Is the slowing Chinese economy accelerating financial reform?

Written by Matt Fulco || September 17 2019

Financial reform in China has been stalled for years. Foreign banks have never managed to hold more than about 2.4% of the market - and that was back in 2007. KPMG estimates their share of domestic assets actually fell to just 1.32% by the end of 2017. The renminbi internationalization process gives new meaning to the term "incremental." The exchange rate remains controlled and the capital account closed, just as they were a decade ago when Beijing began promoting the yuan's use globally.

Yet, there are signs of change. In September, Beijing granted Deutsche Bank and BNP Paribas the right to underwrite onshore debt in China, a first for foreign banks in the world's second largest economy. Later in the month, China removed limits on two institutional investment policies that allow foreigners to invest in Chinese financial markets: the QFII scheme (dollar-denominated) and RQFII (yuan-denominated). Those moves follow Beijing's decision to allow foreign banks to take majority stakes in local securities joint ventures.

In China's peer-to-peer lending sector, there's no such thing as too big to fail. Chinese authorities have since last year been cracking down on widespread impropriety in the once ascendant segment. Even the preeminent platforms have not escaped unscathed, leaving many observers wondering if we have reached P2P's twilight in China.

Will Laos's new AML policies be effective?

Written by Kapronasia || September 06 2019

Two years ago, Laos was removed from the Financial Action Task Force's (FATF) money-laundering grey list after the landlocked Southeast Asia country showed some improvement in its AML policies. Since then, however, progress has been limited. Laos's casinos, property market and money exchange shops remain at high risk for money laundering. No money laundering case has made it to court. The onus is on Laos to better control financial impropriety ahead of a 2020 evaluation of its AML policies. Failure to do so could result in a return to the grey list.

Not even the failure to obtain a virtual-banking license can dampen investor interest in South Korea's fintech unicorn Viva Republica and its digital banking platform Toss. In mid-August, Viva Republica announced it had raised $64 million from a group of investors led by Hong Kong-based Aspex Management. The latest capital injection brings Viva Repubica's total valuation to US$2.2 billion and follows an $80 million funding round in December co-led by Korean investors, Kleiner Perkins and Ribbit Capital.

Myanmar is at risk of landing on the Financial Action Task Force's watchlist high-risk money-laundering destinations after a three-year reprieve, analysts say. In 2016, FATF removed Myanmar from the list, citing improvements in the country's efforts to combat financial crime. Since then, however, Myanamar has not taken adequate steps to implement safeguards against money laundering in both its banking system and non-financial institutions. If Myanmar appears on FATF's "grey list" again, investors could sour on the Southeast Asian nation's financial sector, which would harm fintech development as well as broader financial inclusion initiatives.

Rakuten bets on digital banking in Taiwan

Written by Matt Fulco || August 27 2019

In July, Taiwan's Financial Supervisory Commission (FSC) granted three virtual-banking licenses, surprising some observers who expected the regulator would only issue two. All three teams that applied for the licenses - led respectively by Japanese super app Line, Taiwanese telecoms firm Chunghwa Telecom and Japanese e-commerce giant Rakuten - were well qualified, such that the FSC felt they all deserved to launch neobanks in Taiwan.

South Korea's financial regulators have taken a conservative approach to digital banking, issuing a limited number of licenses and outright rejecting a number of recent applicants. One of the only two firms to win a digital banking license thus far is Kakao Bank, a subsidiary of the Korean super app KakaoTalk. With its massive user base - which counts 94% of South Korea's population of 50 million as users - Kakao is poised to stake out a dominant position in the nascent South Korean digital banking market.

Sino-U.S. trade war spreads into financial sector

Written by Matt Fulco || August 19 2019

As the Sino-US trade war steadily escalates, tensions are inevitably spilling into the financial sector. While much press coverage has focused on the U.S. naming China a currency manipulator - something that hasn't happened since 1994 - there has not been any punitive action following the designation. The decision by Washington looks more like a pointed criticism of China's long-stalled financial reforms. Remember when it was common to hear bankers speculate that China's capital account would be freely convertible by 2020?

Those were the days. Regardless, monetary policy is actually less of a flashpoint in the trade war than compliance. The alleged involvement of three major Chinese banks in the financing of North Korea's nuclear weapons program - in violation of sanctions on the Hermit Kingdom - has the potential to entangle some of China's largest lenders in a new front of the trade war.

Will money laundering hinder Cambodia's development?

Written by Matt Fulco || August 15 2019

Cambodia is struggling to contain a mounting money laundering problem. In July, authorities seized $7.4 million in cash and detained nine people at Phnom Penh and Siem Reap airports as part of anti-money laundering (AML) efforts. Cambodian authorities have stepped up AML activity since February when the Financial Action Task Force (FATF), an international money-laundering watchdog, placed Cambodia on its gray list after it found "significant deficiencies" in the kingdom's AML ability.

