As the most cash-loving advanced economy in Asia, Japan has not historically been eager to digitize its financial services sector – with a few exceptions. One of those is Rakuten Bank, which launched in the twilight of Web 1.0 back in the year 2000. At 23 years of age, Rakuten Bank must be one of the oldest digital lenders in Asia, if not the oldest. Gradually, other online banks are entering the Japanese market to compete with Rakuten.
A commentary in collaboration with Banking Circle.
Mobile wallets are increasingly a preferred payment method across Asia Pacific, from China to Southeast Asia to Australia. Though e-wallet use in the region was growing steadily prior to the pandemic, the abrupt shift to online and contactless commerce in early 2020 supercharged mobile wallet adoption. This has important implications for Southeast Asia – where many people remain unbanked or underbanked and credit cards have yet to gain a strong foothold outside of Singapore and Malaysia.
Japan’s largest bank is increasingly looking to digital finance in Southeast Asia as an avenue for growth, as its home market is mature, slow to digitally transform and constrained to some degree by an ageing population. In contrast, Southeast Asia’s largest countries still have ample low-hanging fruit, especially Indonesia, a key area of focus for MUFG.
One of our favorite ironies about digital banking in Asia Pacific is that incumbent banks have a growing role in the segment, from Hong Kong to Singapore to Taiwan to Australia. It wasn’t supposed to be this way – at least not to our knowledge. What ever happened to good old-fashioned scrappy startup-driven disruption? With that in mind, we turn our attention to two digital lenders that can technically be classified as startups, but are backed by Standard Chartered, a huge incumbent lender operating in 59 countries that earns most of its revenue in Asia.
Singapore has long been seen as the Switzerland of Asia, a pro-business, largely neutral state with a huge financial services sector catering to an international clientele. Like Switzerland, Singapore is an integral part of the surrounding region yet also has a strong independent streak and never leans too far to one geopolitical side.
Hong Kong has been busy preparing to roll out the red carpet for digital assets, but there are other emerging areas of financial services that are less volatile and trouble prone, and well, more sustainable. To that end, Hong Kong way want to focus more attention on green/sustainable finance given the reality of climate change and the significant opportunities the segment is expected to provide. Bloomberg Intelligence estimates that combined ESG assets could surge to US$53 trillion by 2025, with the Asia-Pacific region driving “the next leg of growth.”
Like its rival Alibaba, Tencent has developed a large portfolio of overseas fintech investments. Some of these are strategic bets on rising Big Tech companies with fintech arms, like Voyager Innovations in the Philippines and Sea Group in Singapore, which Tencent believes will eventually be dominant players. Other investments are more focused on facilitating access to the mainland China market for fintechs that have a niche there, such as Australia-founded but Hong Kong-headquartered Airwallex.
South Korea’s Viva Republica is defying the tech slump that has frozen funding for many fintech unicorns, both real and aspiring. In late December, it finalized a US$405 million Series G funding and it says it is now valued at 9.1 trillion won ($7 billion), up from 8.5 trillion won in June 2021, when it raised $410 million in pre-Series G funding at a $7.4 billion (8.5 trillion won) valuation.
Australia’s neobank experiment has largely gone awry, with three of the four original online lenders defunct or now part of an incumbent bank. To be sure, startups fail or get bought all the time – more often than they thrive as independent companies – but we dare say that was not the expectation of the neobanks’ founders, nor Australian regulators who sought to introduce greater competition into the financial services sector dominated by four incumbent juggernauts. The one neobank that remains from that first cohort is Judo, which has carved out a niche lending to SMEs, listed successfully on the ASX and seems poised to reach profitability before long.
Japan is a well-established laggard when it comes to cashless payments in East Asia. South Korea’s cashless payments ratio is an astonishing 94%; China’s is only a slightly less astonishing 83%; Singapore’s is 60% and Japan’s is much lower at 32.5%, according to data compiled by the Payments Japan Association and the Japan Consumer Credit Association. That said, Japan is still on target to reach its modest target of 40% cashless payments by 2025, and could gradually increase the ratio in the following years.
Better late than never? That was our first reaction to the news that at long last, Thailand has reached a decision on digital banks: It will allow them by 2025, and start accepting applications later this year. By 2024, Thailand will issue three digital banking licenses. And of course, online lenders will have to satisfy certain requirements, which we expect to be stringent and effectively eliminate any scrappy startups from even bothering to throw their hats in the ring.
Two years and 2.5 months after its IPO was shelved at the 11th hour, Ant Group appears to be nearly out of the woods. Ant has jumped through countless hoops for regulators over the past few years, from creating a dedicated consumer finance unit to raising its capitalization to agreeing to share consumer data with the People’s Bank of China (PBoC) to having Jack Ma give up control of the company – more on that later. So it is no surprise that with the Chinese economy faltering, battered by zero Covid and then the abrupt shift to living with the virus, that regulators are ready to put China’s tech crackdown in the rearview mirror.
When it comes to Singapore’s digital banks, is hindsight 20/20? Probably so. The hype surrounding them never quite corresponded to reality, and in many regards accurately mirrored the broader tech bubble that pushed up the valuations of so many cash-burning startups into the stratosphere. Like their counterparts in Hong Kong, Singapore’s digital banks will need to spend a lot of time and money to effectively penetrate what is already a mature, well-served market.
Buy now, pay later (BNPL) is not new to Taiwan. Incumbent banks have offered the service for years through credit cards on certain e-commerce platforms. Instead of paying for a purchase in one go, the buyer chooses 3, 6, 9 or 12 months of interest-free installment payments. Because the banks already are authorized lenders, there is no regulatory problem. Yet in recent years, dedicated BNPL platforms have entered the Taiwan market and begun offering similar services – though they do not call them “lending” or “credit.” They will not be able to operate in this regulatory gray area much longer.
Is Europe the new New York for Chinese companies keen to raise capital overseas? Not exactly, as there is no exact replacement for the capital markets opportunities that the Nasdaq and NYSE once afforded Chinese firms. But given persistent tensions in the U.S.-China relationship, Chinese companies are opting for less liquid capital markets and less prestigious overseas listings – but without any of the geopolitical drama that has come to characterize their presence on U.S. exchanges. Switzerland’s SIX, meanwhile, is fast becoming the exchange of choice for Chinese companies wanting to raise capital outside of Greater China.