Amid clouds of a U.S.-China financial war, Hong Kong is fast becoming the default for Chinese fintech IPOs. The former British colony offers liquid capital markets both close to both home and global investors. But there are exceptions. Lufax, one of China's largest online wealth management platforms, is reportedly instead eyeing a New York IPO that could raise up to US$3 billion. If Lufax moves fast, it can list in the U.S. before new rules go into effect that may prevent Chinese firms non-compliant with American accounting standards from listing on U.S. exchanges.
Ride-hailing Grab is pushing deeper into digital banking, launching an auto investment service similar to Ant Group's Yu'e Bao. In Grab's case, the AutoInvest service allows users to invest - the minimum is set at just S$1 - while using the company's ecosystem. Fullerton Fund Management and UOB's fixed income funds are responsible for the investments. They expect annual returns of 1.8%, similar to what banks in Singapore offer. At the same time, Grab plans to offer third-party consumer loans from licensed bank partners, with which the ride-hailing giant will integrate APIs.
While Alipay and WeChat Pay maintain a duopoly over China's mobile payments market, that duopoly does not warrant the antitrust investigation reportedly in the works. To be sure, no competitor has emerged able to pose a credible challenge to the duopoly, but primarily for reasons out of the companies' control. Beijing's market barriers have been key enablers of Alipay and WeChat Pay's ability to dominate mobile payments. Together they control 94% of China's mobile payments market, Alipay 55% and WeChat Pay 39%, according to research firm Analysys.
Hong Kong's eight virtual banks largely represent vested banking and tech interests in the city. Most of the newcomers are actually oldcomers if you stop to think about how well established they are outside of Hong Kong's nascent digital banking segment. WeLab, a Hong Kong-based fintech startup, is the exception. Founded in 2013 by ex-Citibank executive Simon Loong and two other partners, the company has steadily grown over the past seven years, and says it now has 40 million customers and disbursed more than HK$50 billion in loans in Hong Kong, mainland China and Indonesia. WeLab's Hong Kong virtual bank went live in July.
It's good to be Kakao Bank. Kakao was already South Korea's most successful neobank story before it reported record earnings in the second quarter of 26.8 billion won ($22.6 million), a nearly 900% year-on-year increase from 3.0 billion won a year earlier. Kakao's net profit for the first half of the year reached 45.3 billion won, a more than fourfold increase from 9.6 billion in the first half of 2019. That Kakao achieved this exponential growth amid the pandemic and a weak overall South Korean economy is particularly impressive.
According to Kakao, its profits surged on the back of rising net interest income and commissions from the sale of financial products. "We were able to make more profit from increased revenues from lending and fees from partnering with credit card companies and brokerages," the company said in a statement published by South Korean media.
The picture for Kakao Bank's lending business is fairly rosy. Its outstanding loan balance grew to 17.68 trillion won in the second quarter, up from 14.88 trillion won a year earlier. Financial inclusion is one name of the game as well: Kakao said it provided 660 billion won in mid-rate loans to consumers with mid- to low-level credit scores from January to June and plans to disburse a total of 1 trillion won of such loans in 2020.
Like many successful fintechs, Kakao Bank is steadily developing partnerships with key incumbents. It has four local credit card partners in South Korea, including Shinhan Card and Samsung Card. From April to July, Kakao issued 260,000 credit cards, according to The Korea Herald.
Kakao Bank also has a burgeoning equities trading business. As of late June, it had more than 2.18 million such accounts, up from 1.14 million in December 2019. Its partners among incumbents include Korea Investment & Securities, NH Investment Securities and KB Securities.
At the same time, Kakao Bank benefits from the stickiness of the Kakao ecosystem, which is a super app in all but name. Kakao Bank already has 11 million monthly active users, more than half who are under age 50. And there are many more potential customers where those came from: The dominant KakaoTalk messaging app has almost 45 million monthly users, about 87% of South Korea's population.
Thanks to its strong brand name and ecosystem, Kakao Bank managed to reach profitability in just two years from its establishment in 2017. Further buoying its growth was when its parent company Kakao Corp became the virtual bank's majority shareholder, the first instance in Korea of a non-financial firm holding a majority stake in a bank. That change allowed Kakao Bank to issue new shares worth 500 billion won and increase its paid-in capital to 1.8 trillion won.
