Somewhere in between the El Salvador and China approaches to crypto is a middle road, neither a full-throated embrace nor a strict ban. Call it crypto agnostic. Thailand appears to be taking that road, allowing the digital assets business to grow organically, while gradually implementing regulations as needed. For Thai regulators, the priority is not developing a regional hub for decentralized virtual currencies – that is more of a Singapore project and something Japan has considered – but simply ensuring they are used in a manner beneficial for the country’s economy and overall society.
Across Asia, new ground is being covered daily in product personalization by fintech disruptors. Superapps like China's Alipay and India's Paytm are delivering hyper-personalised offerings that can specifically target their customers’ ever-changing needs. Digital finance players are using data to meet unique customer challenges and create seamless, omnichannel experiences, taking a lesson from E-commerce platforms that have introduced live streaming of unique products and continued to put a heavy emphasis on personal discovery and curation. However you look at it, consumer data is on a new playing field.
Earlier this week the People’s Bank of China e-CNY digital wallet showed up on Android and Apple App stores in China in what appears to be the government’s next push to get people to use the somewhat underused digital currency. Previously, the PBOC's e-CNY digital wallet app was only available as a ‘side-loaded’ app meaning that it had to be loaded manually by the user rather than installed through one of the official stores. This is a relatively trivial task on an Android phone where you just click on a .APK file, but somewhat more difficult in the Apple ecosystem.
Over the past few years, Southeast Asia’s traditional banks, which have historically been digital laggards, have become much more relevant. Leveraging their internal fintech capabilities, as well as best of breed external solutions, across the region, traditional banks are gradually becoming much more digitally adept and able to better serve users in everything from contactless payments to wealth management. The benefits are clear - a Fitch Ratings report argues banks with stronger digital transformation are more likely to secure recurring business and hit profit and innovation targets.
Regulatory uncertainty and travel restrictions are forcing many of Hong Kong’s blockchain and crypto companies to shift their operations to more hospitable jurisdictions including finance-focused island-states Singapore, Gibraltar and Cyprus and technologically empowered innovation hubs including Israel, San Francisco and London. Crypto.com, the world’s third-largest spot exchange by 24-hour trading volume, shifted its headquarters last year from Hong Kong to Singapore.
2021 has been a pathbreaking year for decentralized digital currencies. They have made more headway into the mainstream financial system than in any previous year. The Indian government has been watching these developments closely and has quietly walked back its erstwhile anti-crypto stance. A blanket ban of crypto no longer makes sense for India, as it would be both detrimental to financial inclusion and cashless payments objectives, while offering questionable benefits for combating money laundering and terrorism financing.
China’s fintech apex was probably in the mid-2010s, before the crypto crackdown. Since then, it has been a long downhill ride. Investors finally figured that out this year amid a broader crackdown on the tech sector that has clipped the wings of the country’s largest fintechs. But China’s loss is turning out to be India’s gain as investors – including, ironically, Ant Group – pour money into the subcontinent’s fintechs like Paytm, whose record-breaking IPO in November raised US$2.5 billion.
Amid a digital banking craze that is sweeping much of the world, it has become fashionable for big incumbents to claim they are, in fact, digital banks, or at least as digitally adroit as their branchless counterparts. The truth is usually more nuanced. However, in Indonesia, Southeast Asia’s largest economy and most populous country, incumbents really can become digibanks. They just need to be acquired by tech companies or other deep-pocketed investors and rejigged.
India’s buy now, pay later (BNPL) sector is red hot and expected to grow exponentially over the next few years. India is certainly not the first country to experience a BNPL surge and it is tempting to say that we have seen this movie before, and that tough regulation is on the way that will curb BNPL’s growth as in Australia and the UK. But that may not be the case in India given the subcontinent’s low level of credit card penetration and the ability for BNPL to play a genuine financial inclusion role in the economy.
