Southeast Asian countries have for several years been interested in establishing a regional cross-border payments system. Full payments interoperability could be possible in Southeast Asia as early as November 2022, Fitch Solutions Risk and Industry Research said in a recent research note, citing comments made by Southeast Asian central bankers in July. Yet if we take a closer look, we find that the linkages are predominantly bilateral and there are still some kinks to be ironed out before a truly multilateral system of real-time retail payment rails can be established.
Given the ever-more complex geopolitical situation, it is well worth examining the state of renminbi internationalization. Lofty goals mooted in the early 2010s, such as a free float of the Chinese currency, and full convertibility of the capital account, seem out of reach for the foreseeable future. Nor is the renminbi becoming a dominant global reserve currency. Rather, its use is rising in specific use cases, such as bilateral trade settlement, often due to geopolitical considerations.
A commentary in collaboration with Banking Circle.
As Australian banks in recent years have been hit with unprecedentedly high fines for money-laundering violations, they have stepped up de-risking to reduce their exposure to the types of clients they believe could land them in regulatory hot water. In some cases, the banks simply refuse to do business with firms without good reason.
We remember a time, before China’s tech crackdown, when Ant Group seemed keen on building its own cross-border payments ecosystem in Southeast Asia. The Chinese fintech giant’s shopping spree took it to nearly every Asean country, while it has also rolled out wholly-owned digital banks in the Asian financial centers of Hong Kong and Singapore. Then, as now, the question was always how Ant could connect the disparate components of its non-mainland China ecosystem. If it cannot, the whole will never amount to a sum greater than the individual parts.
When we talk about countries that have inadequate anti-money laundering (AML) and counterterrorism financing (CFT) controls, we usually mention how those deficiencies can cause a country to be pleased on the Financial Action Task Force’s (FATF) gray list. Asian countries with the gray list designation who are working to be removed from it include the Philippines, Cambodia and Myanmar. But there is a more serious designation for countries seen as dangerous conduits for illicit financial activity: the blacklist. Unfortunately for Myanmar, it may soon end up on the blacklist.
Though the U.S. and China have for now reached a stock delisting détente, Chinese firms are continuing to show interest in raising capital on European exchanges this year. As such, for the first time ever, Chinese companies have raised more in European capital markets than in the U.S., with the focus on the UK and Switzerland.
We wish we can say we are surprised but we are not: Taiwan’s digital banks are failing to disrupt the country’s financial services sector. While showing potential to exist as digital financial services platforms in a way incumbent Taiwanese lenders do not, Line Bank, Rakuten Bank and Next Bank nonetheless have a long road ahead to reach profitability, with only lending offering money-making (rather than losing) possibility in the short term. For at least the next few years, the digital lenders will struggle to break even on deposits and payments, while they are for the time being restricted from potentially more lucrative businesses like wealth management.
Ending up on the Financial Action Task Force’s (FATF) grey list is unenviable. For developed economies and FATF members like Australia, it is not a common occurrence. However, FATF has previously found certain elements of Australia’s anti-money laundering (AML) controls deficient, and many of the same problems keep occurring. In recent years, several of the country’s largest banks have been slapped with massive fines, while its casinos are not doing enough to fight financial crime.
In the past three years, Hong Kong has faced unprecedented challenges that have brought into question its future as a financial center. Strict adherence to a zero-Covid policy has been particularly impactful. The inability of businesspeople to freely travel to and from Hong Kong has adversely affected the city’s business environment. Still, in certain respects, Hong Kong is continuing to thrive as a financial center.
While U.S.-China tensions are heated in many areas, it appears that the two countries want to keep the bilateral relationship on an even keel when it comes to the financial services sector. Despite the sensitive politics on both sides of the conversation, the two countries have, for now, reached an agreement that should reduce the chance of a large-scale delisting of Chinese companies from U.S. stock exchanges.
Indonesia is the most important market for Alibaba in Southeast Asia and arguably its most important market outside of China, period. Increasingly, Alibaba is focused on Indonesia’s burgeoning digital financial services market. Yet Alibaba recognized early on that it would be impossible to replicate the Alipay model outside of China and instead chose to take strategic stakes in various Indonesian fintech firms or companies with financial services arms.
No country likes to end up on the Financial Action Task Force’s (FATF) grey list. It means that FATF has determined a country’s anti-money laundering (AML) and/or counterterrorism financing (CFT) controls are somewhat deficient. It could be worse – they have a black list too – but that is reserved for the likes of North Korea. The Philippines has been on the FATF grey list since June 2021 and is hoping to exit by January 2023. But it will not be an easy task given persistent concerns about the country’s Bank Secrecy Law, inadequate regulation of the casino gaming sector and seeming reluctance to use the law to fight financial crime more aggressively.
We cannot think of a single Asian market where the arrival of digital banks has upended the competitive landscape. That’s not to say that digital lenders cannot put pressure on incumbents, especially to up their digital game and do something about that clunky legacy IT infrastructure. It is just that getting people to switch banks is much harder than doing the same for say, ride-hailing or food-delivery apps. With the arrival of digital banks in Malaysia, most incumbent lenders will feel some pressure, and consolidation may be in some of their interests, but the big players are unlikely to lose significant market share.
It has been a long time since we heard anything from Dana, the Indonesian Ant Group-backed e-wallet. In the past few years as many big Asian tech firms have invested in incumbent Indonesian banks, intending to refashion them as digital lenders, standalone e-wallets, lacking banking licenses, have been at a disadvantage. Yet Dana may be able to carve out a niche within the ecosystem of Alibaba and the local conglomerate Sinar Mas following the purchase by Lazada of US$304.5 million worth of its shares from existing shareholder Emtek Group and its receipt of a fresh US$250 million investment from Sinar Mas.