Cambodia had previously been on FATF's gray list but was removed in 2015 after making some improvements to its AML policies. FATF put Cambodia on the gray list once again in February after the organization concluded the kingdom had never prosecuted a money-laundering case. FATF also found that Cambodia had done little to investigate cases of money laundering and terrorist financing, while the watchdog described the Cambodian judicial system as having "high levels of corruption."

Australian challenger banks aim to shake up status quo

Written by Matt Fulco || August 09 2019

In early August, Australian challenger bank Judo announced it had completed a second round of equity fundraising that brought in a record $400 million, double the original target of $200 million. In this new round of fundraising, the largest ever for an Australian startup, Bain Capital Credit and Tikehau Capital joined existing shareholders OPTrust, the Abu Dhabi Capital Group, Ironbridge and SPF Investment Management.

For Indonesian ride-hailing giant Go-Jek, the more funding rounds the merrier. As it seeks to gain a leg up on its arch-rival Grab, Go-Jek is tapping a wide variety of investors bullish on the Indonesian decacorn's digital banking prospects. In its latest funding round, the second half of Series F, Go-Jek attracted an estimated $3 billion (the company has not disclosed the actual figure) from investors including top Thai lender Siam Commercial Bank, Visa and three Mitsubishi firms: Mitsubishi Motors, Mitsubishi Corp. and Mitsubishi UFJ Lease & Finance.

Is Macau doing enough to combat money laundering?

Written by Kapronasia || July 31 2019

The Chinese gambling hub of Macau has a well deserved reputation for illicit activity. Although the territory has prospered in the two decades since returning to Chinese rule, overtaking Las Vegas to become the top gaming destination globally, the sources of its riches have sometimes been questionable. Corrupt officals and businessmen as well as criminal organizations launder money through the territory, taking advantage of its lax regulatory environment. Macau has no currency or exchange controls, while its threshold for reporting transactions in casinos is more than US$62,000, compared to an international standard of US$3,000.

On July 20th, Chinese State Council announced 11 measures to advance the further opening-up of Chinese financial industry to the world. 8 of the 11 policies are related to bond, asset management, and currency brokerage.  The momentum of increasing foreign investment will not cease in the foreseeable future but be boosted with the newly released policies.

In the emerging world of super apps, Japan's Line is something of an anomaly. It is neither a wholly domestic phenomenon like China's WeChat nor global like the U.S.'s WhatsApp. It is not a ride-hailing app like Singapore's Grab or Indonesia's Go-Jek. Rather, Line is a quirky messaging app beloved in its home market of Japan as well as in Taiwan and Thailand, where Japanese culture has enduring appeal, and to a lesser extent in Indonesia. Outside of those markets, it is virtually unknown.

WeChat has proven that a messaging app can become a digital wallet and that the road to monetization runs through fintech. Line aims to show that such a platform is viable regionally in Asia. Because Japan remains attached to cash, Line cannot rely on its home market alone. “Fintech itself is a proven monetized model, the only problem is how fast we can secure a meaningful size of users,” Line co-CEO Shin Jung-ho told Bloomberg in a June interview.

Virtual banks are coming to Singapore, but the biggest incumbents have little to fear. Singapore's top three lenders, DBS, UOB and OCBC, have plenty of cash to invest in fintech innovation. What they cannot build independently they can access through tie-ups with startups. For smaller lenders who lack the heavyweights' resources, the virtual banks could pose a tougher challenge. The scope of the challenge will depend on how much freedom the Monetary Authority of Singapore (MAS) gives the new entrants.

China’s Credit Card Industry - Boom or Bust?

Written by Aleena Babu || July 18 2019

At a time where China’s financial institutions face increased competition from rising fintech companies, banks in China have been battling with fintechs for market share. The surge of fintech companies have facilitated the process of acquiring loans by providing consumers with an alternative to credit cards. They also do not exclude the unbanked population of the country which is a further competitive advantage for fintech companies. Therefore, banking segments efforts to outdo fintech has forced them to take riskier measures by expanding their lending platform to unsecured loans. Creating incentives for increased consumption has consequently resulted in a higher issuance of credit cards.

Taiwan has a fairly well developed financial industry. This small island has a population of only 24 million in total, but has access to more than 5,000 physical financial institutions. Customers, therefore, are able to enjoy all the banking services provided with ease. Plus, the interest rates on loans in Taiwan are extremely low with only 2.63% APR. The application for a fiduciary loan becomes relatively easy for office workers. Thus, FinTech derivatives such as P2P lending are not previously widely considered.

PingAn Good Doctor: China Healthcare Disrupted

Written by Fengyi Chen || July 16 2019

Imagine you are sick at midnight. You lay in the bed comfortably and consult your private doctor through your smart phone at home. They know your medical history perfectly and give you a personalized prescription online. You don’t need to go to the pharmacy. With a few clicks on an app you purchase drugs and they arrive at your doorstep within an hour and everything is seamless. This is not necessarily a futuristic movie, but rather - reality made possible by PingAn Good Doctor - the largest and artificial intelligence powered mobile medical platform in China.

Can WeLab's virtual bank succeed in Hong Kong?

