Financial Industry Blog - Kapronasia

For more than three years, the Bank of International Settlements (BIS) and the central banks of China, Hong Kong, Thailand and the United Arab Emirates (UAE) have been working on a cross-border central bank digital currency (CBDC) project known as mBridge. In a nutshell, the project aims to improve efficiency, speed and transparency in cross-border payments.

In one market after another in Asia Pacific, we are learning that the old maxim remains true: what goes up, must come down. Fintech funding was ascendant before the pandemic, briefly dipped during that crisis’s early months, and then surged to new highs. What finally crashed the party was an increase in the cost of capital (we can thank high interest rates and inflation for that) that has reduced the attractiveness of betting on loss-making – but potentially game-changing – fintech startups. Of all the markets in the APAC region, India has been among the most resilient because of its confluence of economic growth, financial digitization and unmatched scale. However, even India is not immune to challenging macroeconomic conditions.

Vietnam is one of the largest markets in Southeast Asia with a population of more than 90 million, but in terms of fintech development it remains somewhat nascent. In 2023, fintech funding fell 84% to just US$35.3 million, according to data compiled by research firm Tracxn, a significant decrease from 2022’s US$227 million. However, the fall in funding was consistent across most of Asia last year given unfavorable market conditions. The long-term outlook for Vietnam’s fintech industry remains positive, and it is in the process of rolling out a regulatory sandbox, while banks are beginning to invest more in digital technology given the competition they face from fintechs.

When it comes to cross-border payment linkages, Southeast Asia is leading the way. Several years ago, Singapore and Thailand established the first such linkage with their respective real-time retail payment networks, making it possible for users to pay each other with just a mobile number. Since then, Indonesia, Malaysia and the Philippines have all established their own real-time payment systems. Of course, a broader regional system has always been the goal of central bankers, given the speed, efficiency and transparency it promises. With the advent of Project Nexus led by the Bank of International Settlements (BIS), that possibility may have just increased significantly.

Revolut’s PR machine has long sought to depict the company as an ascendant player in the Asia-Pacific (APAC) region. These efforts go back almost six years. Revolut entered Singapore and Japan in late 2018 and Australia in early 2019. In recent years, it has invested big in India. The UK finech unicorn talked about entering China in 2021, but those efforts to do not seem to have come to fruition.

The banking system in Singapore has been under greater scrutiny ever since a few banks operating in the city were ensnared in Malaysia’s massive 1MDB scandal. There is an inherent contradiction that all financial hubs face when they try to attract the ultra-wealthy and their assets, but also want to ensure the highest degree of compliance. Inevitably, some clients have something to hide. When there is possible unusual activity, banks have to make the call whether it is necessary to flag the transactions and report them. Thus it is not surprising that Singapore said in a new report that its banking sector poses the highest money laundering risks following a scandal involving more than S$3 billion (US$2.2 billion) in illicit assets.

Given the ubiquity of the Line messaging app in Japan, we were initially surprised to learn that the Line Pay app will be shut down in its home market in the end of April 2025. New user registrations will only be possible until Nov. 2024. After that, users will be able to transfer their Line Pay balances to PayPay. In a statement, Line-Yahoo stated the move is part of its governance strategy to “reorganize its businesses and integrate overlapping business areas” to expand group synergy.

Ant Group, under its Ant International arm, has been on a sustained international expansion campaign that increasingly encompasses Europe. While the company’s core cross-border payments business still targets Asia, it also sees opportunity further afield. On July 1, Ant announced that MultiSafePay, an Amsterdam-based payment service provider, had become its wholly-owned subsidiary and will integrate with the Chinese company’s Antom platform.

Fintech funding in Southeast Asia fell 20% year-on-year to US$851 million in the first half of 2024, according to a new report by India’s Tracxn. While early-stage investments showed some resilience, seed-stage funding fell by 27% to US$234 million. The second quarter of 2024 was particularly quiet for fintech funding in the region, falling 85% to US$477 million from the same period a year earlier.

Ever since it realized that the inherent difficulties in making a profit from ride hailing, Grab has been working to build up its digital financial services offerings. While the super app value proposition looks increasingly shaky, the Singapore-based company has nonetheless developed a wide range of fintech products across Southeast Asia.

Some of these offerings have been more successful than others – and Grab has, as a public company, had to exit businesses that are unprofitable and do not show significant potential.

