Ever since news of the 1MDB scandal broke, Singapore has been on heightened alert for financial crime. As Southeast Asia’s premier financial hub, it faces certain risks. In the past few years, it has been grappling with a rise in digital financial crime that has dovetailed with the timeline of the coronavirus pandemic. While online scams and phishing remain a vexing problem, the city-state now also has to contend with bad actors in the cryptocurrency sector in which it has invested considerable resources.
Indonesia is gradually turning into a success story for peer-to-peer (P2P) lending, which is able to meet demand for credit that traditional lenders cannot. In the past few years overall lending by fintechs has been growing much faster than that of banks in Southeast Asia’s largest economy, according to the Indonesian Joint Funding Fintech Association (AFPI).
In early October, the Reserve Bank of India (RBI) published a 50-page concept note outlining its vision for a digital rupee. The document explains the RBI’s reasons for rolling out a central bank digital currency, such as boosting financial inclusion, accelerating financial digitization and enhancing financial stability, but does not offer a specific timeline for the launch of the Indian digital fiat currency.
In recent years, digital banks have become increasingly common in Asia Pacific, including in the region’s advanced economies. Though these markets are well banked, regulators have sought to introduce greater market competition and promote digital transformation among oft-complacent incumbents.
A commentary in collaboration with Banking Circle.
Cross-border payments in Asia Pacific have made significant strides in recent years, buoyed by strong economic growth and steady digitization of financial services. Estimated by McKinsey & Co. to have grown at 6% annually from 2011-2019, the region’s cross-border payments account for an increasingly large share of a global market expected to reach US$156 trillion globally this year.
Singapore-based B2B payments firm Thunes is stepping up its global expansion. Following its securing of a major payment institution license in France in late 2021, Thunes has continued to grow its global footprint. This has included partnering with Alipay, broad expansion in Greater China and establishing operations in Saudi Arabia.
The National Payment Corporation of India’s (NPCI) United Payment Interface (UPI) payment rail is the most successful initiative of its kind globally, proof that government-led digital financial inclusion efforts can bear fruit when they are implemented well. In the second quarter of the year, UPI recorded over 17.4 billion transactions in volume and Rs 30.4 trillion in terms of value, up 118% and 98% respectively over the same period a year ago. While India remains UPI’s paramount market for now, the company is increasingly targeting global expansion.
You can’t be a big platform company in Indonesia these days and not foray into fintech, not with 181 million unbanked people and many others who are underbanked. Compared to most of its competitors, Bukalapak has been more deliberate about its entry into digital financial services, but it benefits from having fewer costly business units: no ride hailing or food delivery, for instance.
It has not been the best year so far for Hong Kong’s IPO market, in a stark reversal from its strong performance in the earlier days of the pandemic. Battered by a confluence of unfortunate factors, from the city’s erstwhile zero-Covid policy to China’s tech crackdown to inflation and rising interest rates, the Hong Kong IPO market has thus far raised just US$7.77 billion, the lowest amount since 2013. While there are signs of a revival in the market, particularly with the imminent listing of two Chinese electric vehicle makers, the road to recovery remains long.
Southeast Asian countries have for several years been interested in establishing a regional cross-border payments system. Full payments interoperability could be possible in Southeast Asia as early as November 2022, Fitch Solutions Risk and Industry Research said in a recent research note, citing comments made by Southeast Asian central bankers in July. Yet if we take a closer look, we find that the linkages are predominantly bilateral and there are still some kinks to be ironed out before a truly multilateral system of real-time retail payment rails can be established.
Given the ever-more complex geopolitical situation, it is well worth examining the state of renminbi internationalization. Lofty goals mooted in the early 2010s, such as a free float of the Chinese currency, and full convertibility of the capital account, seem out of reach for the foreseeable future. Nor is the renminbi becoming a dominant global reserve currency. Rather, its use is rising in specific use cases, such as bilateral trade settlement, often due to geopolitical considerations.
