Financial Industry Blog - Kapronasia

Hong Kong as Asia’s top crypto hub? Really? That is our reaction to the speculation that the Chinese SAR could beat out Singapore for Asia’s crypto crown that has emerged since Hong Kong officials at Hong Kong Fintech Week announced a public consultation on how retail investors could have a suitable degree of access to digital assets under a new licensing regime. Rules currently limit crypto trades to institutional investors with a portfolio of at least HK$8mn ($1mn). Yet it is hard to see how Hong Kong can chart such a markedly different course on crypto than mainland China.

China’s fintech sector was never the same after November 3, 2020. That was the day Chinese regulators abruptly nixed Ant Group’s mega IPO, a dual Shanghai and Hong Kong listing that was expected to raise US$37 billion and value the Chinese fintech giant at a whopping US$315 billion. The cancellation of Ant’s IPO proved to be the beginning of an extended campaign to curb the dominance of Big Tech in China’s financial services industry.

Kakao’s fintech results continue to be mixed – a tale of two platforms in some respects. Much like its strategic investor and perhaps spiritual guide Alipay, Kakao has developed a digital bank and payments app as two separate units. Thus far, the online lender Kakao Bank has consistently outperformed the e-wallet Kakao Pay, and that held true once again in the third quarter of the year.We have lauded Kakao many times for developing a profitable financial services super app. It is the only company outside of China to achieve such a feat. However, it might be worth considering at this point if the two separate units are sufficiently complementary.

Xiaomi is one of China’s and the world’s largest smartphone makers. But the company is not content with that position – given low margins and extreme competition in the sector –  and has long been searching for new avenues of growth. That’s how Xiaomi began to move into fintech several years ago. As it turns out, transitioning from technology hardware into digital financial services is much more challenging than Xiaomi likely imagined.

The Hong Kong financial center lexicon is ever expanding. Depending whom you ask, Hong Kong is an international financial center, Asia’s most important financial center, China’s offshore financial center or some combination of all three. Historically, Hong Kong liked to stay out of politics and thrived on its combination of laissez-faire capitalism, strong, independent legal system and knack for acting as a bridge to the Chinese mainland. Going forward, those factors will remain integral to Hong Kong’s success, but important questions remain about how economic and financial policy choices on the mainland will affect the city’s fortunes.

BNPL, or buy now pay later, is a type of payment option that allows customers to purchase items now and pay for them later in installments. This type of payment option has been gaining popularity in recent years, especially among younger shoppers. In fact, a recent study showed that BNPL usage has increased by 400% among millennials in the past two years.

BNPL first emerged in Asia in 2014 and has since become extremely popular in countries like China, South Korea, and Singapore. In China, for example, the BNPL market is expected to grow from $30 billion in 2020 to $750 billion by 2025. It could be argued that Australia was the epicentre of BNPL in Asia with such previous market leaders including Afterpay and Zip. So, what is driving this massive growth? Let's take a closer look at BNPL in Asia and how it works.

The Philippines recently experienced a setback in its fight against financial crime: The Financial Action Task Force (FATF) declined to remove the Southeast Asian country from its grey list, on which it was placed in June 2021 for having inadequate money-laundering and counterterrorism financing controls. After a two-day plenary in October, Paris-based FATF decided to keep the Philippines on the list along with 22 other jurisdictions.

The newest digital bank in Singapore stealthily came into existence, flying below the radar in contrast to the high-profile race for digital banking licenses that ended with victories by Grab-Singtel, Sea, Ant Group and a consortium headed by China’s Greenland Holdings. Now competing with these four digital banks is Trust Bank, launched in September by Standard Chartered and NTUC FairPrice, Singapore’s largest supermarket chain.

Cambodia became one of the first countries in the world to launch a central bank digital currency (CBDC) in October 2020. As adoption of Cambodia’s blockchain-based retail CBDC Project Bakong proceeded expeditiously, other Southeast Asian countries with similar financial inclusion needs and openness to digitization of financial services were expected to follow suit.

Yet two years after Bakong’s launch, no other ASEAN country has launched a digital fiat currency. As the hype around CBDCs has cooled, Southeast Asian countries are worrying less about being first movers in this nascent field and more about if a CBDC offers them benefits that justify its costs.

Paytm’s path to profitability has always been a bit convoluted given the company’s labyrinthine business lines and its determination to compete in so many retail segments that require regular subsidizing of customers. That said, it enjoys a scale that few – if any – of its competitors can boast, the backing of some very deep-pocketed investors and the ability to raise cash cheaply on India’s stock exchange.

Thailand has never been in a rush to introduce digital banks. After all, the kingdom is neither a financial center like Hong Kong or Singapore, nor does it have a huge unbanked population likes Indonesia and the Philippines. About 81% of Thais have a bank account. However, it is possible that introducing online banks could improve competition in Thailand’s financial sector – and that appears to be one of the key goals of the Bank of Thailand (BoT) as it moves forward on digital banks.

Being placed under increased monitoring by the Financial Action Task Force’s (FATF) is never welcome news for a country. Besides the reputational damage that comes along with such a designation, there are many practical problems caused by the restrictions that may be put on financial transactions as well as burdensome compliance requirements. Most countries are put on FATF’s gray list due to inadequate money laundering and counterterrorism financing controls. However, occasionally a country is added to the blacklist – reserved for the countries that pose the most serious financial crime risks – including North Korea and Iran – which is what happened to Myanmar last month.

The proof of the tentative state of Australia’s bid to introduce greater competition into its financial services sector is in the pudding: The country’s big four incumbent lenders have increased in size despite the high-profile launches of different neobanks in recent years. Of that crop of upstarts, the last one left standing is Judo Bank. The others have either collapsed or been acquired. Meanwhile, the big four are arguably stronger than ever.

A commentary in collaboration with Banking Circle.

Cross-border payments are increasingly characterized by a dynamic and challenging market environment. On the one hand, the market is booming and expected to reach US$156 trillion this year. On the other, traditional international correspondent banking networks are shrinking at the same time that alternative rails that execute payments in real time are increasingly common. Thus, financial institutions (FIs) have more choice than ever, but being able to connect seamlessly to all the rails is not straightforward.

The crypto bear market sure is not slowing down North Korea’s cyber criminals. Chainalysis data show that North Korean hackers stole US$840 million in decentralized virtual currencies from January to May, about US$200 million more than they pilfered in 2020 and 2021 combined. "By any standard, they [North Korea] are a crypto superpower,” former North Korea analyst at the FBI Nick Carlsen told CNET in a recent interview.

Razorpay is the rare fintech unicorn with discipline and focus, as well as a sky-high valuation. Last valued at US$7.5 billion in December 2021, the Bengaluru-based payments gateway is notable for growing through strategic acquisitions and sticking to its B2B focus despite pressure to foray into retail. It is now poised to expand beyond its home market into Southeast Asia.

China’s largest ever tech crackdown has failed to dethrone Alipay and WeChat Pay from their dominance of the country’s fintech sector, even if it has reduced their profitability. For better or worse, the duopoly seems to have staying power, especially in payments, the stickiness of the respective super apps evident. However, there has long been a line of thinking that payments interoperability and the digital renminbi together will pose a threat to the duopoly. Following recent comments by a senior People’s Bank of China (PBoC) official about the need to standardize QR codes, there is renewed speculation that the payments hegemony of China’s fintech juggernauts could be waning.

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.

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