It is highly unusual for there to be a global drought for Chinese IPOs, with tepid market activity in mainland China, Hong Kong and further offshore. Yet that is exactly the situation today. In the first six months of 2024, just 44 Chinese firms went public in the mainland, down 75% year-on-year, raising just US$4.48 billion. The situation was no better in Hong Kong and New York.

It is hard to believe that more than five years have passed since Hong Kong first approved virtual banks. The disruption that had been forecast has not come to pass and we wonder how much longer some of the online lenders will endure. Those backed by large public companies – which have to explain to investors why they are supporting unprofitable endeavors – could be the first to throw in the towel. That said, Hong Kong-based WeLab Bank, which is backed by billionaire Li Ka-shing, has seemingly defied the odds thus far with its performance. It says it is on a clear path to profitability and is expanding strategically in Southeast Asia.

Not so long ago, when Hong Kong was struggling with the impact of civil unrest and strict Covid-19 controls, other cities in Asia sensed an opportunity to bolster their respective financial center credentials. Not Singapore, which is already an established Asian financial center – and has grown in recent years – but cities such as Tokyo and Taipei.

Pine Labs is one of India’s most prominent fintechs and with its focus on B2B payments – and avoidance of the retail segment – eschews many of the problems that have dogged Paytm. Pine Labs serves over 500,000 merchants – including Sony, BMW and Samsung – to which it provides solutions for payments and other financial services. In 2022, it reportedly filed confidentially for an IPO with the U.S. Securities and Exchange Commission, but that plan never came to fruition given weak market sentiment. Now Pine Labs has resumed its IPO plans, but this time it is planning to list at home in India.

Chinese stocks have been struggling in recent years amid a prolonged economic slowdown, so it is no surprise to see regulators turning their attention to needed reforms in the Nasdaq-style Shanghai STAR Market. "We will go all out to promote high-quality development of China's capital market," Wu Qing, chairman of the China Securities Regulatory Commission (CSRC), said in a speech at the annual Lujiazui Forum on June 19. "We will grow 'patient capital', and attract more long-term money into the market."

Indonesia has no shortage of digital banks, but it is also a huge market with a significant population that has limited access to formal financial services. It is a key market for Southeast Asian platform companies as well. While Grab has digital banking licenses for Singapore and Malaysia, Indonesia is where it has the best opportunity to prove the skeptics wrong.

Singapore has become one of Asia’s most important green finance centers, which is well exemplified by its third sale of green bonds in late May. The S$6 billion order book for the city-state’s third sale of green bonds was 2.45 times the amount offered to institutional investors. In addition, the offering of S$2.5 billion in bonds reached the maximum of the S$2.1 billion to S$2.5 billion range provided by the Monetary Authority of Singapore (MAS). The Singapore government has said there there is a pipeline of up to S$35 billion in sovereign and public-sector green bonds that will be issued by 2030.

Across Asia Pacific, criminals are using cryptocurrency to fund increasingly nefarious schemes. While early crime involving digital assets tended to target crypto exchanges themselves, the most infamous being the 880,000 Bitcoin stolen from Japan’s Mt. Gox between 2011 and 2014 now worth $45 billion – today digital assets are linked to money laundering, large-scale scams and funding of illegal arms programs. Crypto proponents usually insist that proper regulation can do much to mitigate this problem. Though regulation can boost investor protection and establish rules of the road, we believe that decentralized virtual currencies’ inherent nature means that potential for abuse will remain high. Regulators in some major jurisdictions in the region have come to similar conclusions and are acting accordingly.

While Indonesia is one of Asia’s most important fintech markets, it has not been able to escape unfavorable macroeconomic trends. Amid high interest rates, stubborn inflation and less investor patience for unsustainable business models, funding in the fintech sector of Southeast Asia’s largest economy has fallen sharply in the past few years. Data compiled by Tech In Asia show that in 2023, deal count dropped by about 50% while total deal value fell by 53% to US$850 million. Though funding has yet to pick up significantly, there have been a few notable transactions thus far this year.

Turkey’s lone fintech unicorn has growing global ambitions. Papara, an Istanbul-based payments firm valued at roughly US$2 billion, recently acquired SadaPay, one of the most prominent Pakistani fintech startups. While the sum that Papara paid for SadaPay has not been disclosed, startup funding tracker Crunchbase estimates it could be about US$50 million.

The Japanese fintech sector exhibits a rich diversity, underscored by robust growth in digital payments. This is evident in the ascendancy of e-wallet ecosystems such as d-Barai, PayPay, and LINE Pay. Also growing briskly are fintech segments such as Buy Now, Pay Later (BNPL) services, digital banking, crowdfunding, insurtech, and regulatory technology (regtech). The broad adoption of fintech across different segments of financial services signals a departure from Japan’s traditional reliance on cash transactions.

