In the battle of Southeast Asia’s platform companies, the one that never declared itself a super app is edging out the others in digital financial services. Despite a slowdown in its gaming arm Garena, Sea Group is growing expeditiously in the e-commerce and fintech segments, a proven synergistic combination if we ever saw one. Just look at Taobao and Alipay. It’s just a more compelling one-two punch than trying to turn a ride-hailing app into a bank like Sea’s competitors are set on doing.
While most digital banks struggle to make money, South Korea’s are largely profitable. They have been able to scale up quickly, despite negligible financial inclusion needs. According to the World Bank, almost 99% of South Koreans have a bank account. The factors that have made Kakao Bank, K Bank and Toss Bank successful are unique to South Korea and are unlikely to be replicated elsewhere.
Rakuten Bank is gearing up for what will likely be Japan’s largest IPO since 2018, scheduled for April 21. The country’s oldest digital bank, which was founded in 2001 back in the days of Web 1.0 and was then known as eBank, aims to raise US$800 million at a valuation of US$2.31 billion on the Tokyo Stock Exchange with the sale of 53.95 million existing shares of Rakuten Bank Ltd to both domestic and overseas investors and the issuance of 5.55 million new shares.
Slowly but surely, Thailand’s largest incumbent banks are positioning themselves to dominate the country’s nascent digital banking segment. This is no surprise. It’s how things tend to play out in East Asia – though it’s a shame for startups. The latest Thai incumbent bank to embrace digital banking is Kasikornbank, commonly known as KBank.
At the recent meetings of its National People’s Congress and Chinese People’s Political Consultative Conference, known as the two sessions, China made important changes to its financial and technology regulations to address significant challenges at home and overseas. Beijing is intent on ensuring financial stability at home and achieving breakthroughs in so-called “chokepoint technologies” as it deals with an increasingly fraught relationship with the United States.
One lingering question remains though: Will China’s dynamic private sector be sufficiently empowered by the reforms?
In December, the Philippines' House of Representatives approved a bill establishing a sovereign wealth fund. Known as the Maharlika Investment Fund (MIF), it is an initiative of President Ferdinand Marcos, Jr. aimed at raising capital for infrastructure projects, among other things. The Philippines will likely seed MIF with its central bank’s dividends and investible funds from the country’s Land Bank and Development Bank.
Asia has been fortunate thus far in that the failures of Silicon Valley Bank (SVB) and Signature Bank have not had a significant impact on its financial sector. While some financial firms in the region had limited exposure to these defunct lenders, it was not enough to pose a serious problem. Indeed, S&P Global Ratings has found that of the 380 banks and nonbank financial institutions that it rates in the region, it does not anticipate any rating actions directly related to the SVB default.
It was not so long ago that Siam Commercial Bank (SCB) was singing cryptocurrency’s praises and preparing to invest US$500 million in the Thai crypto exchange Bitkub. Alas, it was not meant to be. The crypto market cratered, and one of the kingdom’s largest lenders thought better of betting so big on a sector of financial services with so much inherent risk. SCB is now pivoting to what is turning out to be familiar territory for incumbent lenders in Asia: digital banking.
After four years, Cambodia has finally been removed from the grey list of the Financial Action Task Force (FATF), indicating the watchdog no longer sees the kingdom as a country at a heightened risk of money laundering and terrorism financing. It’s an achievement for Cambodia to celebrate, especially given that it coincides with the imminent end of the coronavirus pandemic and a resumption of normal international business and travel links.
Sea Group surprised many of us with its swing to profitability in the fourth quarter, the first time the Singaporean company ever recorded positive net income. The company is much better known for losing money than making it. In the fourth quarter, Sea made a profit of US$422.8 million, compared to a loss of US$616.3 million in the same period a year earlier.
Given the competition it faces from Singapore, Hong Kong cannot afford to rest on its laurels. Over the past few years, Singapore has become a bigger fintech hub than Hong Kong, an increasingly important location for the regional headquarters of both multinational and Chinese companies, and is also quietly attracting high-net worth individuals to set up family offices.
Forgive us for being a bit skeptical about Revolut’s swing to profitability. It took an awful long time for the company to release its 2021 financial report (we’re now in 2023), and when it finally did, the £26.3m profit the company reported was less remarkable than the fact the company’s auditor could not verify £477 million in revenue from subscriptions, cards, foreign exchange and wealth activities.
When Singapore announced the winners of four digital banking licenses in December 2020, one name stood out because most of us did not recognize it: Greenland Financial Holdings. To say the Shanghai-based real estate company Greenland was a “dark horse” candidate for a license would be an understatement. It was not even widely known that the company and its blockchain trade finance partner Linklogis had thrown their hats in the ring. Since winning the license, the two companies have named their digital bank “Green Link Digital Bank.”
As the most cash-loving advanced economy in Asia, Japan has not historically been eager to digitize its financial services sector – with a few exceptions. One of those is Rakuten Bank, which launched in the twilight of Web 1.0 back in the year 2000. At 23 years of age, Rakuten Bank must be one of the oldest digital lenders in Asia, if not the oldest. Gradually, other online banks are entering the Japanese market to compete with Rakuten.
Japan’s largest bank is increasingly looking to digital finance in Southeast Asia as an avenue for growth, as its home market is mature, slow to digitally transform and constrained to some degree by an ageing population. In contrast, Southeast Asia’s largest countries still have ample low-hanging fruit, especially Indonesia, a key area of focus for MUFG.
One of our favorite ironies about digital banking in Asia Pacific is that incumbent banks have a growing role in the segment, from Hong Kong to Singapore to Taiwan to Australia. It wasn’t supposed to be this way – at least not to our knowledge. What ever happened to good old-fashioned scrappy startup-driven disruption? With that in mind, we turn our attention to two digital lenders that can technically be classified as startups, but are backed by Standard Chartered, a huge incumbent lender operating in 59 countries that earns most of its revenue in Asia.
Singapore has long been seen as the Switzerland of Asia, a pro-business, largely neutral state with a huge financial services sector catering to an international clientele. Like Switzerland, Singapore is an integral part of the surrounding region yet also has a strong independent streak and never leans too far to one geopolitical side.
Hong Kong has been busy preparing to roll out the red carpet for digital assets, but there are other emerging areas of financial services that are less volatile and trouble prone, and well, more sustainable. To that end, Hong Kong way want to focus more attention on green/sustainable finance given the reality of climate change and the significant opportunities the segment is expected to provide. Bloomberg Intelligence estimates that combined ESG assets could surge to US$53 trillion by 2025, with the Asia-Pacific region driving “the next leg of growth.”
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.
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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.