Afterpay is the world's foremost buy now, pay later rising star. The Australian company has been on an unmatched hot streak, its share price surging by about 300% in 2020. At roughly AU$134, Afterpay is trading 27 times its price-to-earnings ratio. In the six months to December 31, Afterpay's overall income rose 89% to AU$420 million, even as losses reached AU$76.5 million. Merchant growth in North America was 141%. The company's active users rose 80% year-on-year to 13.1 million. It seems that nothing can slow the company's ascent, with the possible exception of tighter regulation.
Gojek and Tokopedia are Indonesia's two most valuable startups and preeminent tech firms. Merging the two unicorns, with their mostly complementary services, makes a lot more sense that combining Gojek with its arch-rival Grab. While Grab-Gojek talks dragged on for months, Gojek and Tokopedia will not waste any time. They do not want to fall farther behind high-flying Sea Group, which is outperforming the Indonesian companies on their home turf.
The crypto faithful are crying foul as India once again mulls banning decentralized virtual currency. They say pulling the plug on crypto now would be like banning the internet in the 1990s - a reactionary move that would have grim repercussions for India's economy. To be sure, some Indian investors would lose out if they could no longer trade cryptocurrencies. They currently hold about US$1 billion worth. The fintech startup ecosystem might be hurt. But it is hard to imagine the broader Indian economy suffering.
Once upon a time, super apps began as e-commerce platforms or free messaging services. They tapped the network effect to build giant user bases. Because their overhead was low, they could afford to be patient about monetization. Transportation companies do not have the same luxury, especially airlines reeling from the pandemic's effect on air travel. Yet Malaysia-based AirAsia is doubling down on its super app strategy first announced last year. In March, AirAsia will expand its food delivery service airasia food from Malaysia to Singapore.
Since the advent of the internet, technology startups have disrupted one industry after another. It was only a matter of time before they set their sights on financial services.
As it turns out, banking is harder to disrupt than retail, transportation, entertainment or almost anything else. The reason is simple: Trust is paramount in banking and takes time to build, while most digital banks have yet to develop compelling value propositions.
A few of Asia's platform companies have defied this conventional wisdom. The most notable is WeChat, the Tencent-owned app that bundles messaging, digibanking, e-commerce and entertainment under the same umbrella. WeChat was not the first platform company to thrive as a fintech - Alipay was - but it was the first to harness messaging's network effect for that purpose.
It seems that almost every plucky fintech in the cross-border payments space seeks to challenge SWIFT these days. Airwallex is perhaps the best known. The Hong Kong-headquartered (but Australia-founded) unicorn boldly proclaims that it wants to rejig global payments rails at SWIFT's expense. Then there is Lightnet, which is only slightly less ambitious. Lightnet aims to dominate B2B remittances in Asia with none other than cryptocurrency, which it says will render obsolete traditional global payments methods like SWIFT and Western Union. Lightnet is focused on making cross-border payments more economical by trimming the number of intermediary parties from about five to just the sender and receiver. The company expects costs to be further trimmed as its network grows.
P2P lending is one of the fastest growing fintech segments in Indonesia. Demand for credit in Southeast Asia's largest economy is strong while its availability to most Indonesians through the traditional banking system is limited. Indonesia has tens of millions of people who are either underbanked or unbanked. Either way, they cannot easily get a bank loan. P2P platforms offer a convenient alternative. As of October 2020, Indonesia's online lenders had disbursed Rp 56.16 trillion in new loans, up 24% year-on-year, while the NPL ratio was 7.58%, according to data compiled by the country's Financial Services Authority.
Two years ago, Hong Kong made fintech history in Asia as the region's first major economy to greenlight digital banks. As of the end of 2020, all eight of the banks were finally live. Political and covid-related disruptions had delayed their launch. Judging by the digibanks' marketing literature, they are poised to redefine banking in Hong Kong as we know it. The reality is more nuanced.
The clock is ticking for a Grab exit. Southeast Asia's most valuable startup has been in business now for almost nine years. It has been losing money that entire time. To be sure, Grab has seen its user base, valuation and revenue grow exponentially over that time. The company has evolved from an Uber lookalike into an aspiring super app betting on digibanking to deliver it from the red ink into the black. That could be easier said than done.
Fintech crackdowns in China tend to snowball. That was the lesson learned when Beijing began culling crypto and P2P lending firms. At first, it seemed those industry segments might survive if they could assuage regulators. It later became clear that the only way to satisfy regulators was to shut down or move into another line of business, as erstwhile P2P juggernaut Lufax did. China's fintech giants, once seemingly unassailable, now face their own day of reckoning with regulators. Ant Group and its counterparts are probably too big to fail. But they are not too big to be cut down to size.
Brazil's Nubank had a pretty good 2020. Although Brazil was hit hard by the pandemic, Nubank still managed to triple its customer base to 34 million from 12 million in 2019. Last week, Nubank announced it had raised US$400 million in a Series G fundraising round at a valuation of US$25 billion. Participants in the equity funding included GIC, Whale Rock, Invesco, Sequoia, Tencent, Dragoneer and Ribbit.