Written by Kapronasia || July 09 2019

In April, the Hong Kong-based fintech startup WeLab quietly won the former British colony's fourth virtual-banking license. Founded in 2013 by ex-Citibank executive Simon Loong and two other partners, the company has steadily grown over the last six years. It now has 30 million customers in Hong Kong and mainland China as well as a staff 600 strong. The company expects to launch its virtual bank - named WeLab Digital - between October and January.

Hong Kong banking giant HSBC can no longer rest on its laurels: The virtual banks are coming. With its deep local roots and wealthy customer base, HSBC has long been the dominant retail bank in the city. With the arrival of internet-only banks backed by the likes of tech giants such as Alibaba and Tencent, HSBC faces serious native digital competition for the first time.

Indonesia's P2P lending sector heats up

Written by Matt Fulco || July 04 2019

KoinWorks, Indonesia's largest P2P lending platform, has raised US$16.5 million in its Series B funding round, signaling strong interest for alternative lending sources in Southeast Asia's largest economy. Established in 2016, KoinWorks caters to the underbanked and unbanked alike in Indonesia, whose scant credit profiles do not sit well with traditional lenders.

What are Grab's virtual-banking prospects in Singapore?

Written by Matt Fulco || June 27 2019

With an eye on going public, Singapore's ride-hailing giant Grab needs to show profitability, or failing that, strong potential to be in the black soon. Serving as a high tech taxi or food delivery service no longer looks like it will be enough for investors. Instead, Grab wants to be a go-to digital bank. If Singapore regulators grant Grab a virtual-banking license, the company will be poised to test out its fintech hypothesis in its home market.

Indian fintech giant Paytm is reportedly in talks to acquire the Mumbai-based insurtech firm Coverfox for $100-$120 million in cash. If the acquisition is a success, it will be the largest by Paytm and mark the firm's arrival to India's insurtech segment with a bang, posing a direct challenge to market leader Policybazaar.

Australia's banks are in for quite a fight if Morgan Stanley's new report is accurate. The U.S. investment bank estimates in its newest Australia In Transition report that digital wallets could capture US$22 billion of revenue that in a less digitized world would have gone to the banks. Morgan Stanley's advice for the banks is blunt: Up your digital game before it's too late.

Korea's would-be challenger banks received a stern rebuke from the nation's Financial Supervisory Commission in May as the top financial regulator rejected applications for a virtual-banking license from Viva Republica-backed Toss Bank and Kiwoom Securities-backed Kiwoom Bank. The regulator found Toss's capital situation problematic and Kiwoom's plan unfeasible. Both Toss Bank and Kiwoom Bank could re-apply for internet-banking licenses later in the year.

Can China's P2P lenders seek solace in India?

Written by Matt Fulco || June 20 2019

Chinese peer-to-peer lending firms, reeling from the crackdown on P2P business at home, are starting to look for new business overseas. The fledgling India market is of great interest to several Chinese P2P companies, including 9F Group, CashBUS, and WeShare, according to reports in India's English-language media. The Chinese firms are attracted by India's huge size, steady economic growth and relative easy of market entry.

Chinese Government takes over BaoShang Bank

Written by Will Huyler || June 13 2019

For the first time in over two decades, China’s central bank has taken control of a private bank. Baoshang Bank Co. which was founded in 1998 is headquartered in Baotou. With assets worth about 576 billion yuan ($83 billion) the lender is well established in the Inner-Mongolia region. Tomorrow Group, which holds around 89 percent of Baoshang Bank is claimed to have expropriated a serious amount of capital leading to major credit problems.

South Korean regulators have dealt a blow to the ambitions of Kiwoom Securities and Viva Republica by rejecting their respective applications for a banking license. Both of those firms had sought to launch a challenger bank that would have competed with K bank and Kakao bank, who have operating for several years in Korea.

South Korea's Financial Supervisory Commission (FSC) said that it rejected Kiwoom Bank because it was not sufficiently innovative, while the regulator saw governance and financing problems in Viva's Toss Bank.

What are Revolut's prospects in Asia?

Written by Kapronasia || June 04 2019

UK-based fintech Revolut has done well in Europe, where it is among the region's most prominent challenger banks. Before it acquired a banking license, Revolut built up a large customer base by offering a Visa or Mastercard-branded card tied in with a multi-currency account that allows users to transact in foreign currency on their smartphones at the interbank rate. Revolut has gradually added more services for users, such as no-fee ATM withdrawals overseas, pay-per-day insurance and the option to purchase cryptocurrency.

Overbanked Taiwan bucks consolidation

Written by Matt Fulco || May 28 2019

Taiwan may be the only market in Asia that can be called overbanked, making it a true regional outlier. In these commentaries, we usually discuss Asia's unbanked or underbanked populations. In Pakistan, for instance, 100 million people - almost half of the population - do not have a bank account. They are unbanked. The country as a whole is underbanked. In Taiwan, however, nearly every adult has several bank accounts. Taiwanese firms often ask workers to open a bank account at the company's preferred bank. Many people open new accounts each time they change jobs.

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