The wheels are coming off the bus of Sea Group’s cash-burning tripartite digital services ecosystem of gaming, e-commerce and fintech amid jitters in the global economy and investor skepticism of the company’s growth-first model. If you thought that even as it hemorrhaged cash by the hundreds of millions of dollars, Sea’s expansion to places like Poland, India and Colombia did not make a lot of sense, you are not alone. The question now is if the company’s austerity measures can both stop the bleeding and reassure investors that its fundamental business model is sound.
Rakuten wants to build a digital services ecosystem that stretches well beyond the e-commerce business for which it is best known and includes telecoms and digital financial services. With that in mind, the Japanese online shopping giant plans to list both its online securities and digital banking units relatively soon. However, market conditions are suboptimal to say the least, while investors are increasingly skeptical about Rakuten’s costly efforts to build a mobile network to compete against powerful incumbents SoftBank and NTT DoCoMo.
A commentary in collaboration with Banking Circle.
As Australian banks in recent years have been hit with unprecedentedly high fines for money-laundering violations, they have stepped up de-risking to reduce their exposure to the types of clients they believe could land them in regulatory hot water. In some cases, the banks simply refuse to do business with firms without good reason.
In a year that has seen fintech funding slow in many markets, Indonesia is proving to be something of an outlier. In the first half of 2022, Indonesian fintechs managed to raise US$1.8 billion, exceeding the total of US$1.6 billion raised in 2021.
We remember a time, before China’s tech crackdown, when Ant Group seemed keen on building its own cross-border payments ecosystem in Southeast Asia. The Chinese fintech giant’s shopping spree took it to nearly every Asean country, while it has also rolled out wholly-owned digital banks in the Asian financial centers of Hong Kong and Singapore. Then, as now, the question was always how Ant could connect the disparate components of its non-mainland China ecosystem. If it cannot, the whole will never amount to a sum greater than the individual parts.
When we talk about countries that have inadequate anti-money laundering (AML) and counterterrorism financing (CFT) controls, we usually mention how those deficiencies can cause a country to be pleased on the Financial Action Task Force’s (FATF) gray list. Asian countries with the gray list designation who are working to be removed from it include the Philippines, Cambodia and Myanmar. But there is a more serious designation for countries seen as dangerous conduits for illicit financial activity: the blacklist. Unfortunately for Myanmar, it may soon end up on the blacklist.
Though the U.S. and China have for now reached a stock delisting détente, Chinese firms are continuing to show interest in raising capital on European exchanges this year. As such, for the first time ever, Chinese companies have raised more in European capital markets than in the U.S., with the focus on the UK and Switzerland.
Indonesia has big plans for its capital markets, among the best performing in Asia this year. Through August 5, 34 companies had listed on the Indonesia Stock Exchange (IDX), raising a total of 20.1 trillion rupiah. By the end of the third quarter, Indonesia plans to launch a new economy board to attract more unicorns. Further, by the end of the year, it plans to roll out a dedicated cryptocurrency bourse.
We wish we can say we are surprised but we are not: Taiwan’s digital banks are failing to disrupt the country’s financial services sector. While showing potential to exist as digital financial services platforms in a way incumbent Taiwanese lenders do not, Line Bank, Rakuten Bank and Next Bank nonetheless have a long road ahead to reach profitability, with only lending offering money-making (rather than losing) possibility in the short term. For at least the next few years, the digital lenders will struggle to break even on deposits and payments, while they are for the time being restricted from potentially more lucrative businesses like wealth management.
In the past three years, Hong Kong has faced unprecedented challenges that have brought into question its future as a financial center. Strict adherence to a zero-Covid policy has been particularly impactful. The inability of businesspeople to freely travel to and from Hong Kong has adversely affected the city’s business environment. Still, in certain respects, Hong Kong is continuing to thrive as a financial center.
