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Press Release

Insight - Kapronasia

With funding for fintech startups having fallen precipitously from the days of ultra-low interest rates and a focus on growth at all costs, a reality is setting in: Disrupting the giants of incumbent financial services is no easy task. In many cases, it has proven elusive.

Throughout Asia, most countries have introduced digital banks in some form, either to increase market competition, boost financial inclusion or both. Thailand is an exception. It has approached digital banking with a marked lack of urgency, with the Bank of Thailand (BoT) mulling the idea for several years before in Jan. 2023 stating that it would allow digital banks by 2025. In a March 5 announcement, the Kingdom’s Finance Ministry said that Thailand will accept applications for virtual banks within the next six months with the goal of supporting people with no or limited access to financial services.

Cybersecurity has always been a crucial aspect of operations for financial institutions and technology providers alike. However, the intensifying digitization of financial services, combined with increasing computational power and the ongoing shift of financial activities online, is amplifying cybersecurity’s importance. With the annual cost of cybercrime soaring worldwide, financial institutions and market participants across Asia Pacific must reevaluate and reinforce their cybersecurity.

Singapore has been battling a surge in financial crime since the coronavirus pandemic, with 2023 being notable as the city-state dealt with its largest ever money laundering case. The investigation is ongoing and thus far authorities have seized more than US$2.2 billion. However, more mundane types of financial crime continue to be a challenge for Singapore, notably online scams. In 2023, scams reported in Singapore rose roughly 47% to 46,563, the highest amount since the police began tracking this type of crime in 2016.

Japanese e-commerce giant Rakuten has struggled in recent years amid intensifying competition in its domestic market and high costs linked to its decision to move into mobile communications. However, digital financial services is a bright spot for Japan’s largest platform company and Rakuten Bank’s April 2023 IPO – which raised US$624 million – was Japan’s largest market debut since 2018 when SoftBank’s telecoms unit raised US$23 billion. The stock has gained more than 36% since then and is currently trading at 2,627 yen (US$17.49).

As a core fintech service, payments are often tougher to monetize than higher-margin segments like lending, and this helps to explain why Kakao’s digital banking unit continues to outperform its payments arm. While Kakao Bank had yet another record year in 2023, the South Korea tech juggernaut’s payments swung to a loss. Kakao Pay has been trying to follow the Ant Group (a key Kakao Pay investor) formula which worked so well for the Chinese company – operating payments and digibanking as two distinct businesses. But we wonder if this model will work for the Korean company in the long run.

With the crypto bear market receding and the possible return to a bull market, it is interesting to note that the amount stolen from crypto exchanges fell in 2023. However, the overall number of digital asset hacks still grew. Maybe it was the belief that the bear market would endure that partially deterred the cybercriminals? Probably not. As it turns out, the main reason that less crypto was stolen last year was that digital asset platforms are becoming more sophisticated in their security and responses to attacks, and are working more successfully with law enforcement than in the past.

Of the five digital banks in Singapore, just three are active in the retail market, and with good reason. The city-state’s population has an exceedingly low number of financially excluded people, with Allianz Global Investment estimating that 98% of Singaporeans aged 25 and up have a bank account. That is not to say there are not opportunities for digital banks, but it depends on how one defines “underbanked.” 

Singapore-based payments firm FOMO Pay has been expanding internationally on several continents. The company, which is a partner of Ripple, recently received a Money Service Operator license for Hong Kong and last week announced its expansion into Africa. It also recently secured a partnership with Mastercard and Z Bank.

As recently as October 2023, Indonesia’s peer-to-peer (P2P) lending company Investree was riding high. It was then that the company, which focuses on the B2B segment, announced it had raised $231 million in a Series D funding round led by Qatar’s JTA International Holding which also included participation from Japan’s SBI Holdings. The Series D round suggested high investor confidence in Investree, which had previously raised $23.5 million in a March 2020 Series C round led by MUFG Innovation Partners and Bank Rakyat Indonesia Ventures. Yet the events of recent weeks suggest all is not well at Investree – and that the viability of the company’s business model is shaky.

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