China’s fintech crackdown has been going on in some form or another since 2017. First, the cryptocurrency industry was hobbled. Then peer-to-peer (P2P) lending was reined in and effectively eliminated. The third act in this play has been the forced restructuring of China’s fintech giants, who have been accused of monopolistic practices – which is not untrue – but whose greater offense has been getting a little too large for their own good. Thus far, Alipay has fared much worse than Tencent’s fintech business, but one wonders if the omnipresence of the WeChat app might be a growing risk for the Shenzhen-based company. According to a recent Nikkei Asia report, it already is. 

How long has Revolut been saying it has big plans for Asia Pacific? At least six years, if not longer – by our calculations. It has a presence in Australia, New Zealand, Japan, Singapore and India and at one time planned to set up shop in many other Asian countries. Yet this ethos originated in a time of low interest rates and near infinite VC funding. Revolut did not have to worry too much about profitability back then, so it could devote most of its attention to growth. At the same time, the multicurrency wallet that lies at the core of Revolut’s value proposition may not be that attractive to customers in emerging markets more focused on gaining access to core retail banking services.

Despite the best lobbying efforts of certain industry players, Australia is moving forward with long-running plans to rein in the buy now, pay later (BNPL) segment of digital financial services. Provided that the bill introduced on June 5 becomes law, BNPL firms in the country will be required to run credit checks on borrowers and hold an Australian Credit License (ACL).

China’s cashless evolution is a remarkable story, as the country transitioned in less than two decades from a cash-first society to one with an 86% mobile payments penetration rate. The comprehensive ecosystems of Alipay and WeChat Pay have made payments in China among the most convenient and frictionless in the world with one important caveat: One must be within the domestic Chinese payments ecosystems, with a Chinese bank account that can be tied to the payment apps.

Ever since Hong Kong threw its hat into the cryptocurrency ring in 2022, we have been warning that inflated expectations would lead to disappointment. Crypto bros intent on selling the narrative of digital asset liberalization in China had been insisting that turning Hong Kong into a crypto hub was only the first step – next would be the mainland. Not anytime soon. In fact, some prominent crypto exchanges have decided to pull out of the former British crown colony, likely in part because they cannot serve mainland customers.

Super apps in Southeast Asia have been forced in recent years to confront a harsh reality: More is not necessarily better, at least when it comes to the number of services provided by the same app. Sea Group, the most valuable listed company in Southeast Asia, has never branded itself as a super app, but its business model has sought to tap the synergies among its gaming, e-commerce and fintech arms.  Recently, however, the fintech business has begun to grow rapidly – and not necessarily because of integration with Shopee.

Sea’s fintech business had a solid first quarter. Revenue rose 21% to US$499.4 million, while adjusted EBITDA was US$148.7 million, up 50.3% year-on-year. Sea’s digital financial services revenue and operating income are primarily attributed to its consumer and SME credit business. As of March 31, 2024, consumer and SME loans principal outstanding was US$3.3 billion, up 28.7% year-on-year.

While Sea’s first digital bank was in Singapore, and it also has one in Malaysia, we like the prospects for its online banks in the Philippines and Indonesia. These markets have ample low-hanging fruit, and Sea can bring onboard customers who are entering the formal banking system for the first time, not just those who are opening a secondary account just to benefit from a promotion.

SeaBank Philippines posted a profit of P110.7 million in the January-March period, the company’s first profitable quarter since launching its app in June 2022. SeaBank attributed the profitability to the doubling of its loan portfolio to P13 billion over the previous year and a 75% growth in deposits to P20.23 billion. What is interesting about Sea’s bank in the Philippines is how it has carved out a niche as a so-called “rural bank” – for which licensing requirements are less stringent than the six official digital banks in the country.

We suspect SeaBank Philippines’ loan portfolio is benefiting from the tie-up inked last with WeFund Lending, owner of the JuanHand app. Under the agreement, SeaBank announced last November that it planned to provide roughly 300 million pesos in loans to eligible borrowers through the JuanHand app. JuanHand offers loans from US$36 to US$902 payable within 30 to 120 days.

