Never short of ambition, Revolut is aiming for an Australia banking license roughly a year after formally launching its app Down Under. The UK neobank unicorn is in discussions with the Australia Prudential Regulation Authority (APRA) as it seeks approval to take customer deposits and provide lending services.
Digital banks are fast becoming a fixture of the Asia-Pacific fintech boom, in many ways a manifestation of Big Tech’s desire to become Big Fintech. In contrast to the United States and Europe, where ascendant digital lenders are usually pure-play operations that began as humble startups, APAC has an increasing number of so-called digibank startups backed by the region’s largest tech companies and some major incumbent financial services firms.
The Philippines has returned to an unenviable position: It is once again one of the only East Asian countries on the Financial Action Task Force’s (FATF) Grey list, alongside Cambodia. Countries on the grey list have been flagged by FATF for insufficient anti-money laundering and/or counterterrorism financing controls. Being on the list creates regulatory headaches for financial institutions – such as higher interest rates and processing fees – and can be detrimental to a country’s business environment.
Sea Group just can’t lose when it comes to investor sentiment, even though the company’s losses widened on an annual basis to US$433.7 million in the second quarter from US$393.5 million a year earlier. The day before it reported Q2 earnings, Sea’s share price was about US$291 and as of August 23 it had reached US$315. Over the past year, the stock has risen more than 105% while Sea’s market cap now stands at US$168 billion.
With 37 retail banks for a population of 23.5 million, Taiwan is not the easiest market for digital banks to crack. Just about every Taiwanese adult has a bank account; in fact, many have more than one because of the tendency of companies in Taiwan to require employees to open a bank account with the company bank. Nevertheless, near ubiquitous smartphone penetration and the popularity of certain platform companies’ ecosystems offer digital banks an opening in Taiwan, especially given the effect of the pandemic on people’s banking habits.
We have to hand it to AirAsia: They tell the super app story well, probably better than some of the others whose task is less daunting than the beleaguered airline’s. Indeed, AirAsia is not a high-flying tech company aiming to use fintech to take its valuation and exit to the next level, but an airline facing an existential crisis wrought by the never-ending coronavirus pandemic. If AirAsia pulls off its transformation, it will stand as one of the great turnarounds in recent Asian corporate history, and perhaps pave the way for a new breed of platform company.
Revolut is the biggest neobank most of Asia has never heard of. Try as it might, Revolut just has not been able to make much of an impact in any APAC market yet, which is not a huge surprise given the amount of competition it faces and its distant home base in the UK. Revolut needs something to make it stand out from the crowd in APAC. Its new travel app Stays might be just what the doctor ordered.
It would have been difficult for Singapore’s Big 3 banks – DBS, OCBC and UOB – to beat their performance in the first quarter. That holds especially true for DBS and OCBC, which both posted record earnings in the January-March period. So while all three banks saw earnings fall in the second quarter on a quarterly basis, they still turned in a solid performance that beat analysts’ expectations.
Indonesia is fast becoming the most hotly contested of Southeast Asia’s digital services markets. No other market is both as large and untapped. With that in mind, Singapore’s Sea Group and hometown favorite GoTo have made significant plays in recent months. The former acquired Bank BKE, while Gojek upped its stake in Bank Jago and then merged with Tokopedia. Not to be outdone, Grab is teaming up with Tokopedia's rival Bukalapak. This move finally brings e-commerce into the Singaporean firm's ecosystem and strengthens the hands of both Grab and Bukalapak as they prepare to go public.
If you can’t beat ‘em, join ‘em. That seems to be true in just about every market that has introduced digital banks, and it is a two-way street. Hype about the challengers unseating incumbents tends to give way to a more nuanced reality in which there is some room for cooperation. In Australia, where four large banks have long dominated the market, the incumbents are steadily increasing their cooperation with fintechs in a bid to strengthen their digital offerings.
Big Tech may have reached an apex in the United States and China, but in South Korea it is ascendant. In a country where chaebols have long been dominant, it is not hard to imagine internet companies – and indeed fintechs in particular – taking a similar path. And that is exactly what is happening. First, Kakao became a fintech giant, and now it is Viva Republica’s turn. The company, which operates Toss, the largest fintech app in South Korea, recently raised US$410 million at a valuation of US$7.4 billion.
