One would be hard pressed to find any market in East Asia except the Philippines where startups are major digital banking players. In one jurisdiction after the next, regulators have ensured that incumbent lenders and in some cases large technology companies win the requisite licenses to operate online-only banks.
Japan’s largest banks are increasingly looking to fintech opportunities in Asia’s emerging markets as an avenue for growth, as their home market is mature, a laggard in digital transformation and constrained by the world’s greyest population. In contrast, much of Southeast Asia as well as India still have plenty of low-hanging fruit, whether in the payments segment, banking, or both.
In the battle of Southeast Asia’s platform companies, the one that never declared itself a super app is edging out the others in digital financial services. Despite a slowdown in its gaming arm Garena, Sea Group is growing expeditiously in the e-commerce and fintech segments, a proven synergistic combination if we ever saw one. Just look at Taobao and Alipay. It’s just a more compelling one-two punch than trying to turn a ride-hailing app into a bank like Sea’s competitors are set on doing.
In Asia Pacific, Japan is taking a proactive position on stablecoin regulation much as it has other elements of cryptocurrency rules since 2017. New regulations are expected to come into effect in June, while Japanese banks recently began a stablecoin experiment on an Ethereum public chain. Though certain crypto fundamentalists decry Japan’s stablecoin regulations as overly restrictive, in reality, the alternative is unattractive. UST’s spectacular implosion last year and the subsequent criminal charges brought by the United States Securities and Exchange Commission against Terraforms Labs founder are a pointed reminder of what happens when stablecoins are left entirely to “market forces.”
It is no exaggeration to say that India’s United Payments Interface (UPI) real-time payments system has been a game changer for the subcontinent. In a nutshell, UPI has transformed how Indians make payments, allowing them for the first time to easily transfer money instantly from one bank account to another: from a customer to a business, or between individuals.
In the roughly seven years since it was launched, UPI has accrued 260 million users in a population of 1.4 billion and been a decisive factor in India’s embrace of cashless payments thanks to its ease of use and interoperability. Mastercard’s 2022 New Payments Index found that Indians are the most willing of any consumers in the Asia-Pacific region to use emerging cashless payment methods with 93% likely to have made such a payment in the past year.
While many fintech success stories have come entirely from the private sector, state-backed UPI shows that public-private digital financial inclusion efforts can bear fruit when they are implemented well. Having achieved dominance at home, UPI now has set its sights on global expansion.
The question is: Can what works for digital payments in India work globally?
While most digital banks struggle to make money, South Korea’s are largely profitable. They have been able to scale up quickly, despite negligible financial inclusion needs. According to the World Bank, almost 99% of South Koreans have a bank account. The factors that have made Kakao Bank, K Bank and Toss Bank successful are unique to South Korea and are unlikely to be replicated elsewhere.
The largest U.S. payments firms have had their eyes on the China market for decades, in some cases since the country kicked off economic reforms in 1978. They have waited with the utmost patience to gain access to the colossal Chinese payments and cards market, valued at US$21 trillion in 2021 by research firm Global Data. In recent years, American Express and PayPal have made some incremental progress in the China market as Beijing has gradually permitted more foreign investment in its payments sector.
At long last, Taiwan plans to adopt some basic cryptocurrency regulations beyond requiring crypto firms to adhere to existing anti-money laundering legislation. The Financial Supervisory Commission (FSC) will be responsible for the regulations, though the extent of its role has yet to be decided. In all likelihood, the FSC will continue to take a hands-off approach to decentralized digital currencies due to its limited understanding of them and preference to not get heavily involved in a segment of financial services that remains well outside of the mainstream in Taiwan and thus with relatively few ties to the banking system.
It’s been a long and humbling road for Ant Group since the abrupt cancellation of its expected blockbuster IPO in November 2020. The nixed IPO marked the beginning of a wider crackdown by the Chinese authorities on tech giants that had gotten too big for their own good. Since then, we have strained to read the tea leaves and figure out just how much Ant would be cut down to size when the IPO could get back on track. The decision by regulators to require Ant’s parent company Alibaba to become a holding company divided into six different business groups suggests that the restructuring of the internet giant has reached an inflection point.
