Latest Insight
- Why Southeast Asia will never have an Alipay or Tenpay
- SBI Holdings and Ripple step up their cooperation
- South Korean digibanks expand into new market segments
- The Philippines is moving forward with a wholesale CBDC
- Why going 100% digital might not be the solution in Asia
- Japanese megabanks double down on global expansion
- Can Alipay and WeChat Pay converge with the e-CNY?
- Fintech is paying off for SCB
- Fintech in India has a bright future, with caveats
- Will the Asean cross-border payments dream come true?
Latest Reports
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The Internationalization of Capital Markets in APAC - A Report from Kapronasia in Collaboration with Equinix
The internationalization of capital markets has accelerated over the last few years as ecosystem players such as exchanges and broker-dealers evolve from having a solely domestic presence, to having a more regional and global presence. There are several drivers behind this acceleration, which can be best broken down into demand… 2023 Top 10 Asia Pacific FinTech Trends
As we start 2023, the global market faces a period of great geopolitical and macroeconomic uncertainty. Although there are signs that inflation might be under control and Europe has largely weathered the winter unscathed, many economists see more turbulent times ahead. The De-Risking Threat to Asia Pacific Fintechs - A Report from Kapronasia in Collaboration with Banking Circle
In recent years, banks in the Asia-Pacific (APAC) region have faced rising regulatory scrutiny amid a global fight against money laundering and other financial crime. Banks have been rocked by the massive 1MDB scandal, implicated in the FinCEN papers and are wary of being exposed to the cryptocurrency industry, which…
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Sea Group’s stock took a pummeling on Tuesday, falling almost 29% to US$40.58 as investors reacted to a second quarter earnings report in which the company missed revenue forecasts though made a profit of US$331 million. In a nutshell, Sea’s triumvirate of digital services that once looked unassailable now seems a bit shaky as consumer spending in many of its key markets is not robust. We think the fintech business still has plenty of potential, and probably the same holds true for e-commerce, but the erstwhile profitable gaming arm has become a laggard.
Buy now, pay later (BNPL) has surged in Indonesia over the past few years, plugging a large lending gap and in many cases acting like a credit card in all but name. BNPL has grown so briskly in Indonesia that some analysts believe it will replace credit cards altogether.Perhaps not.
Australia-founded but Hong Kong-headquartered B2B payments sensation Airwallex has had a busy 2023 thus far. Not only did it just inject US$165 million into its Singapore entity, it also secured a China payments license in March and inked a partnership with American Express in January that will allow its clients in Australia, the UK, Singapore, and Hong Kong to accept Amex cards as a payment method option. It all seems to add up to an Asia-centric growth strategy that is less grandiose than what the Financial Times described in 2020 as the company wanting to “upend the global payments system.”
Japan’s cashless journey is unique in Asia. While most countries in the region that have accelerated cashless payments in recent years are seeking to simultaneously boost financial inclusion, Japan is one of Asia’s best banked countries, with more than 95% of its adult population having a bank account. For Japan, going cashless is not about increasing participation in the formal financial system, but rather about reducing cash-related costs, as well as bringing the country’s technological prowess to financial services and increasing competition in the financial sector.
Who says digital banks cannot make money? We often do – because it tends to be true. But Kakao Bank is a notable exception to the rule, and all the more unusual because its success has come in one Asia’s best-banked countries. Kakao Bank is one of the few digital lenders that has reached profitability and stayed there, as it showed with its solid second-quarter earnings.
In the mid-2010s, the fintech business of Tencent grew exponentially, with WeChat Pay and its offshoots allowing the company to become a viable competitor to Alipay in China. Yet even as Tencent captured close to half of China’s payments market, and established a digital bank, WeBank, that could rival Ant Group’s MYbank, it never displayed the same kind of appetite for global expansion as Jack Ma’s company.
Singaporean sovereign wealth fund GIC's annualized 20-year real rate of return - its main performance gauge - for the year ended March 2023 was 4.6% after accounting for inflation, the highest since 2015 and up from 4.2% a year earlier. GIC has a diversified portfolio of which certain Chinese investments are a big part, including Alibaba and Ant Group. The diversity of the portfolio likely helped GIC insulate its performance from the 2022 market correction.
Philippine President Ferdinand Marcos on July 18 signed a bill creating the Philippines’ first sovereign wealth fund, a move aimed at accelerating infrastructure and economic growth in one of the largest countries in Southeast Asia. The Philippines follows Singapore – whose two sovereign wealth funds are both success stories – as well as Indonesia (so far, so good) and Malaysia (failure) with observers divided over whether Marcos’ Maharlika Investment fund will deliver on its promises or be less successful.
It isn’t the most obvious recipe for success: digital banking and groceries. But it seems the Standard Chartered-FairPrice Group offshoot Trust Bank is doing something right. By late May, just eight months after its launch, the Singaporean digibank had accrued US$739.5 million in deposits and was – by its own estimates – on track to break even in 2025.
With the surge in popularity of environmental, social and governance (ESG) investing, it has become more important than ever to ensure that related companies and projects are as “green” as they purport to be. PwC estimates that ESG-related assets under management (AuM) will reach US$33.9 trillion by 2026, from US$18.4 trillion in 2021. With a 12.9% annual growth rate, ESG assets are on track to make up 21.5% of global AuM by 2026.