Ending up on the Financial Action Task Force’s (FATF) grey list is unenviable. For developed economies and FATF members like Australia, it is not a common occurrence. However, FATF has previously found certain elements of Australia’s anti-money laundering (AML) controls deficient, and many of the same problems keep occurring. In recent years, several of the country’s largest banks have been slapped with massive fines, while its casinos are not doing enough to fight financial crime.
Southeast Asia’s preeminent platform companies have all bet big on fintech to boost their fortunes and lift them from the red into the black. It is a great idea in theory, but challenging to execute in practice. Competition is intense in the region and the super apps have to compete against pure-play fintechs and others not weighed down by unprofitable units that have nothing or very little to do with financial services. The super app concept only works if there is sufficient synergy among the different services provided by the platform company.
Pakistan continues to be one of Asia’s hottest fintech markets, buoyed by growing investor interest, one of the world’s largest unbanked populations and government support for digital finance-supported financial inclusion. Pakistan represents an exceptionally large opportunity for fintechs: Only 1% of its almost US$4 trillion of payments are made digitally. The past month has seen a number of notable deals that show the market is maintaining solid momentum despite a global economic slowdown and greater investor scrutiny in tech startups.
Did Thailand’s Siam Commercial Bank (SCB) have a crystal ball handy when it nixed a plan to acquire the troubled Thai crypto exchange Bitkub? The deal, announced in the late-stage crypto bull market of November 2021, had been on thin ice for months. Then came the announcement on August 25: The 17.8-billion-baht (US$536,000) deal was off. In a statement, SCB cited Bitkub’s “various issues” it was sorting out with Thai regulators as the reason the deal was being scrapped. On August 30, it became clear that the issues were serious.
While U.S.-China tensions are heated in many areas, it appears that the two countries want to keep the bilateral relationship on an even keel when it comes to the financial services sector. Despite the sensitive politics on both sides of the conversation, the two countries have, for now, reached an agreement that should reduce the chance of a large-scale delisting of Chinese companies from U.S. stock exchanges.
Indonesia is the most important market for Alibaba in Southeast Asia and arguably its most important market outside of China, period. Increasingly, Alibaba is focused on Indonesia’s burgeoning digital financial services market. Yet Alibaba recognized early on that it would be impossible to replicate the Alipay model outside of China and instead chose to take strategic stakes in various Indonesian fintech firms or companies with financial services arms.
In Asia and globally fintech funding has been slowing amid economic jitters and rampant inflation. Some cash-burning fintechs are finding that they are running out of cash to burn. Still, there are some exceptions, and India is a notable one. According to a new report from Boston Consulting Group (BCG), from January 2017 to July 2022, the Indian fintech market received US$29 billion in funding from 2,084 deals to date, accounting for 14% of global funding and No. 2 in deal volume. Unlike many other countries, India’s fintech funding has not dropped off sharply this year.
Meta, perhaps still better known as Facebook, is one of the biggest of Big Tech players in Asia Pacific, the dominant social media network for countries as diverse as India, Japan and Australia. Yet the ubiquity of the Facebook platform in the region, outside of notable exceptions such as China and North Korea, has not translated into success in Asia Pacific’s booming digital financial services market. Quite the opposite: Facebook is less than a footnote in this story. Meta’s inability – thus far – to tap into any of the region’s fintech markets augurs ill for its ability to grow sustainably in APAC.
No country likes to end up on the Financial Action Task Force’s (FATF) grey list. It means that FATF has determined a country’s anti-money laundering (AML) and/or counterterrorism financing (CFT) controls are somewhat deficient. It could be worse – they have a black list too – but that is reserved for the likes of North Korea. The Philippines has been on the FATF grey list since June 2021 and is hoping to exit by January 2023. But it will not be an easy task given persistent concerns about the country’s Bank Secrecy Law, inadequate regulation of the casino gaming sector and seeming reluctance to use the law to fight financial crime more aggressively.