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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.

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.

The great irony of digital banking in East Asia is that it most often refers to large incumbent banks, conglomerates, Big Tech or a combination of the three launching online-only lenders. Not the Philippines’ Tonik Bank though. It’s a genuine startup that began as a rural bank and morphed into a digital one. Tonik’s financials for 2022 recently appeared in several media reports, and by the looks of things, the three-year-old digibank is doing reasonably well in terms of customer acquisition, but its losses are widening.

Japan’s financial sector has been on a shopping spree in Indonesia, with an eye on digital finance opportunities. Though Japan has gradually been increasing financial sector digitization, the pace is slow compared to Indonesia and financial inclusion needs are limited given the country’s advanced stage of development and high per-capita GDP. Japan’s megabanks have been the most active buyers of assets in Indonesia, but other financial firms are also starting to look into opportunities in segments like banking and payments.

With a population of 169 million, of whom 40% to 50% lack a bank account, Bangladesh is a prime candidate for digital banks. Unlike the advanced economies of East Asia, Bangladesh can genuinely benefit from online banks that can rapidly bring more people into the formal financial system. With that in mind, the Bangladeshi central bank in June announced that it is ready to approve a framework for digital banks.

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