Meanwhile, Sea is also considering increasing its fintech presence in Indonesia. While it already has SeaBank Indonesia, which was originally Bank BKE before Sea bought it, the Singaporean company is expected to acquire a 10-15% stake in HiBank, a subsidiary of PT Bank Negara Indonesia Tbk (BNI), according to Royke Tumilaar, BNI’s president director. The deal could close as early as the end of June, and would give Sea a new channel from which to tap digital financial services opportunities in Southeast Asia’s largest economy.

With three of Asia’s most successful digital banks, South Korea is now considering adding a fourth. Though the country was well banked before the arrival of the digital challengers, Kakao Bank, K Bank and Toss Bank have all found a way to build market share rapidly without burning an inordinate amount of cash. The former two are profitable, while the latter should reach that milestone soon. Consumer interest in digital banks in Korea is such that the market can very likely support a fourth online lender.

Across Asia Pacific, there have been many regulatory sandboxes launched in recent years intended to support fintech innovation. However, in many cases, big fintech success stories emerged outside of the sandboxes, usually because the sandboxes were too restrictive. While regulatory support is important to facilitate a healthy fintech ecosystem, it is not usually government that spurs the most significant innovation – but the private sector.

In many cases, the sandbox concept looks good on paper, but once put into practice, it constrains a fintech’s ability to grow. This can be especially detrimental for very young companies that are trying to scale up and build significant user bases.

One characteristic of regulatory sandboxes in the APAC region that seems to vary little despite the significant disparities in market environments, regulatory systems and consumer financial habits is that they put a heavy emphasis on structure and control – the overriding objective seems to be to promote financial innovation without taking any real risks. But by eliminating almost any potential risk, sandboxes also constrain the options that their participants have to develop their products and services.

The Taiwan experience: High expectations, unremarkable results

With a reputation as one of the more conservative financial markets in Asia, Taiwan seemed like an ideal candidate for a fintech regulatory sandbox that could allow startups some room to experiment. At the time its first sandbox law was passed, in late 2017, Taiwan was eager to develop its fintech sector. With a large amount of idle capital held by its incumbent financial services giants, Taiwan wanted to guide this money into productive investments instead of real estate speculation.

At the time, the Act on Financial Technology Innovations and Experiments was passed, the Taiwanese legislator who initiated it, Karen Yu, said that its passage made Taiwan the first country in the world to introduce a financial regulatory sandbox law. She said that “the legislation would greatly increase the flexibility of financial-oriented regulations that have been limiting innovation, while “breaking down barriers between sectors, so that tech and financial firms can work together seamlessly.”

Though the lawmakers who played a key role in the legislation sought to overcome expected bureaucratic inertia, in practice, red tape became a formidable obstacle to the sandbox’s success. For instance, the sandbox committee was supposed to decide within 60 days if a submission qualified, but we learned by talking to fintech startups that slow review of applications became the norm, while in some cases, simply getting the application completed correctly was difficult because of its many requirements.

We observed during the creation of Taiwan’s fintech sandbox that incumbent financial institutions, which maintain close relationships with Taiwanese financial regulators, may have used their clout to shape the sandbox’s rules – and ensure that the risks of disruption were minimized. This “regulatory capture” caused Taiwan’s Financial Supervisory Commission (FSC) to emphasize prudential regulation more than financial innovation and enhanced competition. Citing observations from a UK fintech firm, Taiwanese researchers noted in an in-depth research report on fintech sandboxes published in November 2021 that “financial researchers from the U.K. and Singapore proactively respond to fintech entrepreneurs while the Taiwanese counterpart’s response is comparatively reactive.”

As of May 2024, there have not been any notable success stories from Taiwan’s fintech sandbox. The number of participating firms remains extremely small, and the last time the FSC reported on a new entrant was November 2020, when the regulator authorized the company Joinvest to launch a group buy platform for bonds in the sandbox.

Australia sees room for improvement

The first iteration of Australia’s fintech sandbox is only slightly older than Taiwan’s – by about a year – and similarly has struggled to produce any notable successes. However, while Taiwan seems willing to leave its sandbox “as is” – Australia is moving to rejuvenate the experimental space in a bid to make it more useful for fintech startups. Canberra’s approach is likely informed by the determination of regulators to introduce greater competition to a financial services sector historically dominated by the Big Four banks: National Australia Bank (NAB), Commonwealth Bank of Australia (CAB), Westpac and Australia and the Australia and New Zealand Banking Group (ANZ).

Notable fintech failures in Australia over the past few years may have convinced regulators that the sandbox has an important role to play. These include the abrupt implosion of the Australian neobank Xinja in December 2020, the January 2021 acquisition by NAB of online lender 86 400, effectively eliminating a new competitor, and the collapse of the digital bank Volt in June 2022. By one estimate, 41% of Australian fintechs are not reaching their capital raising targets.

