Asia Financial Industry Blog

Zip has been one of the biggest Australian buy now pay later (BNPL) success stories, second only to Afterpay. Zip, Afterpay and others have been so successful that other financial firms are hopping on the BNPL bandwagon, from PayPal to incumbent lenders like Commonwealth Bank. As the market grows more crowded and restrictive regulations loom, Zip is looking to expand overseas, including Canada, Europe and Southeast Asia.

In Kapronasia’s 2021 Asia-Pacific Fintech Trends report published in January, we predicted that Singapore would be a fundraising hotspot in the region this year. As it turns out, that might have been something of an understatement, at least based on the first quarter. In the January-March period, Singapore fintechs raised US$496 million, up 355% year-on-year and equivalent to roughly 46% of total funding in 2020, according to a new report by Boston Consulting Group (BCG).

South Korea’s digital banks are on a roll, buoyed by robust demand for digital financial services amid the pandemic. South Korea went cashless long ago with credit cards, but since the pandemic hit in early 2020, mobile banking has taken off. As a result, Kakao Bank, K bank and Toss have grown exponentially.  All three of South Korea’s digital banks are on track for IPOs in the next two years, with Kakao likely to go public first.

It was only a matter of time before bitcoin mining landed in China’s crosshairs. Beijing identified decentralized digital currency as a systemic financial risk in 2017 – for its use in skirting capital controls and links to money laundering - and promptly hobbled key parts of the crypto ecosystem, shutting down all exchanges and banning initial coin offerings. Mining does not pose the same immediate risks to the Chinese financial system, but its enormous power usage could crimp Beijing’s efforts to curb its carbon emissions – a major central government policy objective. With that in mind, the prospects for bitcoin miners in China look dim indeed.

The hype about China's digital yuan can obscure the reality, especially in the cross-border space. The most adamant supporters of China’s CBDC argue that it poses a challenge to the US dollar’s role as the world’s dominant international currency because, well, it is digital, has a technological edge and thus will perhaps redefine global payments rails. This argument exaggerates the benefits of digitization while overlooking the fundamentals of the dollar's paramountcy. 

Long lauded for its outstanding pandemic control, and accustomed to no community transmission, Taiwan is now fighting a truculent coronavirus outbreak that is averaging about 300 cases a day. As a result, Taiwan is in a quasi-lockdown state for the first time since the pandemic began. With the government telling people to stay inside and avoid face-to-face contact, this could be a turning point for cashless payments in Taiwan.

U.S.-China financial decoupling is an odd thing. Instead of a linear progression in which Chinese firms gradually eschew going public in the US and delist from its stock exchanges, we see some Chinese companies continuing to seek exits on the Nasdaq or NYSE, while others are seeking secondary listings in Hong Kong as a hedge against forced delisting. Still others are actually being forced to delist like the telecoms giant China Mobile, which is now looking at a new listing on the Shanghai Stock Exchange.

It never felt so good to lose US$422 million. Just ask Sea Group. Southeast Asia’s most valuable listed company indeed went deeper into the red in the first quarter, but its revenue also grew 147% year-on-year to US$1.76 billion. Investors like what they see. Sea’s stock price has risen almost threefold to US$246 from roughly US$83 a year ago.

Australian regulators are stepping up the fight against financial crime after issuing a staggering US$921.59 million in fines in 2020. Disciplinary action against Westpac for serious breaches of Australia’s AML/CFT act accounted for US$920.7 million of that total.In the Asia-Pacific region, only Malaysia issued more fines than Australia in 2020, and that was because of the 1MDB scandal.

Singapore’s largest lenders have started the year off on a cracking note. First DBS reported record earnings and now OCBC has done the same. The city-state’s second largest bank posted a net profit of S$1.5 billion in the January to March period, compared to S$698 million during the same period a year earlier and well exceeding Refinitiv’s estimate of S$1.08 billion. 

Taiwan’s two top e-wallets, Jkopay and Line Pay, have grown exponentially in terms of transaction volume in recent years yet have failed to turn a profit. Data compiled by Taiwan’s Chinese-language Business Next show that Jkopay lost about NT$346 million, slightly less than the NT$347 million in losses a year earlier. Line Pay likely lost NT$424 million in 2020, up nearly 70% year-on-year.

