Hong Kong's major banks have long enjoyed high profits. Competition has been limited. A few heavyweights dominate the sector: HSBC, Standard Chartered, Bank of East Asia, Hang Seng. With the arrival of virtual banks earlier this year, the market was already on the cusp of a sea change. Retail banks realized that they would have to up their game to stay dominant. Then political turmoil swept over the former British colony in June, bringing into question its viability as a global financial center.
Choppy waters lie ahead for Hong Kong's banks, which have been battered by protests, the Sino-U.S. trade war and the slowing Chinese economy. It's unlikely that Hong Kong banks' profits per employee will remain higher than any other market. That was what Citigroup analysts found in 2018, a recent Wall Street Journal report noted.
Misunderstanding of China's blockchain aspirations remain widespread. Virtual-currency enthusiasts once thought the Middle Kingdom would be crypto central. They were wrong: China doesn't want to be a hub for all things crypto, but it does want to harness the underlying blockchain technology to boost its technological prowess, improve the integrity of supply chains and overcome bottlenecks across many industries - notably the financial services sector.
It was with those goals in mind that Chinese President Xi Jinping recently called for a larger role for blockchain in China's economic development. According to state-run Xinhua, Xi urged "deep integration of blockchain with the real economy," which he said could help SMEs get better access to credit as well as strengthen risk management in banking and the supervision of government agencies. He further said that China has a "solid blockchain foundation" and called for the nation to accelerate the development of blockchain technology and strengthen related basic research.
Indonesia just might have the world's hottest P2P lending sector at the moment. We haven't seen this kind of growth in P2P since before a series of huge scams marked the beginning of the end for China's P2P market. From January to May, the Indonesia P2P sector expanded 44% to reach IDR 41 trillion (US$2.92 billion), according to Indonesia's Financial Services Authority (OJK). That healthy growth represents a moderation from the 645% increase in the year to December 2018.
The Philippines is the world's No. 4 remittance market and growing fast, offering ample opportunities for fintechs. In August, Filipinos overseas remitted $2.88 billion, up 4.6% over $2.76 billion received in the same period a year ago and the highest since May, according to government data. About 10 million Filipinos work abroad. Remittances are the Philippines’ top source of foreign exchange income. A steady inflow of dollars into the Philippines from overseas helps protect the economy from external shocks, analysts say.
At present, banks and transfer services dominate the Philippines' remittance business. The Philippines received US$34 billion in remittances last year (behind Mexico, China and India), according to the World Bank. Imagine if fintechs could capture even a modest portion of that business.
Since its return to China in 1999, the former Portuguese colony of Macau has become the world's gambling capital, with a casino industry far larger than Las Vegas's. Macau's huge gaming sector has helped the territory maintain strong economic growth over the past two decades, even during the global financial crisis of 2008-09. However, reliance on gaming exposes Macau to an unusually high level of financial crime risk. Despite government efforts to tackle the problem, Macau remains at high risk for money laundering.
Given Macau's money laundering travails, it may come as a surprise that the territory has plans to launch a stock exchange. After all, strong regulatory compliance is a necessity for any city with ambitions to become a financial center. It goes hand in hand with the rule of law. Neither Hong Kong nor Singapore could have become financial centers without both of these attributes. Nevertheless, He Xiaojun, director of Guangdong Province's Financial Supervision and Management Authority, said in October that Macau had submitted a plan to set up an RMB-based stock exchange to the central government. There is hope that the stock exchange will become “the Nasdaq of the People’s Republic of China," he was quoted as saying by TDM Chinese Radio.
Korea's Financial Services Commission (FSC) surprised some observers by rejecting all of the applicants for a virtual banking license earlier this year. The FSC had different reasons for saying no to the applicants. In the case of Toss, a peer-to-peer money transfer app owned by Korean fintech unicorn Viva Republica, the FSC worried about the ownership structure of Toss Bank and its funding capabilities.
When it comes to financial reform in China, the devil's not in the details. It's in the implementation. When Beijing wants to enact change in the financial system, it can do so quickly. Consider the rise of fintech in China over the past five years. It's transformed the Chinese financial system. Unfortunately, foreign firms largely missed out on that opportunity. Paypal, who just got approval to enter China, is arriving a bit late to the party. Never mind that, say some observers. If only Paypal can get 3-5% of that market of 1.4 billion people, it will have a sizable business, they say. If only.
That brings us to the latest chapter in the Chinese financial reform saga. In early October, China’s securities regulator announced it would scrap foreign ownership limits on fund management companies from April 2020. Global asset managers would very much like increased access to China's massive $2 trillion retail fund market. This would seem to be their chance.
Singapore is expecting sub 1% economic growth this year, but you wouldn't know it from the city-state's booming fintech sector. Research firm Accenture estimates that investors sank $735 million into Singapore fintechs from January-September, up 69% year-on-year and surpassing the $642 million for all of 2018. The top areas for investments are payments (34%), lending (20%) and insurtech (17%).
In Asia's red-hot fintech scene, Taiwan flies largely under the radar. That's largely because no unicorns have yet emerged among its fintech startups, or any other startups for that matter. Taiwan did introduce a fintech regulatory sandbox in late 2017 and more recently established regulations for security token offerings (STOs), but the policies have yet to activate the fintech market. Fintech investment in Taiwan remains limited, especially compared to regional hubs like Singapore and Hong Kong.
In a sign of increasing tensions between the U.S. and China in the financial sector, the Nasdaq is tightening scrutiny of small Chinese companies' IPOs. These firms usually raise most of their capital from Chinese investors rather than American ones. The shares of these companies tend to trade thinly once they've gone public, limiting their appeal to large institutional investors - on whose interests the Nasdaq focuses.
Recent reports in the U.S. media have described the Trump administration mulling a plan that would involve the delisting of Chinese firms from U.S. stock exchanges. The Trump administration has denied the reports, while political heavyweights such as Senate Majority Leader Mitch McConnell have dismissed the idea outright. McConnell told CNBC that the Treasury Department made clear it does not favor delisting Chinese firms from U.S. stock exchanges.
Among Asian banks, Singapore's DBS is among the most active in fintech. It has a partnership with Indonesian ride-hailing giant Go-Jek, a fintech accelerator in Hong Kong and a tech-driven Innovation Plan covering machine learning, cloud computing and API development. It has thus far created a platform of 155 APIs across roughly 20 categories. Given that DBS is well ahead of the curve when it comes to financial technology development, should it be concerned about Citibank's recent deals in its neighborhood?
If there ever was a market that could benefit from open banking, it would be Hong Kong. A small group of powerful incumbents has long dominated retail banking in the former British colony, leaving consumers frustrated with the lack of options. Data from Goldman Sachs show that HSBC, Standard Chartered, Bank of China and Hang Seng Bank account for 2/3 of retail banking loans in Hong Kong. Those four banks are even more dominant in the credit card and retail mortgage markets.
Ardent fintech investors swear that in fact, there is no fintech bubble. Their reasoning is simple: Traditional financial services is ripe for disruption, perhaps a bit like physical retail in the fledgling days of e-commerce. Demand for alternative digital-first banking services is real. In some emerging markets, banking levels are so low that fintechs have a chance swoop in and gain a foothold from the ground up.
How late is too late? That's the key question as PayPal prepares to enter China's digital payments market with the acquisition of the Chinese state-owned online payments provider GoPay. PayPal took the 70% stake in GoPay through one of its local subsidiaries, Yinbaobao. When the deal closes - expected in the fourth quarter - PayPal will become the first foreign online payments provider in China.