Siam Commercial Bank (SCB) is the latest incumbent lender in Asia to wager that digitization is the key to its future. Thailand’s oldest commercial bank and established by royal charter in 1907, SCB is transforming into a financial technology group and moving into the digital assets business. The transformation, which involves the establishment of a “mothership company” called SCBx, will propel the bank “as a regional financial technology conglomerate by 2025,” SCB says on its official website.
In Asia Pacific, digital banking is a tale of two different types of markets. In advanced economies like Hong Kong, Singapore, digital banks often lack a clear value proposition and have limited disruptive capabilities. In developing countries, it is a very different story, and perhaps none more so than the Philippines. The Philippines’ geography, large unbanked population and fast-growing mobile internet connectivity make the country uniquely suited to branchless neobanks.
Paytm has managed a curious feat, pulling off an underwhelming IPO that is still India’s largest of all time. The buildup to the record-breaking US$2.5 billion deal was tremendous, with expectations set high, to say the least. Yet shares fell 27% on Paytm’s trading debut, erasing US$5 billion in market value and raising questions about the company’s way forward.
Does China need yet another stock exchange? That has been the question of many of our minds since first hearing about the Beijing Stock Exchange, a rejigging of the existing over-the-counter New Third Board. It came about amid a push by Chinese President Xi Jinping to boost onshore capital markets and create an enduring fundraising channel for China’s chronically underfunded small and medium-sized enterprises (SMEs). To that end, the minimum market cap to join the Beijing exchange is just US$31.3 million, significantly less than China’s other exchanges.
The more things change, the more they stay the same in Asia’s fintech market. While an increasing number of different markets in the region are attracting funding, Singapore remains dominant in Southeast Asia. In fact, the city-state accounted for almost half of the 167 deals made in the region the first nine months of 2021, according to a new report by UOB, PwC Singapore and the Singapore FinTech Association (SFA).
Indonesia’s peer-to-peer (P2P) lending sector has grown expeditiously in recent years, with significant benefits for financial inclusion in Southeast Asia’s largest economy. Put simply, P2P lenders can serve markets that incumbent lenders cannot. However, risk is also higher in every way because P2P lending lacks a robust regulatory regime. The challenge for Indonesia’s Financial Services Authority (OJK) is striking the right balance between encouraging healthy industry development and preventing malfeasance and excessive borrower delinquency.
Throughout Asia, e-commerce platforms are adding fintech functions as they look to build more comprehensive digital services platforms. Unfortunately for e-commerce platforms in Taiwan, regulations make it very difficult for them to offer banking services. This is by design: Taiwan’s financial regulators want to prevent internet companies from fomenting too much disruption in the financial services sector.
The Philippines is accelerating digitization of payments, both domestically and cross-border, in line with a goal of the country’s central bank (BSP) for 50% of retail payments to be cashless by 2023. One of the most important new developments in this space is the link-up between the respective real-time and QR payments systems of the Philippines and Singapore.
Taiwan’s financial sector is known for its conservatism, so it is no surprise that the island has not embraced cryptocurrency. Yet, to their credit, nor have Taiwan’s regulators taken an overly harsh approach to decentralized digital currencies. Unfortunately, the lack of regulatory clarity that initially allowed crypto to gain a foothold in Taiwan is not sufficient for the island to become a hub for the industry.
The success of Kakao Pay’s IPO comes as a relief in many respects. The Ant Group-backed South Korean firm’s shares more than doubled in their November 3 debut, giving it a higher market value than many incumbents – just as was the case with Kakao Bank’s IPO – and assuaging concerns that an ongoing regulatory crackdown on fintechs could stymie its steady ascent.
Singapore's largest banks have performed strongly throughout the year, and the third quarter was no exception. In the July to September period, the city-state’s three largest lenders (DBS, OCBC and UOB) once again beat analysts’ forecasts.
Paytm’s IPO is fast becoming larger than life. Analysts are now almost certain the deal will be India’s biggest of all time, raising up to US$2.4 billion (up from an earlier estimate of US$2.2 billion) at a valuation of US$20 billion. The firm reportedly plans to price its shares in the range of 2,080 to 2,150 Indian rupees (US$27.70 to US$28.60), with subscription available from November 8 to 10 and trading to begin around November 18.
