asset Management. That was the first external funding for its fintech arm. Other participating investors included long-time Grab backers GGV Capital and K3 Ventures as well as eBay founder Pierre Omidyar's Flourish Ventures.
Malaysia's digital banking race will be the one to watch now that Singapore's has finally ended. On January 1, Bank Negara Malaysia (BNM) formally invited applications for digital banking licenses. The deadline for submission will be June 30 and BNM will announce up to five winners by the first quarter of 2022. Compared to Singapore's, this should be more of a wide open race. Fewer tech giants will be in the running, although Grab will likely throw its hat into the ring.
The Philippines must act swiftly to implement tougher anti-money laundering (AML) legislation or it will likely be placed on the Financial Action Task Force's (FATF) gray list alongside failed states such as Syria, Yemen and Zimbabwe. Countries on the gray list, which is updated annually in February, are identified as having strategic deficiencies in their anti-money laundering /counterterrorism financing (CFT) regime that pose a risk to the global financial system. Enhanced compliance procedures required for transactions with financial institutions located in gray-list countries could make it harder for the Philippines' many migrant workers to remit money home and reduce the country's attractiveness to investors.
December was an eventful month for Australia's neobanks. Xinja's demise made waves, showing that it does not pay to keep building atop a flimsy foundation. Castles in the air must come down. And yet, some Aussie neobanks are thriving. Shortly after Xinja said it would turn in its banking license, Australian Financial Review reported that Judo Bank was set to raise up to AU$200 million from investors, bringing its valuation to AU$1.65 billion.
The Grab-Gojek rivalry is fast becoming the stuff of legend. Barring a merger, those two Southeast Asian decacorns are determined to one-up each other for evermore. The rivalry began with ride hailing and food delivery and has intensified in the fintech sector, the best hope for both firms to reach profitability and provide their deep-pocketed investors with an attractive exit. Following Grab leading a US$100 million funding round in Indonesian e-wallet LinkAja, Gojek spent US$160 million to increase its stake in PT Bank Jago to 22% from 4%. It is Gojek's largest investment yet in financial services.
Taiwan has had no shortage of opportunities to become a regional financial center. Most recently, Hong Kong's business environment declined markedly, prompting calls in Taipei to attract financial business from the former British colony. That will not happen though. Taiwan's regulatory environment is too restrictive. The business that leaves Hong Kong will instead go to Singapore and Tokyo.
In the twilight of 2020, warnings about shaky neobank business models often fall on deaf ears. For most neobanks and their investors, the prevailing business model remains growth first, ask questions later. Perhaps the abrupt collapse of Xinja, an erstwhile high-flying Australian neobank, will give others in the sector pause about their approach. Like most of its peers, Xinja telegraphed extreme confidence about its prospects. Right up until the end, Xinja was cool as a cucumber, assuring the public that a huge investment from Dubai-based investors was on the way. As it turns out, the cash is missing in action. And it is quite a sum.
Political uncertainty has dulled Hong Kong's edge as a global financial center. That much was clear long before Ant Group's IPO came to a screeching halt. The abortive Ant deal signaled that politics could shake Hong Kong's capital markets too. Still, Hong Kong's IPO market remains red hot - just not for fintechs anymore. As Hong Kong draws closer to China, it will assume the role of the country's offshore financial center. That will provide both Singapore and Japan with the chance to win some new business, which will be for the best. Asia is large enough to have multiple financial centers, each with a different role.
Revolut always thinks big, so it is no surprise that the UK neobank unicorn is now billing itself as a global financial super app. Revolut's CEO Nikolay Storonsky spoke about this topic at Singapore's recent Fintech Festival. It was hard not to see the irony there. While Revolut was talking about its super app dreams, Grab-Singtel, Sea Group and Ant Group were mulling how to best use their newly won Singapore digital bank licenses. Revolut was not even in the running for one. It dropped out of the race more than a year ago due to the stringent capitalization requirements.
Now that Singapore's digital banking race is over, the losers must shift gears. And there were far more failed than successful bids. Of the 14 applicants which made it to the final round, only four were awarded licenses. The Monetary Authority of Singapore (MAS) may issue a fifth license in the future, but none of the remaining 10 applicants will sit around waiting for that day. Instead, they will look for opportunities outside of Singapore.
The Monetary of Authority of Singapore (MAS) set the bar high for aspiring digital banks to ensure that the licensees would be well capitalized and have a clear path to profitability. The stringent requirements ensured that defiant upstarts like the UK's Revolut opted out of the competition. In the end, the MAS awarded four licenses, two digital full bank (DFB) and two digital wholesale bank (DWB). There were few surprises. The winners were primarily big platform companies long considered leading candidates. The one exception was the consortium made up of Greenland Financial Holdings, Linklogis Hong Kong and Beijing Co-operative Equity Investment Fund Management, which was awarded a DWB license.
Three Chinese tech giants are competing for digital wholesale bank licenses (DWB) in Singapore: Ant Group, Xiaomi and ByteDance. Ant Group applied for the license alone, while Xiaomi (with AMTD) and ByteDance lead respective consortia. Prior to its abortive IPO, Ant had been widely considered one of the top candidates for a DWB. Ant's online banking experience far outstrips that of Xiaomi or ByteDance. However, China's crackdown on microlending could a deal a blow to Ant's prospects.
Australian neobank Judo is weathering the pandemic-induced downturn better than many of its counterparts. The Melbourne-based neobank reached unicorn status in May as it raised an additional A$230 million and says it was profitable as of August. Judo expects to raise an additional A$200 million to A$300 million before the end of the year.
Kakao Bank is having an exceptional year, setting the stage for a blockbuster IPO in 2021. Kakao's third-quarter profit rose more than 700% year-on-year to 40.6 billion won (US$35.9 million). Through September, Kakao had recorded 85.9 billion won in profits, up more than 458% annually. The Seoul-based neobank attributed its outstanding third-quarter performance to additional interest income and its non-interest business swinging to profitability for the first time.