India has reportedly launched the next phase of its wholesale digital rupee pilot, according to the Indian media MoneyControl. The digital rupee is now being tested in the call money market where banks borrow from or lend to each other for the short term, usually one day, at market-determined rates, anonymous sources told MoneyControl. The sources added that nine banks participating in this pilot were part of the wholesale pilot of government securities, which was launched on November 1, 2022, to settle secondary market transactions in government securities.
With Japanese stocks up 20% since March and the market showing no sign of flagging, one wonders if there is a fundamental change underway in the capital markets of the world’s third largest economy. Unlike in recent years past, Japan’s stock market has in 2023 produced the best returns of any major advanced economy, buoyed by a more pro-shareholder approach by companies and regulators. At the same time, investors are waking up to the opportunities Japan offers now that they are no longer starry eyed about China.
In April, The Ken reported that one of the reasons Malaysia’s digital banks have been slow to launch is that they have had trouble finding the right people to run the new businesses. Apparently, finding talent with the right mix of technological acumen and understanding of the banking business is not so easy in Malaysia – perhaps because the country has been less of a hub for tech startups than some other countries in Southeast Asia. Nevertheless, in early September, Grab’s GXBank-Berhad became the first of Malaysia’s online banks to launch.
For an e-wallet competing against aggressive digital banks, GCash is more than holding its own. The Alibaba-backed company has achieved impressive scale in a competitive, fast-growing market: 81 million active users and 2.5 million merchants and social sellers as of May, and without burning an unacceptable amount of cash. What’s more, according to the company’s leadership, it became EBITDA profitable three years ahead of schedule. The company is now preparing for an IPO. It is just a question of when.
Hong Kong’s full-on push into crypto still seems a bit odd to us. In some way, it appears that the Hong Kong authorities have come to believe that in order to revitalize their financial center’s reputation, they need to do something a bit drastic – such as become fearless promoters of a still unproven type of money and asset class. Compared to Singapore’s approach, Hong Kong’s seems less deliberate, more rushed and higher risk, the bet being that crypto is here to stay and by embracing it now, Hong Kong will reap greater rewards later.
As the massive money laundering case involving 10 people of Chinese descent continues to unfold in Singapore, we wonder if this might just be the third act in a multi-part perfect storm that also involve Three Arrows Capital and some other shady operations. In a nutshell, Singapore, with perhaps the exception of its relatively quiet capital markets, has come into its own as a financial hub in recent years, attracting unprecedented sums from venture capitalists, a huge amount of attention and investment from the crypto community, and a massive influx of Chinese capital that has translated into a broader family office and wealth management boom. With so much money moving into and through the city-state, financial crime risks multiply and authorities have to be more proactive than in the past.
Versa is aiming to disrupt the Malaysian wealth management market with its all-digital platform, which has benefited from ample investor interest and funding, as well as rapid customer acquisition. In 2022, Versa’s gross transaction volume doubled year on year, and the company aims to sustain this pace of growth until 2026.
Greenland Financial Holdings has always been an unusual candidate for operating a digital bank in Singapore. The company is in essence a large state-owned real estate developer based in Shanghai. Compared to tech and telecoms giants that won the other licenses in the city-state, Greenland is less market oriented. It’s more like a real estate arm of the Chinese government. Given the trouble that China’s property sector has been experiencing, as well as a recent bond default, it is worth pondering if Greenland’s digital bank in Singapore could be affected.
This commentary was written in collaboration with Banking Circle.
India’s United Payments Interface (UPI) real-time payments system has transformed how Indians make payments, allowing them to easily transfer money instantly from one bank account to another: from a customer to a business, or between individuals. Since its 2016 launch, UPI has amassed 300 million users and 500 million merchants in a population of 1.4 billion and been a decisive factor in India’s embrace of cashless payments given its ease of use and interoperability.
If you want proof that sanctions have limited effectiveness, look no further than North Korea. The hermit kingdom is probably the most sanctioned country on earth, and yet it keeps figuring out ever more nefarious ways to access foreign currency. Its mammoth crypto hacks are in a class by themselves, as while there are plenty of criminals that steal decentralized digital currencies, North Korea is among one of the only states that invests considerable resources in such crimes.