Barely a month after Xinja's abrupt demise, another Australian neobank is exiting the market. This time though, the said bank is being bought out, not folding like an accordion. It would seem that National Australia Bank (NAB) made 86 400 an offer the neobank could not refuse to the tune of AU$220 million. Shareholders cannot complain. Australia's third-largest lender had already purchased an 18.3% stake during 86 400's Series B fundraising round and says it is paying a premium to the price investors had paid when they invested in the neobank.
While many countries have experienced a surge in cashless payments during the pandemic, for the Philippines fast-tracking the financial sector's digital transformation is a game changer. The reason is that the Philippines is a fast-growing, highly connected and populous country (108 million people) that lacks payments incumbents. There are no entrenched credit card companies in the market. That means ascendant e-wallets like Mynt's GCash have the chance to become dominant players in one of Southeast Asia's largest emerging markets.
Taiwan finally has an operational digital bank. Rakuten International Commercial Bank (RICB), backed by the Japanese e-commerce giant, recently became the first of three digibanks approved by Taiwan's Financial Supervisory Commission (FSC) to go live. RICB will initially offer deposits, fund transfer, small loan and debit card services and later expand into mortgages and corporate loans. Rakuten has had an internet bank in Japan (Rakuten Bank) for more than a decade.
Digital banking is a perilous pursuit. Just look at Xinja's sudden collapse or Monzo teetering on the brink. But that has not stopped cash-flush platform companies from trying to ride the digibanking wave to a blockbuster exit. So far, the results are mixed. One of the success stories is Korea's Kakao Bank, which borrowed a page out of WeChat's book and turned a ubiquitous messaging app into a money-making digibank. Kakao Bank is everything most digital banks are not: focused, profitable, and probably sustainable.
Platform companies counting on digibanking to lift their fortunes now routinely refer to themselves as "super apps" in the vein of China's WeChat. The two most prominent of them are Grab and Gojek, Southeast Asia's two most valuable startups. But being super and profitable are not one and the same. Under pressure from investors to reduce their cash burn and produce a viable exit strategy, both companies have sought a game-changing merger that could help them establish market dominance in digital banking. The M&A activity is accelerating pace as Grab and Gojek lose ground to Sea Group in Indonesia, Southeast Asia's largest economy.
Rumors of an impending Grab-Gojek merger are looking more like smoke and mirrors by the day. After all, combine two similar questionable business models and and what do you get? Here is what you do not get: a company capable of slowing Sea Group's momentum in Indonesia. With gaming and e-commerce in the same ecosystem, Sea has stickiness that Gojek and Grab lack. With that in mind, perhaps Gojek could merge with a company able to complement its core services of ride hailing, food delivery and payments. One possibility is Indonesian e-commerce giant Tokopedia.
In Vietnam's fiercely competitive e-wallet market, Momo stands out. The company has attracted deep-pocketed backers including private-equity firm Warburg Pincus and Silicon Valley fund Goodwater. Momo has is Vietnam's largest e-wallet by users, with 25 million, which it plans to double in two years. Momo recently completed a mammoth funding round that reportedly raised US$100 million that the company will use for strategic acquisitions and to enhance its app with biometrics technology.
China has a fast growing money-laundering problem. Beijing issued a record RMB 628 million (US$97 million) in fines for money laundering violations in 2020, up nearly 300% over a year earlier, according to a new report by PriceWaterHouseCoopers. Since payment firms accounted for 42% of all fines issued, it is no surprise that Chinese regulators are enhancing oversight of fintechs.
Grab is going all in on digital banking. In the period of less than a month, Southeast Asia's most valuable unicorn has won a Singapore digital bank license and raised US$300 million in a funding round led by South Korea's Hanhwa Asset Management. That was the first external funding for its fintech arm. Other participating investors included long-time Grab backers GGV Capital and K3 Ventures as well as eBay founder Pierre Omidyar's Flourish Ventures.
Buy now, pay later (BNPL) is taking the payments world by storm, from the advanced economies to emerging markets. There seems to be a universal appeal for consumers - whether they are accustomed to using credit cards or not - to interest-free installment payments. That holds particularly true during the pandemic, when lenders control credit tightly. In India, some of the largest BNPL players include the unicorn Pine Labs, Vivifi (which operates Flexpay), Simpl and ZestMoney. All of these firms saw growth in their BNPL products in 2020.
The Philippines must act swiftly to implement tougher anti-money laundering (AML) legislation or it will likely be placed on the Financial Action Task Force's (FATF) gray list alongside failed states such as Syria, Yemen and Zimbabwe. Countries on the gray list, which is updated annually in February, are identified as having strategic deficiencies in their anti-money laundering /counterterrorism financing (CFT) regime that pose a risk to the global financial system. Enhanced compliance procedures required for transactions with financial institutions located in gray-list countries could make it harder for the Philippines' many migrant workers to remit money home and reduce the country's attractiveness to investors.