When it comes to Asian financial centers, Hong Kong and Singapore are no longer the only games in town. Tokyo, Seoul and Sydney have recently signaled intent to bolster their financial sectors and take on a larger regional role. Yet right on Hong Kong's doorstep there is another potential contender: Taiwan. In recent weeks, Taiwan's government has highlighted its plan to develop a more globally oriented financial sector. That will be easier said than done. Taiwan takes a fundamentally conservative approach to finance that will not be easily changed.
Shanghai's STAR board is introducing a more market-driven approach to China's initial public offerings. Listing on the STAR market is more streamlined than the traditional process in China, where new listings are subject to an informal price cap of 23 times earnings and a 44% ceiling for first-day gains. Before the Shanghai STAR Board was launched it July 2019, it could take many years before companies' plans to go public were approved. Now a flurry of tech listings on the Shanghai STAR market are shaking up China's capital markets.
Before covid-19, the sky seemed to be the limit for Australia's virtual banks. They were rapidly accruing users, in some cases surpassing their own forecasts. Venture capital kept flowing into their coffers. The pandemic slammed the brakes on the neobanks' ascendancy. Demand in Australia remains for innovative digital banking services - if the neobanks can survive the downturn. Since the neobanks are startups built for fast growth, rather than steely resilience, they face a long road ahead.
The Philippines has not raced to go cashless. Efforts to digitize the financial system got underway nearly two decades ago, but have made limited inroads. Cash still accounts for 90% of transactions, according to the Better than Cash Alliance, and looked like it was going to remain dominant - until the pandemic. Within a few months, the payments landscape has changed dramatically in the Philippines, with digital payments emerging as a must-have.
The pandemic has disrupted Malaysia's digital banking plans, but the ensuing delay may be a boon for interested firms that now have more time to select partners. The original contenders for up to five digital bank licenses include ride-hailing giant Grab, telecoms juggernaut Axiata Group Bhd (owner of e-wallet Boost) and the banks CIMB, Affin Hong Leong, AMMB Holdings and Standard Chartered Bank. Those banks are now reportedly less interested in obtaining a license, while several non-financial firms may throw their hat into the ring: gaming giant Razer, conglomerate Sunway Group, telecoms company Green Packet. Hong Kong investment bank AMTD may also bid for a license.
For the IPO of China's fintech giant Ant Group, two listings are better than one. Instead of going public only on the Hong Kong Stock Exchange or the Shanghai STAR Market, Ant plans to list on both. Ant has not disclosed the size of its coming IPO, but the firm is reportedly valued at US$200 billion, up from US$150 billion during its 2018 fundraising. Ant reportedly plans to sell 10% of its shares through the twin listing, which could come this year or in 2021. An uncertain market outlook will inevitably weigh on timing.
Airwallex is among a handful of fintech unicorns that have closed huge funding rounds in the middle of the coronavirus pandemic. In April, Airwallex raised US$160 million from investors as its valuation climbed to US$1.8 billion. Airwallex was established in Australia in 2015 and while now headquartered in Hong Kong, is still considered an Australian fintech. The company has sought to capitalize on demand for cheaper cross-border payments services among SMEs in its home market, where the major banks are notorious for charging high foreign-exchange fees. Airwallex says that its machine-learning technology enables fast, inexpensive and transparent global payments.
Japan has been trying to digitize financial services for years, given the high costs of maintaining a cash-based economy and the need for convenient payment options during the upcoming Olympics. The government's"Cashless Vision" initiative that seeks to increase non-cash transactions to 40% by 2025 began back in 2018, well before the covid-induced cashless drive that's sweeping across Asia. Going cashless to promote hygiene would probably seem superfluous in Japan, a country already known for its exacting hygiene standards.
AMTD is stepping up efforts to build a regional fintech ecosystem in Southeast Asia and plans to take a controlling stake in Singapore's FOMO Pay, a payments solution provider. The FOMO Pay deal follows AMTD's recent acquisitions of the leading insurtech PolicyPal, and CapBridge, Singapore’s first regulated securities exchange for digital assets and private companies.
Southeast Asia's most valuable tech startup is coming down to earth at last, despite maintaining a sky-high valuation of more than US$14 billion. Faced with the pandemic-induced downturn, Singapore-based Grab is scaling back its ambitions and remarkably, cutting costs. That involves eliminating some superfluous business units and trimming about 5% of its workforce. Grab's professed goal is to rejig its operations to focus on three core businesses: ride-hailing, food delivery and digital banking. Its unstated goal is to get its finances in order so that its bid for a Singapore digital full back license is successful.