If there ever was a “We are all fintechs now” moment, it must have been earlier this year when Indonesia’s online travel unicorn Traveloka stepped up its rebranding as a digital financial services provider. Skeptics could have been forgiven for rolling their eyes. Yes, the pandemic has hit the travel industry hard and companies like Traveloka need to rejig themselves or they may not survive. On the other hand, not every platform company is suited to reinvent itself as a fintech.
Sea Group is one of the most successful loss-making companies in the world outside of private markets. Sea lost an astronomical amount of money in the first quarter of the year: US$422 million. That is not normally cause for celebration among listed companies, but its revenue also grew 147% year-on-year to US$1.76 billion. Investors are cheering: Sea’s stock price has risen more than 300% to US$283 over roughly the past year. Helping to drive that bullish investor sentiment are expectations about Sea’s potential in Southeast Asia’s nascent but fast-growing digital finance space.
Many of the world’s preeminent platform companies have tried to reinvent themselves as fintechs. Outside of China, South Korea’s Kakao is the only one that is an undisputed success. Kakao boasts South Korea’s largest e-wallet, with 36 million users, and leading digital bank. Both will go public in Korea in August and are likely to raise US$1.4 billion and US$2.3 billion respectively. The speed of Kakao Bank’s swing to profitability (it took just two years) – paving the way for the IPO just four years after its founding – has been remarkable by industry standards.
Just about every major tech company now wants to be a fintech, super app or both. What makes AirAsia different is that its core service has nothing to do with the internet or banking. Indeed, AirAsia is an airline that happens to have a digital services arm. The Malaysia-based firm probably would have stayed that way had it not been for the coronavirus pandemic and its devastating effect on airlines and the travel industry. AirAsia is now going all in on its super app gambit, applying for a digital banking license in Malaysia and acquiring Gojek’s Thailand business.
In both Singapore and Hong Kong, digital banks are nice to have. In Malaysia, whose digital banking application period ended on June 30, the need for digibanks is somewhat greater. But in the Philippines, where 71 million adults remain unbanked and 1/3 of municipalities lack a banking presence, the need for neobanks is more pressing. With that in mind, the Philippines’ central bank is approving digital banks’ applications on a rolling basis in the hope of reaching key financial inclusion targets by 2023. Tencent-backed Voyager Innovations and RCBC are the two most recent entrants to the country’s digital banking race.
June 30 was the deadline for Malaysia’s digital bank licenses and there were 29 applicants for a maximum of five licenses from a wide variety of would-be neobanks, among them platform companies, incumbent lenders, conglomerates, state governments, fintechs and more. The Malaysian central bank will name the winners of the licenses in early 2022.
The digital banking proposition in Singapore has always been a bit curious. A central tenet of the case for digital banks in the city-state is that, well, Hong Kong has them, and besides, digital lenders can boost financial inclusion – as long as the definition of financial inclusion is broad. 98% of Singaporeans aged 25 and above have a bank account according to Allianz Global Wealth , so when we talk about financial inclusion in Singapore, we are not talking about the same thing as in Indonesia (34% of adults have a bank account) or the Philippines (29% of adults are banked).
China is currently the world’s largest emitter of greenhouse gases, accounting for nearly 1/3 of the global total. Beijing is well aware of the effect its emissions have on climate change and has pledged to be carbon neutral by 2060, with emissions peaking in 2030. As part of its emissions reduction plan, China is introducing more eco-friendly practices in the financial services sector, but there is a steep learning curve.
Australia’s Big Four banks have had their fair share of compliance travails in recent years. That much was made clear in the report produced by The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Since the report was published in 2019, Westpac and Commonwealth Bank of Australia have borne the brunt of fines issued for money-laundering violations. However, National Australia Bank (NAB) is now the one in AUSTRAC’s crosshairs.
Earlier this year, it was unclear if peer-to-peer (P2P) lending had a future in South Korea. Legislation passed in August 2020 to curb malfeasance in the industry had made it harder to operate legally. This legislation banned P2P lenders from lending money they borrow from commercial banks and required they have paid-in capital of at least 500 million won (US$440 million) and register with the Financial Services Commission (FSC) within a year. The regulator’s decision to license several prominent P2P lenders signals that the industry has a way forward in South Korea.
In their first year of operation, Hong Kong’s virtual banks all lost money. Ant Bank lost the least at HK$172 million while Standard Chartered-backed Mox Bank lost the most at HK$456 million, according to the banks’ respective annual reports. While it is still early days for Hong Kong’s digital lenders, it appears a few of them are pulling ahead of the pack.
