Financial Industry Blog - Kapronasia

Paytm is in high spirits. Its stock has risen 45% over the past three months, making it an outlier among fintechs. Paytm is even feeling pretty good about losing 6.44 billion rupees (US$81 million) in the first quarter of FY2023, an increase of 70% from a loss of 3.8 billion rupees a year earlier. Paytm attributed the higher loss to increased operating costs and said it is on track to reach operating profitability by the second quarter of the fiscal year. 

Crypto believers will point to Thailand recently greenlighting four new digital assets companies to say that the kingdom remains a booster of decentralized virtual currencies. These include Krungthai XSpring, a crypto broker affiliated with one of the country’s leading banks, crypto exchange T-BOX Thailand, crypto adviser and fund manager Coindee and Leif Capital Asset Management, which also manages funds. We reckon Thailand is not going to crack down on crypto as China and India have, but the digital assets’ freewheeling days in the kingdom are quickly winding down. Tighter regulation is inevitable given retail investors’ recent losses in the digital assets market.

As fintech startups stare down the barrel of a dot-com-like crash, it is becoming clearer by the day that only the strong will survive. And the strong in this industry, where ironically (given this is financial services) being profitable has not been paramount, tend to have loads of cash to spend. The UK’s Revolut is one of those fintechs who really seems too big to fail, and that is why despite tough macroeconomic conditions the company is pushing full speed ahead into different Asia-Pacific markets including Singapore, Australia and India.

Ride-hailing companies can be profitable, as Uber is proving, and so can fintechs, but can ride-hailing companies become profitable fintechs? Untangling that word salad is something of a heavy lift, much like turning an app-based taxi service into a bank. But there is a clever shortcut that deep-pocketed tech giants like Indonesia’s GoTo can take to bolster their fintech prowess. They can invest in a struggling incumbent bank and make it profitable.

Digital transformation at incumbent banks is all well and good, but maybe making a huge bet on crypto as a traditional lender is still a bit risky. At least that is the sense we get from Thailand’s Siam Commercial Bank (SCB) and its digitally forward holding company SCB X. While many aspects of SCB’s pivot to fintech are proceeding smoothly, the planned acquisition of the crypto exchange Bitkub is not. The deal was supposed to be concluded by now, but it appears SCB is having second thoughts about it.

U.S.-China financial decoupling has been happening in slow motion and sometimes appears to be leveling off, allowing some observers to stay optimistic. In reality, however, it will not be easy for American and Chinese regulators to agree on a deal that allows Chinese firms to remain listed on U.S. stock exchanges. With that in mind, Alibaba recently announced it will pursue a primary listing in Hong Kong.

Looking at the recent earnings statement of Australia’s Zip, we have to give the company credit for being able to put a positive spin on a troubled story. As a buy now, pay later (BNPL) firm that overextended itself, Zip now faces double trouble: a problematic business model and resources that are stretched too thin. But the fourth fiscal quarter earnings statement (April to June) highlights Zip’s revenue rising 27% year-on-year to AU$160.1 million and a 20% increase in transaction volume. Losses, however, represented 2.7% of the value of transactions.

Surprise, surprise: Japan is in no hurry to issue a digital yen. In a June report that declared proof of concept in the first-phase study, the Bank of Japan (BOJ) repeated its stance that it has “no plans to issue” a CBDC, though the Japanese central bank believes it is “important to be prepared thoroughly to respond appropriately to any future changes in the environment.” Talk about a general statement.  The BOJ’s stance has to be viewed within the wider context of CBDC development in Asia, especially the underwhelming performance – at least in relation to the hype surrounding it – of China’s digital renminbi.

South Korea’s Toss Bank is experiencing exponential growth amid strong demand for digital financial services and weak digital offerings from incumbent lenders. From the time of its launch in October 2021 through the end of June, online bank had opened 3.6 million accounts. Toss has added 2.5 million accounts this year, a pace of growth that more than doubles its first three months of operation, when it signed up 1.1 million customers. Further, Toss’s loan books have reached 4 trillion won.

2022 is turning out to be the worst crypto bear market yet. Bitcoin’s price is hovering around US$20,000 while most traders of the paramount cryptocurrency traders are underwater and continuing to sell at a loss. The dismal crypto market conditions – and how they highlight decentralized digital currencies’ inherent volatility – are forcing regulators in many Asian countries to consider tightening relevant regulations. However, there are exceptions, and the Philippines is a notable one. Cryptocurrencies remain very popular in the country; trading is still brisk and regulators have yet to signal a tougher stance.