Malaysia's digital banking race will be the one to watch now that Singapore's has finally ended. On January 1, Bank Negara Malaysia (BNM) formally invited applications for digital banking licenses. The deadline for submission will be June 30 and BNM will announce up to five winners by the first quarter of 2022. Compared to Singapore's, this should be more of a wide open race. Fewer tech giants will be in the running, although Grab will likely throw its hat into the ring.
To delist or not to delist: That is the question. The New York Stock Exchange (NYSE) could not seem to make up its mind earlier this month, delisting three Chinese state-owned telecoms stocks (China Mobile, China Telecom and China Unicom Hong Kong), reversing course, and then finally deciding that the three firms should be delisted after all. The professed reason for kicking the companies off the NYSE is they have ties Chinese military and threaten America's national security. The impact on their market capitalization will likely be limited as their trading volume is much higher in Hong Kong than New York. More forced delistings of Chinese firms could occur in the waning days of the Trump administration though.
Not so long ago, Ant Group looked set to build a digital finance empire in Asia. Ant has a foothold, in one form or another, in every major Asian economy. The company has invested in e-wallets across Southeast Asia. It operates fledgling digital banks in Hong Kong and Singapore, the region's two key financial hubs. It is a major backer of India's largest fintech unicorn, Paytm. Ant even has fintech investments in Bangladesh and Pakistan. Yet in retrospect Ant may have overextended itself internationally, confident that its ascent was insuperable even as regulatory problems mounted at home.
Japan has noticeably stepped up its bid to become an international financial center over the past year. The immediate catalyst has been Hong Kong's political troubles. Japan would like to attract international financial institutions and talent from Hong Kong, offering a more predictable and stable business environment. Yet Japan's biggest financial opportunity lies not in replacing Hong Kong, but rather in developing itself as Asia's premier cryptocurrency hub. Japan has a big head start over its competitors in this area. With perseverance, it can emerge ahead of both Singapore and Hong Kong.
WhatsApp has something most other would-be super apps do not: the stickiness of an immensely popular messaging service. And unlike China's WeChat, WhatsApp is a global phenomenon, with large user bases in a diverse array of countries: India, Indonesia, Brazil, South Africa and the United States to name a few. Having eschewed advertising, WhatsApp hopes to monetize all those users with digibanking and e-commerce services. If WhatsApp becomes a global one-stop shop for communication, shopping and banking it will be the only app of its kind.
December was an eventful month for Australia's neobanks. Xinja's demise made waves, showing that it does not pay to keep building atop a flimsy foundation. Castles in the air must come down. And yet, some Aussie neobanks are thriving. Shortly after Xinja said it would turn in its banking license, Australian Financial Review reported that Judo Bank was set to raise up to AU$200 million from investors, bringing its valuation to AU$1.65 billion.
Afterpay has to be feeling pretty good heading into 2021. It has become one of the largest buy now, pay later (BNPL) firms in the world and is growing fast just as the sector hits its stride. BNPL is not a new idea, but Afterpay has repackaged it neatly: four interest-free installments with no fees at all for customers as long as they pay on time. Retailers are willing to take on the risk of late or missed payments because Afterpay is bringing in more business for them. The company's sales grew 112% year-on-year in November to a record US$2.1 billion. Its share prices have risen roughly 270% to A$113.29 from A$30.63 when the year began.
The Grab-Gojek rivalry is fast becoming the stuff of legend. Barring a merger, those two Southeast Asian decacorns are determined to one-up each other for evermore. The rivalry began with ride hailing and food delivery and has intensified in the fintech sector, the best hope for both firms to reach profitability and provide their deep-pocketed investors with an attractive exit. Following Grab leading a US$100 million funding round in Indonesian e-wallet LinkAja, Gojek spent US$160 million to increase its stake in PT Bank Jago to 22% from 4%. It is Gojek's largest investment yet in financial services.
In the twilight of 2020, warnings about shaky neobank business models often fall on deaf ears. For most neobanks and their investors, the prevailing business model remains growth first, ask questions later. Perhaps the abrupt collapse of Xinja, an erstwhile high-flying Australian neobank, will give others in the sector pause about their approach. Like most of its peers, Xinja telegraphed extreme confidence about its prospects. Right up until the end, Xinja was cool as a cucumber, assuring the public that a huge investment from Dubai-based investors was on the way. As it turns out, the cash is missing in action. And it is quite a sum.
Taiwan has had no shortage of opportunities to become a regional financial center. Most recently, Hong Kong's business environment declined markedly, prompting calls in Taipei to attract financial business from the former British colony. That will not happen though. Taiwan's regulatory environment is too restrictive. The business that leaves Hong Kong will instead go to Singapore and Tokyo.
Political uncertainty has dulled Hong Kong's edge as a global financial center. That much was clear long before Ant Group's IPO came to a screeching halt. The abortive Ant deal signaled that politics could shake Hong Kong's capital markets too. Still, Hong Kong's IPO market remains red hot - just not for fintechs anymore. As Hong Kong draws closer to China, it will assume the role of the country's offshore financial center. That will provide both Singapore and Japan with the chance to win some new business, which will be for the best. Asia is large enough to have multiple financial centers, each with a different role.