In April, the industry group FinTech Australia called on the Australian federal government to urgently review the current iteration of its fintech regulatory sandbox, which has been in place for less than four years. Fintech Australia said that the sandbox is “underutilized and not fit for purpose.” The industry group highlighted what it sees as the sandbox’s major shortcomings. Onerous restrictions prevent it from being practical as a testing ground.

One possibility to improve the effectiveness of the sandbox would be to require approval from the Australia Securities and Investments Commission (ASIC) before testing can begin. This approach could ease the regulatory burden on startups, speed up their time to market and still ensure adequate protection of consumers.

To increase the likelihood of sandbox reforms being successful, FinTech Australia has called on the federal government to earmark specific funding in Australia’s A$15 billion National Reconstruction Fund.

Sandbox for stablecoins

For its part, Hong Kong is taking the sandbox concept in a different direction than Taiwan or Australia. The city appears intent on using a fintech sandbox as part of its plan to build a hub for cryptocurrency.

To that end, the Hong Kong Monetary Authority (HKMA) in March announced the launch of a sandbox for stablecoins. Per the sandbox rules, applicants should have genuine interest in developing a stablecoin issuance business in Hong Kong with a “reasonable business plan” with a limited scope and in a risk-controllable manner,” the HKMA said in a news release. I

It seems the HKMA wants to use the sandbox in a consultative manner. HKMA chief executive Eddie Yue said in the news release that the sandbox is intended to allow industry and the HKMA to exchange views on the city’s stablecoin regulatory regime. The regulator expects that the sandbox “will facilitate the formulation of fit-for-purpose and risk-based regulatory requirements, which is key to promoting the sustainable and responsible development of the stablecoin issuance business,”

One of the sandbox’s first projects is a proof-concept pilot involving Standard Chartered, the digital bank Mox Bank, Mastercard and Libera. The project explores the operational and risk management benefits of tokenized deposits to support the settlement of tokenized assets.

It will be interesting to see how the pilot pans out. Though the participants laud the benefits of tokenized asset settlement in the context of carbon credits in a news release, it is not fully clear why tokenization would be necessary, and how it would better support sustainable finance than non-blockchain solutions. On the other hand, if the pilot is successful, there could be positive implications for the broader fintech sandbox concept – and even stablecoin issuance elsewhere in Asia.

New sandbox initiatives

It would be premature to draw the conclusion that cryptocurrency is the fintech segment best suited for sandboxes looking only at the Hong Kong example – especially as time will be needed to assess the project. That said, the sandbox environment might be suited for crypto startups. The reason is that compared to other fintech segments like payments (in fiat currency), digital banking, embedded finance etc. crypto is more volatile and prone to problems. In a sandbox scenario, the crypto sector could feel relatively free to experiment while being insulated from the typical regulatory challenges it faces.

With that in mind, in mid-May, the Philippine fintech said that it had started testing its Philippine Peso stablecoin, PHPC, as part of a Bangko Sentral ng Pilipinas (BSP) sandbox. The testing is expected to continue until June. Thereafter, the central bank will assess whether the stablecoin can be opened up for wider usage. believes that PHPC can be used for remittances, trading, B2B payments and Web3 gaming.’s leadership seems confident about its stablecoin. The platform is targeting 20,000 to 30,000 users of PHPC during the sandbox period and expects to receive full approval for the stablecoin in two to three months, while the pilot is expected to be launched on the platform early June. “We’re being monitored for performance and there’s a set of metrics that we have to hit. Once we hit those metrics, then we can leave the sandbox,” Chief Executive Officer Wei Zhou said at a media briefing in early May.

Given the Philippines’ payment digitization and financial inclusion goals, the PHPC stablecoin might well gain traction – and along with Hong Kong’s pilot, show that the sandbox concept can be helpful for at least one fintech segment. Meanwhile, it will be essential to keep in mind that previous fintech regulatory sandbox initiatives across the region did not come to fruition because regulators erred too heavily on the side of caution. The key for the success of these new initiatives and others in the future will be striking the right balance between prudent regulation and creating an environment that fosters innovation.

On May 8, Paytm’s share price hit a nadir of 317.45 Indian rupees (US$3.80). While since then the company’s stock has risen top about 369 rupees, Paytm continues to face a slew of challenges. The Indian fintech giant’s stock has fallen about 49% in value over the past year and 76% since its November 2021 IPO.

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