Defining atomic settlement
Atomic settlement refers to exchanging assets between two parties in a single transaction, typically instantaneously and often without intermediaries. This can be particularly useful in cross-border payments, as it allows for faster and cheaper transactions compared to traditional methods that rely on a more comprehensive network of correspondent banks or other financial institutions to facilitate the transfer.
Rakuten Bank is gearing up for what will likely be Japan’s largest IPO since 2018, scheduled for April 21. The country’s oldest digital bank, which was founded in 2001 back in the days of Web 1.0 and was then known as eBank, aims to raise US$800 million at a valuation of US$2.31 billion on the Tokyo Stock Exchange with the sale of 53.95 million existing shares of Rakuten Bank Ltd to both domestic and overseas investors and the issuance of 5.55 million new shares.
Slowly but surely, Thailand’s largest incumbent banks are positioning themselves to dominate the country’s nascent digital banking segment. This is no surprise. It’s how things tend to play out in East Asia – though it’s a shame for startups. The latest Thai incumbent bank to embrace digital banking is Kasikornbank, commonly known as KBank.
A commentary in collaboration with Banking Circle.
While many countries are enthusiastic about blockchain, or distributed ledger technology (DLT), China is in a class by itself. It has a commanding share of blockchain patents, many companies operating in the space and related investment that is growing exponentially. China’s blockchain investment surged from US$14.4 million in 2017 to USD US$930 million in 2021, according to the research firms IDC and the China Commercial and Industrial Research Institute.
At the recent meetings of its National People’s Congress and Chinese People’s Political Consultative Conference, known as the two sessions, China made important changes to its financial and technology regulations to address significant challenges at home and overseas. Beijing is intent on ensuring financial stability at home and achieving breakthroughs in so-called “chokepoint technologies” as it deals with an increasingly fraught relationship with the United States.
One lingering question remains though: Will China’s dynamic private sector be sufficiently empowered by the reforms?
In December, the Philippines' House of Representatives approved a bill establishing a sovereign wealth fund. Known as the Maharlika Investment Fund (MIF), it is an initiative of President Ferdinand Marcos, Jr. aimed at raising capital for infrastructure projects, among other things. The Philippines will likely seed MIF with its central bank’s dividends and investible funds from the country’s Land Bank and Development Bank.
India’s most valuable fintech startup has been on a roll, all things considered. Despite an increasingly challenging environment for funding, e-payments firm PhonePe is continuing to raise the enormous amounts of money, most recently US$200 million from its key backer Walmart and before that US$100 million Ribbit Capital, TVS Capital Funds (TCF) and Tiger Global. Valued at US$12 billion, PhonePe has projected a revenue of US$325 million for the calendar year 2022 and US$504 million for 2023, according to a valuation report prepared by KPMG and filed by PhonePe.
In line with Indonesian President Joko Widodo’s national strategy to boost the global footprint of domestic firms, the Indonesia Stock Exchange (IDX) is stepping up efforts to build international partnerships from Hong Kong to New York. Indonesian regulators are eager to build on strong momentum from 2022, when Indonesia’s benchmark stock index (IDX Composite) was an outlier that rose 4.09% to 6,850.62 points as benchmark indices in Hong Kong, mainland China and Japan all declined.
The cryptocurrency industry always runs ahead of regulators while the media builds its narratives based on the stories of exuberant founders and investors. This paradigm helps explain why Singapore has been perceived as the place to be for crypto – “hub” is the word of choice – for several years now even though the city-state’s government has been more modest in its ambitions.
Asia has been fortunate thus far in that the failures of Silicon Valley Bank (SVB) and Signature Bank have not had a significant impact on its financial sector. While some financial firms in the region had limited exposure to these defunct lenders, it was not enough to pose a serious problem. Indeed, S&P Global Ratings has found that of the 380 banks and nonbank financial institutions that it rates in the region, it does not anticipate any rating actions directly related to the SVB default.
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It was not so long ago that Siam Commercial Bank (SCB) was singing cryptocurrency’s praises and preparing to invest US$500 million in the Thai crypto exchange Bitkub. Alas, it was not meant to be. The crypto market cratered, and one of the kingdom’s largest lenders thought better of betting so big on a sector of financial services with so much inherent risk. SCB is now pivoting to what is turning out to be familiar territory for incumbent lenders in Asia: digital banking.