As Southeast Asia’s largest economy, Indonesia is among the most important market in the region for the financial services sector. With that in mind, Indonesia’s steady adoption of digital banking represents a huge market opportunity for both fintechs and incumbent banks engaged in digital transformation.
What is the largest potential fintech market in Asia and perhaps the world that flies under the radar? Many observers would be surprised to learn that the answer is Pakistan. With a population of 221 million, Pakistan is the fifth most populous country in the world. The majority of the population – 70% – is unbanked, including 100 million adults.
Australia's long buy now, pay later (BNPL) honeymoon is winding down at last. One of the reasons BNPL has been so lucrative in Australia is that the platforms have not yet been constrained in the way credit cards are. However, for consumers and the overall financial services market, Australia’s imminent BNPL regulation is for the best. Far from innovation killing, regulation should compel BNPL platforms to address problem areas in their business model and ultimately make it more sustainable.
Australia may be reaching its crypto inflection point. Canberra has never repudiated crypto but nor has it embraced decentralized virtual currencies. However, as other countries in the Asia-Pacific region like Singapore and Japan step up their efforts to become crypto hubs, Australia is realizing that decentralized digital currencies offer it an opportunity as well. A report published by Australia’s Senate in late October recommends that the country alter its laws to make them more amicable to crypto.
U.S. credit card firms have waited many years to be granted substantive access to the China market. In the meantime, China’s state-owned payments giant UnionPay has built a card empire in the country, while Alibaba and Tencent have come to dominate digital payments. Among U.S. card companies, American Express is the only one currently permitted to process renminbi transactions, having gained regulatory approval in June 2020.
In early October, Toss Bank finally went live in South Korea. The process took several years and hit a few bumps in the road. The country’s third digital lender had to reapply for a digital bank license after its initial application was rejected in May 2019. Regulators gave Toss preliminary approval in December 2019, but nearly two more years were required before it could launch. As it turns out, Toss is entering the market amid the first real fintech crackdown in South Korea, which has important implications for its growth trajectory.
Hong Kong’s IPO market had a banner year through September, posting its best performance since 1980 on the back of a flurry of listings by Chinese firms. Up to 71 companies raised nearly US$36 billion on the Hong Kong Stock Exchange (HKEX) from initial stock sales and secondary listings. Seven of the 10 biggest listings were Chinese tech firms. However, most of the funds were raised in the first half of the year. In recent months, the market has slowed sharply amid a highly uncertain and restrictive regulatory environment.
2021 has been a banner year for Indonesia’s tech industry, from the strong performance of key industry players to fundraising in private markets to IPOs. Data compiled by Bloomberg show that companies in Southeast Asia raised a record US$4.9 billion from January to June. 23 companies listed shares on the Indonesia Stock Exchange (IDX) during that period, leading the region. The deal pipeline has remained active in the second half of the year as well.
The buy now, pay later (BNPL) craze is sweeping Asia Pacific, growing briskly in markets from Australia to Indonesia. Like many other segments of fintech, BNPL is present in Taiwan, but the situation is a bit different from elsewhere. Major online retailers in Taiwan have offered interest-free installment payments for years, but typically in cooperation with major banks, which are authorized lenders. Dedicated BNPL platforms are another story.
While a certain amount of hype surrounds digital banks, one thing about them is for sure: Their very presence intensifies competition in the market, drawing attention to incumbent complacency. Now that Malaysia’s central bank plans to issue five digital banking licenses in the first quarter of 2022, the country’s traditional banks are moving to head off the challenge – or at least prepare themselves well.
One after another, Asia’s major economies are developing their crypto policies. Singapore and Japan have decided to embrace decentralized digital currencies, albeit in a step-by-step manner. South Korea is less sanguine, although it is stopping well short of China’s near-blanket ban. As for India, it once seemed to be moving in the direction of a crypto ban, but that seems less feasible by the day given the industry’s burgeoning expansion and the potential benefits of that growth for the overall Indian economy.