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.
Despite being recent arrivals to the Philippine financial services market and not having – at least for the most part – a large deposit base yet, the country’s digital banks are shaking up the market, prompting major fintechs without banking licenses and traditional lenders alike to step up their game. The Philippine central bank recently greenlighted one more digital bank, GoTyme, to start its operations while both UNObank Inc. and Aboitiz-led UnionDigital Bank Inc. started commercial operations last month.
Can you think of any Western fintech firms that are dominant in Asia Pacific? Somewhat dominant? Neither can we. That may be because the region has no shortage of homegrown fintech options, especially in the ultra-competitive payments segment. That is not deterring Stripe though. As one of the most valuable startups in history, the U.S. payments giant thinks big, and sees significant market opportunities across the APAC region, including through strategic partnerships.
We have heard a lot about Chinese companies potentially delisting en masse from the U.S.’s capital markets. Without an eleventh-hour deal between the US and China, that may be inevitable. The paramount long-term trend, however, is where they will go in the first place to raise capital internationally. Hong Kong is the most obvious choice, but there are also options in Europe thanks to the establishment of stock connect programs. To that end, with the launch of the China-Switzerland Stock Connect four Chinese companies have listed on the Six Swiss Exchange.
U.S.-China financial decoupling has been happening in slow motion and sometimes appears to be leveling off, allowing some observers to stay optimistic. In reality, however, it will not be easy for American and Chinese regulators to agree on a deal that allows Chinese firms to remain listed on U.S. stock exchanges. With that in mind, Alibaba recently announced it will pursue a primary listing in Hong Kong.
Looking at the recent earnings statement of Australia’s Zip, we have to give the company credit for being able to put a positive spin on a troubled story. As a buy now, pay later (BNPL) firm that overextended itself, Zip now faces double trouble: a problematic business model and resources that are stretched too thin. But the fourth fiscal quarter earnings statement (April to June) highlights Zip’s revenue rising 27% year-on-year to AU$160.1 million and a 20% increase in transaction volume. Losses, however, represented 2.7% of the value of transactions.
South Korea’s Toss Bank is experiencing exponential growth amid strong demand for digital financial services and weak digital offerings from incumbent lenders. From the time of its launch in October 2021 through the end of June, online bank had opened 3.6 million accounts. Toss has added 2.5 million accounts this year, a pace of growth that more than doubles its first three months of operation, when it signed up 1.1 million customers. Further, Toss’s loan books have reached 4 trillion won.
The government crackdown on China’s tech sector has had many far-reaching effects, among the most consequential the reorientation of the country’s capital markets ecosystem away from consumer-facing platform companies and towards a state-guided deal pipeline focused on strategic industries. E-commerce, fintech, ride hailing and home sharing are out, while advanced manufacturing, artificial intelligence, 5G telecommunications and renewable energy are in. Big-ticket mainland IPOs are becoming more common, especially with the advent of the Shanghai STAR board, China’s answer to the Nasdaq.
Japan’s Rakuten first announced plans for an initial public offering of its online banking unit in September 2021 amid fierce competition with Amazon and as it faced steep costs from building a mobile network. 10 months later, the Japanese platform company said that it had applied to list its online banking unit on the Tokyo Stock Exchange. It has not yet, however, given any specific guidance as to when the IPO will occur.