This commentary was written in collaboration with Banking Circle.
Taiwan’s e-commerce market has been growing steadily in recent years, buoyed by the pandemic-induced boom in online shopping but also due to rising trade ties between Taiwan and Southeast Asia. Per a research report commissioned by Amazon, the B2C segment is forecast estimated to grow 9% annually from 2021 to 2025, reaching NT$683 billion (US$23.2 billion). Companies including Taiwan’s own PChome and Momo as well as Shopee and Rakuten are all keen to tap into related market opportunities.
There is usually good reason to be skeptical these days about a loss-making fintech with a sky-high valuation, but India’s PhonePe – valued at US$12 billion – could be an exception to the rule. The company has fought its way to the top of the subcontinent’s massive UPI payments rail, edging out Google Pay and Paytm, is gradually building out a comprehensive digital financial services ecosystem and continues to raise eyewatering sums from investors at a time when the easy money no longer flows.
It’s always good to revisit assumptions, especially when the bank you are analyzing is an offshoot of an incumbent as large as Standard Chartered. When we initially heard that there was a new kid on the block among the digital banks in Singapore – but not altogether “new” – we were skeptical because the value proposition was anchored in, well, groceries. It’s just not the first thing that comes to mind when one thinks about how to build a successful lender. That said, the ecosystem play by Standard Chartered and Fair Price Group appears to be bearing fruit (no pun intended).
Southeast Asia’s largest platform companies all reported second quarter earnings recently. Some results were better than others, but Sea Group, Grab and GoTo all continue to struggle with the fundamentals. The latter two companies are not profitable, while Sea’s performance underwhelmed investors.
Japan’s megabanks are not the only Japanese financial services companies keen on growing their fintech footprint. The SoftBank spinoff SBI Holdings is a digital focused conglomerate with a securities division, a digital bank that is reportedly Japan’s largest by deposits, an asset management arm, an insurance business and a venture capital arm.
South Korea’s digital banks have been among the most successful online lenders in East Asia, benefiting from the network effect of their respective digital services platforms, relatively weak incumbent digital offerings and strong demand from the country’s retail banking market for new types of products. Yet as they expand into new market segments, in some cases rapidly, regulators are bound to take notice. This holds especially true for the mortgage loan segment.
The Philippines is moving forward, at least tentatively, with plans to develop a wholesale central bank digital currency (CBDC) and has selected a technology partner for its first digital peso pilot Project Agila. Bangko Sentral ng Pilipinas (BSP) has decided to go with Hyperledger Fabric, an open-source blockchain framework hosted by the Linux Foundation.
In a rapidly digitizing world, many Asian countries are going cashless in order to create better, faster, and cheaper payment infrastructure. But should 100% cashless be the goal?
While cashless transactions offer clear benefits, significant barriers exist to achieving a completely cashless society. Infrastructure limitations, inadequate digital literacy, and disparities in access to technology hinder the widespread adoption of digital payments in many Asian countries. In addition, cultural preferences and the role of cash in informal economies are tough to dislodge.
In recent years, Japan’s largest banks have expanded rapidly in emerging Southeast Asia, from Indonesia to Thailand to Vietnam, as well as India. At the same time, they are making strategic investments in advanced economies such as the United States and Israel. With growth prospects at home facing constraints, from the aging population to the fact that the Japanese population is well banked, this search for growth overseas looks set to continue for some time.
Despite high expectations for China's digital currency, adoption of the e-CNY for retail payments in the country remains modest at best. A key issue, and one we have been discussing for several years now, is interoperability with the existing, very effective digital payments ecosystem. The e-CNY is unlikely to be more than a novelty unless it can be fully interoperable with Alipay and WeChat Pay.
Thailand’s Siam Commercial Bank (SCB) is among the most fintech-forward commercial banks in Asia. What makes SCB's digital finance strategy successful is that it leverages all the advantages of incumbency while using technology to develop products for the digital age.
In recent years, India’s fintech market has come into its own, and is now one of the world’s largest. In Asia, it has arguably become the single most important market. A new report by Elevation Capital, which has offices in Bengaluru and Salt Lake City, Utah, finds that India’s fintech ecosystem has grown especially fast since 2018. Funding increased from US$2.2 billion that year to US$5.8 billion by 2022, while the subcontinent’s share of global fintech funding jumped from 2.9% in 2018 to 6.5% in 2022.