India’s fintech unicorn club has a new member, the credit provider OneCard. In mid-July, OneCard announced it had raised US$100 million in fresh funding at a valuation of US$1.4 billion, nearly double its January valuation of US$750 million. Leading the round was Singapore’s Temasek. Other key participating investors existing backers QED, Sequoia Capital India and Hummingbird Ventures. To date, OneCard has raised US$225 million and says it has over 250,000 customers spending about US$60 million with its cards each month.

The government crackdown on China’s tech sector has had many far-reaching effects, among the most consequential the reorientation of the country’s capital markets ecosystem away from consumer-facing platform companies and towards a state-guided deal pipeline focused on strategic industries. E-commerce, fintech, ride hailing and home sharing are out, while advanced manufacturing, artificial intelligence, 5G telecommunications and renewable energy are in. Big-ticket mainland IPOs are becoming more common, especially with the advent of the Shanghai STAR board, China’s answer to the Nasdaq.

Japan’s Rakuten first announced plans for an initial public offering of its online banking unit in September 2021 amid fierce competition with Amazon and as it faced steep costs from building a mobile network. 10 months later, the Japanese platform company said that it had applied to list its online banking unit on the Tokyo Stock Exchange. It has not yet, however, given any specific guidance as to when the IPO will occur.

Singapore has been viewed as the most likely crypto hub in Asia after China’s crackdown on decentralized virtual currencies effectively ended Hong Kong’s prospects for taking on such a role. The city-state has never been that gung-ho about the idea though. Its regulators recognize crypto offers certain opportunities to Singapore, but they also are aware of its inherent volatility. The current crypto bear market and related collapses that are occurring are likely to spur Singapore to take an even more cautious approach to decentralized digital currencies.

India’s UPI real-time payments platform has achieved impressive growth since its inception just over six years ago, with expansion being especially turbo-charged during the long coronavirus pandemic. The acceleration of India’s overall digital economy over the past 2.5 years has helped UPI become the most dominant platform of its kind on the subcontinent and even begin nascent international expansion: to the UAE, Bhutan, Singapore, Nepal and now France. The question now is if UPI can build meaningful market share outside of its home country, where it enjoys some inherent advantages.

South Korea’s K bank, the country’s first online lender, has staged an impressive comeback in the past two years, overcoming long-running capitalization problems and growing both its deposit base and loan books at a brisk rate. K bank's loans have grown 1.56 trillion won (US$1.28 billion) per year on average since its launch in 2017 while customers’ average annual savings have reached 2.31 trillion won. A tie-up with leading South Korean crypto exchange Upbit has been a key reason for K bank’s recent fast growth. However, that reliance on Upbit could now become a liability for the digibank.

Once upon a time, before China’s tech crackdown began in earnest, Ant Group went on an overseas shopping spree, investing in a wide variety of up-and-coming fintechs. Though the company never stated the idea clearly, many observers assumed Ant was laying the groundwork for some kind of cross-border payments ecosystem in Asia – where it made the bulk of its investments. Things have not turned out that way (at least not yet), but some of Ant’s individual investments are proving to be winners, giving the company a strategic presence in some of the region’s most promising markets for digital financial services. Other investments, however, have not proven so successful.

Despite a slowdown in fintech funding amid a shaky global economy, Indonesian fintech remains a bright spot in the Asia-Pacific region. While the deal flow has tapered off somewhat from late 2021 and the first quarter of 2022, the second quarter still saw a few big-ticket deals.

Perennially sanctioned North Korea has become adept at stealing cryptocurrency to finance its illicit weapon programs. Unlike fiat currency, decentralized digital assets exist outside of the formal financial system, making them easier prey for Pyongyang’s tenacious and skilled hackers. Yet the recent crypto bear market that has seen US$2 trillion in market valuation lost may complicate North Korea’s crypto-funded criminal endeavors.

The demise of yet another Australian neobank brings to mind Queen’s hit 1980 song, “Another One Bites the Dust.” With the abrupt collapse of Volt, which said in late June it would cease operations and return AU$100 million in customer deposits after failing to raise AU$200 million, the Australian neobanking experiment’s last chance for success is Judo, which listed on ASX last year and has reached profitability. Otherwise, now both Xinja and Volt have collapsed, while 86 400 was acquired by National Australia Bank (NAB) in early 2021.