After four years, Cambodia has finally been removed from the grey list of the Financial Action Task Force (FATF), indicating the watchdog no longer sees the kingdom as a country at a heightened risk of money laundering and terrorism financing. It’s an achievement for Cambodia to celebrate, especially given that it coincides with the imminent end of the coronavirus pandemic and a resumption of normal international business and travel links.
Despite Covid-19’s impact on the global economy, the steady pivot to digital financial services has helped fintech and the overall financial services industry emerge from the pandemic relatively unscathed. Indeed, during the low-interest rate environment of the past few years, fintech valuations increased dramatically across nearly every market segment, especially in certain areas like crypto.
What goes up, most come down, even in a huge country with significant financial inclusion needs. In recent years, Indonesia has been a hotspot for fintech investment, and that remains true, relatively speaking, but Southeast Asia’s largest economy is seeing a slowdown as investors tighten their belts and it begins to sink in that the digital banking sector may be overly crowded.
China’s payments market has been gradually opening to foreign competition in recent years for different reasons. On the one hand, the Chinese government is wary of allowing a couple of tech giants to indefinitely monopolize a market worth US$3.5 billion at the end of 2022, according to Daxue Consulting. On the other, financial services is one sector of the economy in which Beijing wants more foreign investment. It is against this backdrop that we should evaluate the prospects of Airwallex in China now that the Australian-founded and Hong Kong-based firm has secured an e-payments license for the China market.
Sea Group surprised many of us with its swing to profitability in the fourth quarter, the first time the Singaporean company ever recorded positive net income. The company is much better known for losing money than making it. In the fourth quarter, Sea made a profit of US$422.8 million, compared to a loss of US$616.3 million in the same period a year earlier.
Given the competition it faces from Singapore, Hong Kong cannot afford to rest on its laurels. Over the past few years, Singapore has become a bigger fintech hub than Hong Kong, an increasingly important location for the regional headquarters of both multinational and Chinese companies, and is also quietly attracting high-net worth individuals to set up family offices.
A commentary in collaboration with Banking Circle.
It can be hard to separate the hype from reality when it comes to Web3. After all, on the one hand, it is being heralded as “the future of the internet” and on the other, its actual definition remains fluid.
We reckon Silvergate wishes it had never served as FTX’s bank. The collapse of the once mighty crypto exchange has had massive ripple effects across the entire decentralized digital currency ecosystem. In the last three months of 2022, investors pulled out US$8 billion in deposits from the bank given its heavy exposure to FTX and it posted a loss of US$1 billion in the fourth quarter of the year. Silvergate’s stock is trading at around US$5.40 a share, down 95% from a year ago.
Forgive us for being a bit skeptical about Revolut’s swing to profitability. It took an awful long time for the company to release its 2021 financial report (we’re now in 2023), and when it finally did, the £26.3m profit the company reported was less remarkable than the fact the company’s auditor could not verify £477 million in revenue from subscriptions, cards, foreign exchange and wealth activities.
Can what works for digital payments in India work globally? That is the most pressing question today for the National Payment Corporation of India’s (NPCI) United Payment Interface (UPI) payment rail, the most successful initiative of its kind. While many fintech success stories have come entirely from the private sector, UPI shows that public-private digital financial inclusion efforts can bear fruit when they are implemented well. Having achieved dominance domestically, UPI is now keen to expand overseas.
Japan’s affinity for cash has made it a relative laggard in adopting digital payments, especially compared to neighbors like Korea and China. Japan only broke the 30% milestone for cashless payments in 2021, partially due to the pandemic. In contrast, Korea was almost 94% cashless in 2020, while China was not far behind at 83%, according to the World Economic Forum.
2022 was a year characterized by slower fintech funding in most parts of the world, especially East Asia, where it had previously been growing expeditiously. East Asia’s premier fintech hub of Singapore, however, managed to buck the trend with funding hitting a three-year high of US$4.1 billion, up from US$3.4 billion the previous year, according to a new report by KPMG.
Most Asian countries are mulling the creation of a central bank digital currency (CBDC), but only China and Cambodia have launched one. We think that CBDCs make the most sense for countries with pressing financial inclusion needs, and with that in mind, the launch of Laos’s first CBDC pilot led by the same Japanese blockchain company that developed Cambodia’s Project Bakong can be viewed as a positive development.