South Korea’s Viva Republica is defying the tech slump that has frozen funding for many fintech unicorns, both real and aspiring. In late December, it finalized a US$405 million Series G funding and it says it is now valued at 9.1 trillion won ($7 billion), up from 8.5 trillion won in June 2021, when it raised $410 million in pre-Series G funding at a $7.4 billion (8.5 trillion won) valuation.

Australia’s neobank experiment has largely gone awry, with three of the four original online lenders defunct or now part of an incumbent bank. To be sure, startups fail or get bought all the time – more often than they thrive as independent companies – but we dare say that was not the expectation of the neobanks’ founders, nor Australian regulators who sought to introduce greater competition into the financial services sector dominated by four incumbent juggernauts. The one neobank that remains from that first cohort is Judo, which has carved out a niche lending to SMEs, listed successfully on the ASX and seems poised to reach profitability before long.

Better late than never? That was our first reaction to the news that at long last, Thailand has reached a decision on digital banks: It will allow them by 2025, and start accepting applications later this year. By 2024, Thailand will issue three digital banking licenses. And of course, online lenders will have to satisfy certain requirements, which we expect to be stringent and effectively eliminate any scrappy startups from even bothering to throw their hats in the ring.

Two years and 2.5 months after its IPO was shelved at the 11th hour, Ant Group appears to be nearly out of the woods. Ant has jumped through countless hoops for regulators over the past few years, from creating a dedicated consumer finance unit to raising its capitalization to agreeing to share consumer data with the People’s Bank of China (PBoC) to having Jack Ma give up control of the company – more on that later. So it is no surprise that with the Chinese economy faltering, battered by zero Covid and then the abrupt shift to living with the virus, that regulators are ready to put China’s tech crackdown in the rearview mirror.

When it comes to Singapore’s digital banks, is hindsight 20/20? Probably so. The hype surrounding them never quite corresponded to reality, and in many regards accurately mirrored the broader tech bubble that pushed up the valuations of so many cash-burning startups into the stratosphere. Like their counterparts in Hong Kong, Singapore’s digital banks will need to spend a lot of time and money to effectively penetrate what is already a mature, well-served market.

China embarked on a quest to internationalize its currency in the early 2010s with great fanfare. In support of renminbi internationalization, Beijing announced plans to develop Shanghai as a global financial center and established offshore yuan trading hubs in Hong Kong, Singapore and London.

These efforts represented a push by reform-minded officials to give China a greater role in international finance and activate needed changes to a financial system designed for a country less integrated with the global economy. They came about at a time when it was widely assumed that China’s leadership believed the advantages of a more open financial system outweighed the drawbacks, and that a free-floating renminbi and fully convertible capital account were not a question if, but when.

Among Hong Kong’s eight virtual banks, WeLab Bank stands out for a few reasons. First, it is not simply an offshoot of large tech firms and/or incumbent lenders like most of its competitors. WeLab is a startup that was established a decade ago as an online consumer credit lending platform. It has been operating in mainland China since 2014 and Southeast Asia since 2018. Though the mainland market is and will remain important for WeLab, its interest in Southeast Asia – Indonesia in particular – shows the company has a regional vision for its business that contrasts with that of its competitors focused only on Hong Kong and the mainland.

Cambodia has been on the gray list of the international financial crime watchdog FATF for several years due to its inadequate money laundering and counterterrorism financing (CFT) controls. Gray list designation requires additional levels of compliance for international financial transactions with the kingdom, which while not a dealbreaker for foreign investment in Cambodia, makes it more troublesome than in countries not on the list. As Cambodia emerges from the pandemic, it is eager to be removed from the gray list to help boost its Covid-battered economy, which contracted 3.1% in 2020 and grew just 2.6% in 2021.

Across the Asia-Pacific region, digital banks have sprung up at a rapid rate in recent years. Regulators have ostensibly encouraged the establishment of online-only banks to spur greater competition in the banking sector, which in most markets is dominated by incumbent lenders afflicted with complacency of varying severity.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

We cannot think of a single Asian market where the arrival of digital banks has upended the competitive landscape. That’s not to say that digital lenders cannot put pressure on incumbents, especially to up their digital game and do something about that clunky legacy IT infrastructure. It is just that getting people to switch banks is much harder than doing the same for say, ride-hailing or food-delivery apps. With the arrival of digital banks in Malaysia, most incumbent lenders will feel some pressure, and consolidation may be in some of their interests, but the big players are unlikely to lose significant market share.

Despite being recent arrivals to the Philippine financial services market and not having – at least for the most part – a large deposit base yet, the country’s digital banks are shaking up the market, prompting major fintechs without banking licenses and traditional lenders alike to step up their game. The Philippine central bank recently greenlighted one more digital bank, GoTyme, to start its operations while both UNObank Inc. and Aboitiz-led UnionDigital Bank Inc. started commercial operations last month.

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.

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