What goes up, must come down, especially in fintech. We know that buy now, pay later (BNPL) firms have grown organically at a torrid pace in India due to low credit card penetration and strong demand for credit products, and we also know they could not have grown so fast if they had been properly regulated. At the same time, there is a certain systemic financial risk that comes with the possibility of bad consumer debt accruing fast, a likely scenario when BNPL is allowed free rein. With that in mind, the Reserve Bank of India’s (RBI) recent decision to ban nonbanks from loading prepaid instruments (PPI) — digital wallets, or stored-value cards — using credit lines does not come as a big surprise.

Hong Kong is battling a surge in financial crime committed both online and by telephone. The uptick in fraudulent activity coincided with the city’s worst Covid-19 surge, which occurred in the first quarter of this year. At the time, Hongkongers were largely confined to their apartments; the economy was in its worst state of the pandemic, shrinking by 4%, and the government imposed especially harsh measures to slow the spread of the hyper-infectious omicron variant. These conditions led to higher unemployment and greater desperation in the population, making some people easy prey for fraudsters.

What happens to airlines that fail to win digital banking licenses? In the case of Capital A, they have to count on a sharp rebound in travel demand to help revive their core business, which could eventually be better bundled with the AirAsia super app and various fintech services. However, Capital A continues to lose money as seen in its mixed first quarter results.

China has been cracking down on fintech in one form or another since September 2017 when it set out to clip the wings of its then flourishing cryptocurrency industry. Next up on the chopping block was peer-to-peer (P2P) lending. Both industries are shells of their former selves, which suits Beijing just fine given their risk profiles. However, the crackdown on China’s systemically important tech companies has had ripple effects in the broader economy and China’s leadership recently signaled that a change of direction may be near.

2022 is turning out to be the year that Asia’s super apps must swallow their pride. For Korea’s Kakao, whose digital bank became the country’s most valuable lender following its IPO in August 2021, the fall from grace has been swift and painful. Both Kakao Bank and the company’s payments arm Kakao Pay have struggled with falling market capitalizations since late 2021, while a scandal in which Kakao Pay executives swiftly sold off their shares in the company after the IPO undermined public trust in the Kakao brand. Ant Group’s decision to reduce Alipay's stake in Kakao Pay has dealt another blow to the Korean platform company.

Walmart-backed PhonePe is one of the most prominent payment firms in India. It holds the largest share of India’s paramount UPI payments platform of any company, with 47% of the market compared to Google Pay’s 34%. PhonePe says it has 380 million registered users, which means that one in four Indians use its services. The company also serves 30 million offline merchants. With pressure to achieve profitability increasing and investors eager for a successful exit, speculation is mounting about when PhonePe will decide to go public.

Fintech funding in Asia appears headed for a sharp slowdown amid an uncertain global economic outlook. However, Pakistan remains a bright spot in the region, benefiting from its extremely low baseline compared to the region’s other major emerging markets. Indeed, startup funding in Pakistan reached a record US$350 million in 2021, while in India it reached an all-time high of US$38.5 billion. In 2022, despite the shaky global economy, Pakistan may surpass last year’s record. As of May, Pakistani startups had already raised US$167 million.

During China’s long tech boom, private investors availed themselves of the abundant opportunities afforded by Chinese IPOs, whether onshore, in Hong Kong or in New York. Yet with Beijing’s crackdown on the tech sector and persistent U.S.-China tensions, Chinese IPOs are going in a very different direction.

Chinese fintech giant Ant Group announced the soft launch of its Singapore digital bank ANEXT with fanfare earlier this month. The announcement came nearly three years after the Monetary Authority of Singapore (MAS) said it would issue up to five digital banking licenses. Now that ANEXT has finally gone live, it is worth assessing its prospects. The bank holds a digital wholesale banking (DWB) license, which allows it to serve non-retail customers only. ANEXT plans to develop an open framework for financial institutions together with MAS-backed Proxtera, a hub connecting B2B marketplaces, trade associations and service providers. While Ant has high hopes for ANEXT’s potential to serve SMEs in Singapore, it is likely to face some significant challenges in the city-state’s ultra-competitive financial services market.

Australians lost AU$113 million (US$81.5 million) to crypto investment scams in the first five months of 2022, according to new data from ScamWatch cited by consumer watchdog the Australian Competition and Consumer Commission (ACCC). The ACCC noted that most of the reported losses, which occurred in the January 1 to May 1 period, were investment scams, and they rose by 314% (including non-crypto scams) compared to the same period last year. This situation underscores the need for Australia to implement comprehensive regulation for digital assets, as crypto use among Aussies continues to rise steadily.

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