Asean has a cross-border payments dream that is slowly moving closer to coming true. Despite the very real interoperability challenges, Southeast Asian countries nonetheless seem determined to build a payments rail of their own that can boost the use of local currencies – perhaps at the dollar’s expense – while speeding up transaction time, lowering transaction costs and strengthening connectivity among their respective financial systems. The latest countries to sign onto this project are the Philippines, Vietnam and Brunei.
In late August, the China Securities Regulatory Commission (CSRC) said that it would start a phased restriction on IPOs to boost "dynamic equilibrium" between investment and financing. The CSRC has not yet said how long the curbs will last, and market insiders foresee stricter IPO vetting and a longer registration process.
Just when it seemed Capital A had put aside its digital banking ambitions, the ever-ambitious airline/platform company announced its partnership with the Philippines’ ascendant online lender UnionDigital Bank. The tie-up between Capital A and UnionDigital Bank comes amid a growing travel recovery in Southeast Asia and strong demand for digital financial services in the Philippines.
When a digital bank reaches profitability quickly, as in positive net income, it is always worth exploring in detail. After all, it is the exception, not the rule. In the case of the Philippines’ UnionDigital Bank, there is more to the story than meets the eye.
Most of the time when we write about Singapore’s rise as a wealth management hub, the news is overwhelmingly positive. But every so often, the risks inherent to taking on that role become glaringly apparent. Singapore is no stranger to money laundering risks, especially after several banks in the city-state were involved with the 1MDB mega scandal. However, in the S$1 billion money laundering investigation Singapore is currently undertaking, it seems the city-state is the center of the alleged crimes rather than Malaysia or another country.
Why is it that central bankers are always more enthusiastic about CBDCs than anyone else? That seems to be the case with India’s digital rupee, which appears to not be seeing especially fast uptake in its second year of testing. In July, the Reserve Bank of India (RBI) asked Indian banks to step up their participation in pilot programs because it wants to increase transactions.
Investors seem happy with Grab’s Q2 results. Since the self-proclaimed Southeast Asian super app said last week that it expects to break even in the third quarter rather than the fourth quarter, while its quarterly losses narrowed and revenue rose 77% to US$567 million, its shares have risen 17%. But questions remain about the long-term viability of Grab’s business model.
With its announcement of stablecoin regulations, Singapore is betting that these “safer” cryptocurrencies have staying power and will play an increasingly important role in the future of financial services. The decision is consistent with the city-state’s interest in developing itself as a digital asset hub for institutional investors. It also gives Singapore a leg up on Hong Kong, which is also trying to be a cryptocurrency hub of sorts, but has yet to introduce any regulatory framework for stablecoins.
Is the Philippines’ Maya Bank the best digital lender in Southeast Asia? The Digital Banker certainly thinks so. On a recent top 10 list compiled by that publication, Maya was the only Southeast Asian digibanks and No. 8 overall alongside digibanks such as Starling, Revolut, WeBank, MOX Bank and Kakao Bank.
Cambodia’s Project Bakong is unique if only for the fact that it is a functional blockchain-based CBDC – one of the few in the world along with the digital renminbi and the Bahamas’ sand dollar. In its first few years of existence, Bakong mainly been used domestically and with reasonably good – if not pathbreaking – results: 8.5 million users (more than half of the Cambodian population) and US$15 billion in transactions as of the end of 2022. It is no surprise that Bakong’s creator, the Japanese fintech firm Soramitsu, now wants to expand Bakong’s presence regionally by making it the centerpiece of a regional digital payments network connecting Japan with Southeast Asia.
It’s earnings season and Southeast Asia’s platform companies are trying once again to convince investors that they are on the path to profitability. The jury is still out as far as we’re concerned, especially in the case of any company that started out in the business of ride hailing and until recently emphasized growth at all costs. Having lost 75% of its market valuation since going public a little over a year ago, SoftBank and GIC-backed GoTo has yet to convince investors that it has turned a corner on the path to profitability, and we see little in its second-quarter earnings results that suggest anything has fundamentally changed for the better.