Financial Industry Blog - Kapronasia

Fintech funding in the Asia-Pacific (APAC) region is continuing a steady deceleration. A new report by KPMG shows that fintech investment in APAC decreased 21.7% year-on-year in the first half of the year to US$3.7 billion from US$4.6 billion during the same period in 2023. While the total number of deals in APAC rose to 438 from 406, not one of the 10 largest deals globally occurred in the region.

South Korea’s No. 2 digital bank K Bank had been planning to go public on the Korea Exchange (KRX) at the end of this year, but unfavorable market conditions could force the company to delay the listing. There are three main issues that could adversely impact the IPO: the softening of the U.S. economy, the legal troubles of the founder of rival internet bank Kakao Bank and the souring of regulators’ views on digital lenders.

In its nine years of operation, UK fintech unicorn Revolut has always had outsize ambitions, depicting itself as a game-changing disruptor in the financial services sector. In some respects, the company has been successful. It is one of the most valuable startups in Europe and swung to a pre-tax profit of US$554 million in 2023. Its ability to reach profitability in less than a decade compares favorably with other prominent fintechs and platform companies leaning heavily into digital financial services. However, it is questionable whether Revolut is worth the US$45 billion valuation it is reportedly seeking.

The Singaporean sovereign wealth fund Temasek has long been one of the largest institutional investors in China, reflecting the close economic ties between the city-state and the world’s second largest economy. As recently as 2020, China accounted for 29% of Temasek’s portfolio. However, today Temasek’s investments in China have fallen to just 19% of its portfolio, below the U.S. at 22% and Singapore at 27%.

Every few months, it seems that rumors start circulating in the cryptocurrency community about a possible liberalization of China’s strict digital asset controls. The rumors rarely have any basis in reality, and this time is no different. A number of cryptocurrency news sites have published stories over the past few weeks suggesting change could be afoot, citing a legal victory for Tron blockchain founder Justin Sun in Chinese court.

In the first half of 2024 Indonesian super app GoTo lost US$174 million. While such a figure would barely have raised eyebrows back when interest rates were low and VC funding flowed freely, these days investors are more discerning – especially since GoTo is a public company listed on the Indonesian Stock Exchange (IDX). Like its counterpart Grab, GoTo has found it challenging to adjust to being a public company after being able to shrug off massive losses for years in private markets.

Looking at the stock price of Singaporean platform company Grab, one wonders what investors truly think about this company’s prospects. Since its Dec. 2021 Nasdaq debut in a SPAC merger, Grab has lost 74% of its market value. The stock’s 52-week high is just US$3.88. We suspect that investors are concerned about the viability of Grab’s super app business strategy – which may struggle to pivot away from a focus on growth – even if individual units of the company are doing well. Grab does seem confident about its fintech business though and foresees profitability for its Singaporean digital bank before too long.

Who needs more digital banks in Southeast Asia? If you asked us, we would say not too many countries do. Certainly not Singapore, probably not Malaysia or Thailand, and even though Indonesia is a huge market, it already has a lot of online lenders.

Hong Kong seems determined to become a major hub for digital assets and adopting a stablecoin regime is a key part of that policy. However, crypto bros hoping for a highly permissive regime appear to be out of luck. The city’s stablecoin regulations have changed very little from the ones proposed in December 2023. They require issuers of fiat currency-backed tokens to obtain a license from the Hong Kong Monetary Authority (HKMA), that stablecoins be fully backed by reserve assets “at any given point in time” and that issuers publish monthly confirmation of those assets from an independent auditor.

What to make of ANEXT Bank? On the one hand, Ant Group has been focused for years now on expanding its presence in Southeast Asia. Its Singapore digital bank, which provides multi-currency business accounts, unsecured financing with flexible repayment options, and fixed deposit accounts to SMEs, is a key part of that expansion effort. And Ant has continuously injected large amounts of capital into ANEXT. On the other, from a financial standpoint, ANEXT’s performance remains underwhelming, and it is unclear how large the company’s addressable market is in Singapore.

Kakao Bank has long proven skeptics of digital banks wrong. It has been profitable since 2019 and is now set to expand in Southeast Asia. There is just one problem: Its parent company’s founder Kim Beom-su was arrested on July 23. He has been accused of manipulating stocks during Kakao’s acquisition of the K-Pop agency SM Entertainment last year.

The hype is being separated from the reality when it comes to retail central bank digital currencies (CBDCs) in Asia, and adoption is underwhelming. Nearly five years after China launched its first digital renminbi (e-CNY) trials, only two other Asian countries actually have a functional retail CBDC: India (though it remains in a pilot stage) and Cambodia.

JPMorgan estimates that global corporates move nearly US$23.5 trillion across countries each year, equivalent to roughly 25% of global GDP. Since they rely on what the bank calls “sub-optimal wholesale cross-border payment processes,” annual transaction costs for the companies have reached US$120 billion. This is where atomic settlement comes in – and where the ambitious blockchain firm Partior – which was founded by JPMorgan, DBS and Temasek sees a large market opportunity.

Singapore’s digital banks have been underwhelming in their first few years of operation, though the likely raising of a deposit cap in July 2023 has benefited Sea’s MariBank and Grab-Singtel’s GXS Bank. It was always a risky endeavor to bet on the retail segment given how well served it already is in the city-state, but there is no turning back now for Singapore’s preeminent platform companies. The question is whether MariBank’s big loss in 2023 should be viewed as a glass half empty or half full.

We remember when Australia first kicked off its open banking initiative, known as the “consumer data right,” with much fanfare five years ago. The program was supposed to increase the quality of banking services to consumers by giving them access – in theory – to more of a customized experience in which they could pick and choose which services they wanted from which providers. They only had to agree to let their data be shared with different banks. However, a recent report by the Australia Banking Association (ABA) found that just 0.3% of bank customers are using the program, suggesting that it has been a failure and that Australia needs to reimagine its approach to open banking.

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."

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