2020 Top Ten Asia Fintech Trends #1: The Four Asian Tigers tentatively embrace virtual banks

Written by || February 07 2020

In 2019, the Asian tiger economies cautiously welcomed virtual banks. The financial centers of Hong Kong and Singapore as well as the advanced manufacturing hubs of Taiwan and South Korea can all benefit from digital-first competition in their respective financial sectors, where incumbents dominate. That has led to some complacency.  

Since the Asian tigers are developed economies, regulators are not laser focused on financial inclusion as they are in nearby emerging markets. Rather, they recognize that boosting choice - even in overbanked Taiwan - can benefit consumers and small businesses while prodding incumbents to accelerate innovation. At the same time, the "disruption" of traditional banks will be limited. This process will be an evolution, not a revolution. 

The Hong Kong Monetary Authority (HKMA) has been the most enthusiastic backer of virtual banks among the tiger economies, approving eight licenses. Chinese tech giants figure prominently among the consortia that won the licenses, including Ant Financial, Tencent, JD.com and Xiaomi. Deep-pocketed and tech savvy, they could challenge incumbents directly. However, prolonged political instability in Hong Kong has delayed the launch of its neobanks. Of the eight, only ZhongAn Insurance-backed ZA Bank has begun operating. 

Singapore will issue five digital banking licenses, but just two will be full banking licenses that allow the holders to serve both retail and corporate customers. The other three will be wholesale bank licenses limited to non-retail customers. Successful applicants (there have been 21 overall) will be announced in June this year. The new digital banks are expected to start operating by the middle of 2021.

In South Korea, there have been neobanks for several years already: Kakao Bank and K Bank launched in 2017. In 2019, South Korea's Financial Services Commissionsaid it would issue up to three new digital banking licenses but initially rejected the applications of three consortia before approving fintech unicorn Viva Republica's Toss Bank in December. To satisfy the regulator, Toss had to introduce more non-tech investors into its ownership structure and make a better case for future profitability. 

Finally, Taiwan approved three virtual banking consortia last year: one led by Japan's Line Bank, one led by local telecoms giant Chunghwa Telecom and a third backed by Japanese e-commerce giant Rakuten. According to Taiwan's Financial Supervisory Commission, the three neobanks are expected to begin operations in the second half of the year. Local banks are strategic investors in all three groups, ensuring that fintechs and incumbents cooperate even as they compete.