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Press Release

Insight - Kapronasia

Those who do not follow China’s payments sector closely may not have heard of LianLian Digitech, a Hangzhou-based fintech firm that presides over an ascendant cross-border payments network and counts among its strategic partners American Express. LianLian has leaned hard into market segments not dominated by the traditional Chinese payments duopoly of Alipay and Tenpay, whether by partnering with a global card giant like Amex on renminbi clearing in China’s domestic market or by capitalizing on a growing appetite among China’s e-commerce sector to do business overseas.

South Korea’s digital banks have long been outliers, with market leader Kakao Bank one of the most successful online lenders in Asia. Though Kakao Bank’s share price has fallen about 65% since its November 2021 IPO, that reflects macroeconomic conditions and investors adjusting overly high expectations for the company more than any underlying issues with its business model or earnings. To that end, in the March quarter Kakao Bank posted a record profit of 111.2 billion won (US$81.44 million), up 9% year-on-year.

In late 2019 as the 20-year anniversary of Macau’s return to China was celebrated, there was speculation that Beijing sought to elevate the status of the former Portuguese crown colony from a mere gambling hub to an offshore financial center. While there was never an intention to replace Hong Kong, Beijing seemed to be considering transforming Macau into a secondary offshore financial center for China.

Alipay is continuing its cross-border expansion with new partnerships, including one with Mastercard focused on remittances. The company is at the same time steadily developing the Alipay+ platform and has its eye on expanding to Indonesia, Southeast Asia’s largest economy and one of the most important in Asia Pacific for fintech. While the various expansion efforts may not seem interconnected at first blush, there is a common theme: Alipay can no longer count on China’s domestic market for high margins and fast growth.

Although the narrative in the financial industry is that digital is better, that is not always the case. Many rural economies across Asia operate on a largely informal and cash basis. A few factors are driving this. Firstly, there is often a lack of infrastructure to support cashless payments, such as limited internet access or banking services. Secondly, the rural populations often have a general distrust or lack of familiarity with digital payment systems. Additionally, the informal nature of many businesses in rural areas lends itself to cash transactions, which are perceived as more straightforward.

South Korea’s digital banks are the exception to a rule in East Asia’s advanced economies: They are extremely successful by multiple metrics instead of redundant. While the relative weak digital offerings of incumbent banks in Korea helps explain the phenomenon, it is not the main reason. We believe that South Korea’s three digital banks – Kakao Bank, K Bank and Toss Bank –  have been able to develop truly competitive products, in contrast to their counterparts in the other Asian tiger economies of Hong Kong, Singapore and Taiwan, and gradually have made themselves indispensable to many Korean retail customers.

While the buy now, pay later (BNPL) concept has proven immensely popular with consumers worldwide, developing a sustainable business model as a BNPL focused fintech is a challenging endeavor. For that reason, it is always noteworthy when a BNPL firm reaches the profitability milestone. The Philippines’ Billease, founded in 2017, appears to have done so in 2023.

Digital banks have sprung up across Asia in recent years. In many cases, they are having little impact on the overall banking market. Affluent societies like Singapore, Hong Kong, Japan and Taiwan are not lacking banking options. Even middle-income countries like Malaysia and Thailand have limited financial inclusion needs.

Vietnam is one of the most promising markets for fintech in Southeast Asia, with the payments segment continuing to lead the way. While talk of Vietnam going truly cashless is premature, there is a steady transition to digital payments in the country. Data compiled by the State Bank of Vietnam show that non-cash payment transactions increased by 63.3% in volume and 41.45% in value in January, compared to the same period in 2023. Many Vietnamese banks now have over 90% of their transactions conducted via digital channels.

In the fourth quarter of 2023, China emerged as the top green bond market globally. Sales of internationally aligned green bonds in China reached US$21.83 billion in the final three months of 2023, up 131% on a quarterly basis, according to the Climate Bonds Initiative data. This was well ahead of the No. 2 market, the U.S., which had green bond sales of US$12.87 billion and No. 3 Germany, which recorded sales of US$7.14 billion.

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