For digital banks, the Philippines is among the most promising markets in Southeast Asia because of its large overall size (population 110 million) and significant unbanked population. About 71% of adults in the Philippines people lack a bank account, but more than 2/3 of the population has a smartphone. Thus far, the BSP has issued three of the five digital bank licenses up for grabs. In April, Overseas Filipino Bank (OF Bank), a subsidiary of government-owned Land Bank of the Philippines, received one. In June, the BSP awarded two more digital banking licenses, one to Tonik and one to UNObank.
Indonesia’s peer-to-peer (P2P) lending sector is growing steadily after a pandemic-induced slowdown in 2020. Regulators, mindful of the sector’s ability to boost financial inclusion but wary of the risks that can build up when oversight is too light, have been gradually issuing licenses to legitimate companies while penalizing bad actors.
It has been an eventful seven months for Ant Group, with more downs than ups. Ever since the suspension of its anticipated blockbuster IPO in November 2020, the fintech giant has been trying to satisfy a long list of regulatory demands to restructure its operations. Regulators have been especially concerned with what they perceive as a highly risky (and previously, lucrative) consumer lending business. With that in mind, Ant gaining approval to operate its new consumer lending unit Chongqing Ant Consumer Finance within six months is an important step in the right direction.
Malaysia’s digital banking race is kicking into high gear as a growing number of firms throw their hats into the ring. There are reportedly 40 firms interested in applying for five digital bank licenses, with the application period closing June 30 and Bank Negara planning to issue the licenses by the first quarter of 2022.
South Korea’s digital banks are on a roll, buoyed by robust demand for digital financial services amid the pandemic. South Korea went cashless long ago with credit cards, but since the pandemic hit in early 2020, mobile banking has taken off. As a result, Kakao Bank, K bank and Toss have grown exponentially. All three of South Korea’s digital banks are on track for IPOs in the next two years, with Kakao likely to go public first.
It never felt so good to lose US$422 million. Just ask Sea Group. Southeast Asia’s most valuable listed company indeed went deeper into the red in the first quarter, but its revenue also grew 147% year-on-year to US$1.76 billion. Investors like what they see. Sea’s stock price has risen almost threefold to US$246 from roughly US$83 a year ago.
Australian regulators are stepping up the fight against financial crime after issuing a staggering US$921.59 million in fines in 2020. Disciplinary action against Westpac for serious breaches of Australia’s AML/CFT act accounted for US$920.7 million of that total.In the Asia-Pacific region, only Malaysia issued more fines than Australia in 2020, and that was because of the 1MDB scandal.
Singapore’s largest lenders have started the year off on a cracking note. First DBS reported record earnings and now OCBC has done the same. The city-state’s second largest bank posted a net profit of S$1.5 billion in the January to March period, compared to S$698 million during the same period a year earlier and well exceeding Refinitiv’s estimate of S$1.08 billion.
South Korea only has a handful of prominent fintechs, but they are still managing to give incumbents a bank a run for their money when it comes to online banking services. Chief among them is Kakao Bank, with 14.1 million users (more than ¼ of South Korea’s population) as well as K bank and Viva Republica’s Toss, which will launch a digital bank later this year. With the rising popularity of digital banking, South Korea’s traditional lenders are mulling launching neobanks of their own.
2021 is shaping up to be a pretty good year for DBS. Southeast Asia’s largest bank posted record earnings of US$1.52 billion in the January-March period, up 72% year-on-year. DBS generated record fee income in the first quarter, with especially strong growth in wealth management and transaction services, both of which hit new highs. DBS is not resting on its laurels though and plans to boost both its digital capabilities and international footprint.
Citibank is calling it quits in many of Asia-Pacific’s retail banking markets, including mainland China, India, Indonesia, Thailand, Vietnam, South Korea, Taiwan and Australia. Citi’s performance across these markets varies greatly, but overall, the US banking giant feels it lacks the scale to compete in them. Citi plans to focus its Asian retail banking business in the financial centers of Hong Kong and Singapore.
The arrival of digital banks in Hong Kong and Singapore has put some pressure on incumbents to up their game. At a minimum, traditional banks in Asia’s two main financial centers have slashed some unpopular fees and invested in more digital technology. Now that Malaysia has decided to introduce digital banks, its incumbent banks face some similar challenges to their counterparts in Hong Kong and Singapore.