Ride-hailing giant Gojek is stepping up its super app play with new fundraising and the purchase of a stake in Indonesian conglomerate Lippo’s retail unit, MPPA. Earlier in May, Indonesian celluar operator Telkomsel, a subsidiary of state-owned communications giant PT Telkom Indonesia, said it would invest an additional US$300 million in Gojek. Shortly thereafter, a filing on the Indonesian Stock Exchange revealed that Gojek paid 144.85 billion rupiah (US$10.2 million) for a 4.76% stake in MPPA.

The United Payments Interface (UPI) has become a kingmaker in India fintech. The real-time payment system owned by the National Payments Corporation of India (NPCI) has grown exponentially since its inception in 2016, with varying estimates of its overall share of India’s payments market. PwC reckons that UPI could reach a 59% share of Indian digital payments by 2024-25, while Indian tech media site Inc42 says that UPI already has a 73% share of the market, up from just 9% in 2018.

South Korea only has a handful of prominent fintechs, but they are still managing to give incumbents a bank a run for their money when it comes to online banking services. Chief among them is Kakao Bank, with 14.1 million users (more than ¼ of South Korea’s population) as well as K bank and Viva Republica’s Toss, which will launch a digital bank later this year. With the rising popularity of digital banking, South Korea’s traditional lenders are mulling launching neobanks of their own.

China’s fintech crackdown is hurting some of the country’s largest tech firms, but has yet to dampen investor appetite for Chinese tech listings in Hong Kong. In fact, Hong Kong Exchanges and Clearing (HKEX) posted a record profit of HK$3.8 billion (US$490 million) in the January-March period, up 70% year-on-year. Driving the boom were listings by Chinese tech firms of various stripes, including video-streaming platform Kuaishou (which raised US$5 billion) as well as secondary listings by search giant Baidu and video-sharing platform Bilibili. The first quarter is normally the slowest for Hong Kong IPOs as it coincides with the Lunar New Year holiday. 

2021 is shaping up to be a pretty good year for DBS. Southeast Asia’s largest bank posted record earnings of US$1.52 billion in the January-March period, up 72% year-on-year. DBS generated record fee income in the first quarter, with especially strong growth in wealth management and transaction services, both of which hit new highs. DBS is not resting on its laurels though and plans to boost both its digital capabilities and international footprint.

Singapore and Thailand have made cross-border payments history with the linkage of their respective real-time retail payment systems, PayNow and PromptPay. The linkage is the first of its kind in not just Asia but the world and comes after several years of close collaboration between the Monetary Authority of Singapore (MAS) and Bank of Thailand (BoT).

Ride-hailing giant Grab is full of surprises these days. It was not so long ago that the Singaporean decacorn was said to be considering a tie-up with its rival Gojek. Gojek instead is moving to merge with e-commerce giant Tokopedia while Grab is taking the SPAC merger road to an exit. The forthcoming Nasdaq SPAC could value Grab at up to US$40 billion, but it is not the only listing the company is considering. Indeed, Grab is also considering a secondary listing on the Singapore Exchange (SGX).

Indian payments unicorn Razorpay has grown exponentially during the pandemic as the subcontinent accelerates its transition to online shopping and digital finance. In the six months since it hit unicorn status, Razorpay has seen its valuation treble to US$3 billion. The Bangalore-based firm will use the US$160 million it raised in its latest fundraising round – in which Sequoia Capital India and Singapore’s sovereign fund GIC Pte participated – to fund expansion in Southeast Asia and develop new product lines. With this latest round of funding, Razorpay has raised US$366.5 million.

Citibank is calling it quits in many of Asia-Pacific’s retail banking markets, including mainland China, India, Indonesia, Thailand, Vietnam, South Korea, Taiwan and Australia. Citi’s performance across these markets varies greatly, but overall, the US banking giant feels it lacks the scale to compete in them. Citi plans to focus its Asian retail banking business in the financial centers of Hong Kong and Singapore.

It has not been the best six months for Ant Group. The erstwhile high-flying fintech giant landed squarely in regulatory crosshairs on the eve of its abortive IPO and has been there ever since. Initial optimism that the company could expeditiously get its regulatory house in order have been dashed as Beijing’s demands increase. Not only must Ant vastly increase its capitalization, which will eat deep into its profit margins, the company must also restructure and hand over its precious user data to a state-run firm. Ant's valuation could fall as low as US$29 billion, a far cry from the US$315 billion price tag that the company had around the time of its abortive IPO. These changes will have a profound impact on Ant’s future prospects and likely other major fintechs in its ecosystem as well. 