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Naver’s Line has been keen to leverage the strength of its messaging app and e-wallet in select markets to expand into digibanking. Yet Line Bank Japan, which was supposed to be a tie-up between Line and Mizuho Bank, quietly folded in March, 4.5 years after the venture’s first preparatory company was established. Chalk up its failure to regulatory woes. However, Line has set up three other digibanks in the Asia-Pacific region that rely on a similar strategy of teaming up with incumbents.
One has to give Ant Group credit: Despite the bruising tech crackdown it has endured at home, it has not given up on its vision of creating a regional payments ecosystem. In fact, Ant arguably had the idea to link up the disparate markets of Southeast Asia via a proprietary digital payments network even before different countries in the region began to set up their own bilateral rails using QR codes.
GCash is by several measures the most successful e-wallet in the Philippines. There is no question it has a massive user base – 81 million active users and 2.5 million merchants and social sellers as of May. What’s more, according to the company’s leadership, it became EBITDA profitable three years ahead of schedule, though it has declined to be more specific than that. While the global economic environment is not optimal for an IPO, GCash itself is doing well enough that it can probably afford to go ahead with the listing before year-end.
While it may not be a sure thing, the Kakao Bank-SCBX tie-up looks promising. Following the Bank of Thailand’s (BOT) announcement earlier this year that it would allow digital banks by 2025 – no rush, it seems – some of the biggest financial groups in the kingdom have expressed their interest in setting up a digital lender. It just so happens that Thailand’s decision to greenlight digibanks comes as South Korea’s Kakao Bank is preparing for international expansion.
Indonesia is the most important digital financial services market in Southeast Asia, given its overall size, unbanked population of 181 million, and island geography. With 6,000 populated islands, Indonesia is almost uniquely suited for branchless banking.
It is thus no surprise that the region's most prominent platform companies, all in search of a shorter road to profitability after burning cash in the days of low interest rates and easy venture funding, are betting big on the Indonesian market. Singapore's Grab and Sea Group, as well as Indonesia's own GoTo and Bukalapak, are all vying for market share in Indonesia's burgeoning digibanking market.
Data from Redseer suggests that Indonesia's "total addressable market for financial technology services" will reach US$70.1 billion in 2025, up from US$17.8 billion in 2020.
While the Singaporean firms have deeper pockets and arguably a larger talent pool they can deploy, GoTo and Bukalapak have a certain homefield advantage. They understand the market better, and their resources are not spread as thin because they do not have large operations outside of Indonesia.
Buying the way to success
Unlike some other regulators in Asia, Indonesia's Financial Services Authority (the OJK) has made it relatively easy for foreign firms to move into digital banking. It has actively encouraged the purchase of incumbent lenders that can be rejigged as digital banks. The OJK sees that model as a win-win, allowing a local bank that might otherwise have been uncompetitive to improve the quality of its services, while big tech companies that make the investments do not need to apply for a digital banking license: They can use the license of the bank they buy.
This strategy is working out well for Sea Group, which bought Indonesia's Bank BKE in early 2021 and revamped it as SeaBank Indonesia. It was easy for Sea to meet the 3 trillion rupiah capitalization requirement for digital banks.
It did not take long for the undisclosed investment to pay off, especially given the synergies between Shopee's e-commerce ecosystem and digital banking. SeaBank Indonesia recorded a net profit of 269.2 billion rupiah ($18 million) in FY 2022, compared with a loss of 313.4 billion rupiah ($21 million) in FY 2021. Not a huge profit by financial industry standards, but certainly a step in the right direction. Furthermore, SeaBank's loans disbursed climbed to 15.9 trillion rupiah ($1.1 billion) in FY 2022 from 6.1 trillion rupiah ($409.2 million) the year before.
Thus far, Sea is the only major platform company to acquire a local bank outright. GoTo has a 22% stake in the local bank Bank Jago through a US$160 million investment Gojek made in late 2020, while the Grab-Singtel consortium has a minority stake in Indonesia's PT Bank Fama.
Laser focus on Indonesia
Local platform company Bukalapak has also leveraged its e-commerce ecosystem, but in a different way than Sea Group. In fact, such is the company's experience with merchants that it is now moving into the offline segment with its Mitra business to help the owners of small shops known as warung digitalize their operations.
According to venture capital firm Flourish Venture, traditional warung represents 70% of sales in Indonesia's US$257 billion grocery market. Given that the roadside kiosk operators are facing increasingly tough competition from modern, larger retailers, Bukalapak reckons that better digital connectivity can help them compete more effectively against the big players.
Thriving amid competition
As platform companies battle it out for dominance in Indonesia's digibanking market, the country's unique landscape and unbanked population present a vast opportunity for growth. With Singaporean giants like Grab and Sea Group, along with local players GoTo and Bukalapak, vying for market share, the race is on to capture a piece of Indonesia's booming digital financial services sector.
As these platform companies continue to streamline their operations and focus on profitability, Indonesia's digibanking market holds immense potential, and all four companies have a chance to thrive if they adapt to the evolving landscape and embrace a profitability-first approach. The pie is certainly big enough.