Buy now, pay later may be the greatest thing for payments since well, credit cards, or even better, depending whom you ask. “What we’re seeing now is a once-in-a-lifetime generational shift away from traditional credit products,” Afterpay CEO and co-founder Anthony Eisen recently told The Australian. While the concept of zero-interest installment payments is not exactly revolutionary, Afterpay is one of the fintechs that has figured out how to package it right. As a result, Afterpay is not only one of the biggest BNPL firms in Australia but also the US. In March, Afterpay surpassed AU$1 billion in monthly sales in the US. With the US increasingly driving Afterpay’s growth, the company is considering an IPO on the Nasdaq. 

The arrival of digital banks in Hong Kong and Singapore has put some pressure on incumbents to up their game. At a minimum, traditional banks in Asia’s two main financial centers have slashed some unpopular fees and invested in more digital technology. Now that Malaysia has decided to introduce digital banks, its incumbent banks face some similar challenges to their counterparts in Hong Kong and Singapore. 

At long last, Line Bank has arrived in Taiwan. On April 22, the Japanese messaging app’s virtual bank went live, becoming the second digital bank in Taiwan after Rakuten Bank. Line Bank had been hampered by both pandemic and regulatory related delays. It originally planned to launch in mid-2020. Of the three virtual banks approved by the Financial Supervisory Commission (FSC), Line Bank has the strongest digital services ecosystem thanks to the popularity of its messaging app, e-wallet, entertainment and social commerce with Taiwanese consumers. 

After years of raising funds in private markets, Southeast Asia’s largest platform companies are suddenly eager to exit. The region’s foremost super app rivals are leading the pack, but the exit routes vary considerably. Grab is making SPAC history with the largest ever such deal, on the Nasdaq. Not to be outdone, Gojek and Tokopedia are moving to finalize their expected merger, which will likely include a listing both in New York and on Indonesia’s own stock exchange. The combined entity, the aptly named “GoTo,” could attain a valuation of US$30-$40 billion. 

In the world of fintech unicorns, a bit of exaggeration comes with the territory. After all, we are talking about companies valued in the billions or tens of billions of US dollars, despite failing to make a profit (in most cases). This is a world where what counts is not the shaky balance sheet today, but the supposed potential to revolutionize banking tomorrow. Growth is paramount – that’s how to keep the funding spigot on. But this approach to financial services comes with manifold risks. Possible compliance deficiencies at Australia’s Airwallex illustrate this point. 

Singapore is steadily carving out a niche for itself in the emerging green finance segment. Much as it has done with fintech, the Monetary Authority of Singapore (MAS) is taking steps to make the city-state a hub for this up-and-coming area of financial services. MAS reckons that Asean will need annual green investment of US$200 billion annually. Given its role as the region’s leading financial center, Singapore is a natural choice to lead green financing efforts.

Grab is heading for the exit ramp SPAC style. IPOs are slow, costly and let regulators hold a magnifying glass to a firm’s balance sheet. Less so with this SPAC on the Nasdaq, which will give Grab a high valuation (US$40 billion) and investors a way to cash out. Grab has been operating for about nine years. The merger will include roughly US$4.5 billion in cash, the largest share sale yet by a Southeast Asian firm in the U.S.

The Philippines is determined to speed up financial inclusion through digitization. By 2023, the BSP aims to digitize at least 50 percent of total retail transactions and bring 70% of Filipino adults into the formal financial system. To that end, it introduced guidelines for digital banks in December 2020 and has thus far received two applications. The rules require licensees to hold at least 1 billion pesos in capitalization, operate a head office in the Philippines and offer only-only banking services. Licensees are not permitted to set up physical branches. The review process will likely carry on through 2021, with the winners being announced on a rolling basis. Yet some fintechs are determined to enter the market earlier.

Singapore’s digital banking race had far more losers than winners. Of all the failed bids, Razer’s must have been among the hardest to swallow. The gaming hardware firm was a strong contender and had Sea and Grab not both been in the running, may well have prevailed. The question now is, can Razer still become a digital bank? The answer is maybe in Malaysia and/or the Philippines.

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