What about that UK banking license? That’s the question on Revolut’s mind and many others as the UK’s preeminent fintech unicorn nears the end of another calendar year without the ability to offer government-insured deposits, business loans, consumer loans and so on in its home market. It is sometimes overlooked that for all of Revolut’s swagger on the international stage, the UK remains its largest market, and that regulators in other jurisdictions from Australia to India to the U.S. are watching and waiting to see if the UK grants Revolut the license or not.

There has been a fair bit of buildup to the launch of the Philippines’ sovereign wealth fund, the Maharlika Investment Fund, which is supposed to happen by the end of the year. It is a personal initiative of President Ferdinand Marcos Jr. which he seems to believe can help his country advance some of its key development goals. So we have to say were surprised when it was reported last week that the sovereign wealth fund would be suspended.

Having built one of the only successful super apps outside of China, with both a thriving digital bank and payments platform, Kakao has decided it is time to expand overseas. Its first foreign market is Thailand, where it is partnering with Siam Commercial Bank (SCB). Next up is Indonesia, where Kakao is partnering with a couple of heavyweight companies on a digital banking venture.

In April, The Ken reported that one of the reasons Malaysia’s digital banks have been slow to launch is that they have had trouble finding the right people to run the new businesses. Apparently, finding talent with the right mix of technological acumen and understanding of the banking business is not so easy in Malaysia – perhaps because the country has been less of a hub for tech startups than some other countries in Southeast Asia. Nevertheless, in early September, Grab’s GXBank-Berhad became the first of Malaysia’s online banks to launch. 

As the massive money laundering case involving 10 people of Chinese descent continues to unfold in Singapore, we wonder if this might just be the third act in a multi-part perfect storm that also involve Three Arrows Capital and some other shady operations. In a nutshell, Singapore, with perhaps the exception of its relatively quiet capital markets, has come into its own as a financial hub in recent years, attracting unprecedented sums from venture capitalists, a huge amount of attention and investment from the crypto community, and a massive influx of Chinese capital that has translated into a broader family office and wealth management boom. With so much money moving into and through the city-state, financial crime risks multiply and authorities have to be more proactive than in the past.

Versa is aiming to disrupt the Malaysian wealth management market with its all-digital platform, which has benefited from ample investor interest and funding, as well as rapid customer acquisition. In 2022, Versa’s gross transaction volume doubled year on year, and the company aims to sustain this pace of growth until 2026.

Greenland Financial Holdings has always been an unusual candidate for operating a digital bank in Singapore. The company is in essence a large state-owned real estate developer based in Shanghai. Compared to tech and telecoms giants that won the other licenses in the city-state, Greenland is less market oriented. It’s more like a real estate arm of the Chinese government. Given the trouble that China’s property sector has been experiencing, as well as a recent bond default, it is worth pondering if Greenland’s digital bank in Singapore could be affected.

It’s always good to revisit assumptions, especially when the bank you are analyzing is an offshoot of an incumbent as large as Standard Chartered. When we initially heard that there was a new kid on the block among the digital banks in Singapore – but not altogether “new” – we were skeptical because the value proposition was anchored in, well, groceries. It’s just not the first thing that comes to mind when one thinks about how to build a successful lender. That said, the ecosystem play by Standard Chartered and Fair Price Group appears to be bearing fruit (no pun intended).

South Korea’s digital banks have been among the most successful online lenders in East Asia, benefiting from the network effect of their respective digital services platforms, relatively weak incumbent digital offerings and strong demand from the country’s retail banking market for new types of products. Yet as they expand into new market segments, in some cases rapidly, regulators are bound to take notice. This holds especially true for the mortgage loan segment.

In recent years, Japan’s largest banks have expanded rapidly in emerging Southeast Asia, from Indonesia to Thailand to Vietnam, as well as India. At the same time, they are making strategic investments in advanced economies such as the United States and Israel. With growth prospects at home facing constraints, from the aging population to the fact that the Japanese population is well banked, this search for growth overseas looks set to continue for some time.

Thailand’s Siam Commercial Bank (SCB) is among the most fintech-forward commercial banks in Asia. What makes SCB's digital finance strategy successful is that it leverages all the advantages of incumbency while using technology to develop products for the digital age.

In recent years, India’s fintech market has come into its own, and is now one of the world’s largest. In Asia, it has arguably become the single most important market. A new report by Elevation Capital, which has offices in Bengaluru and Salt Lake City, Utah, finds that India’s fintech ecosystem has grown especially fast since 2018. Funding increased from US$2.2 billion that year to US$5.8 billion by 2022, while the subcontinent’s share of global fintech funding jumped from 2.9% in 2018 to 6.5% in 2022.

When a digital bank reaches profitability quickly, as in positive net income, it is always worth exploring in detail. After all, it is the exception, not the rule. In the case of the Philippines’ UnionDigital Bank, there is more to the story than meets the eye.

Most of the time when we write about Singapore’s rise as a wealth management hub, the news is overwhelmingly positive. But every so often, the risks inherent to taking on that role become glaringly apparent. Singapore is no stranger to money laundering risks, especially after several banks in the city-state were involved with the 1MDB mega scandal. However, in the S$1 billion money laundering investigation Singapore is currently undertaking, it seems the city-state is the center of the alleged crimes rather than Malaysia or another country.

Is the Philippines’ Maya Bank the best digital lender in Southeast Asia? The Digital Banker certainly thinks so. On a recent top 10 list compiled by that publication, Maya was the only Southeast Asian digibanks and No. 8 overall alongside digibanks such as Starling, Revolut, WeBank, MOX Bank and Kakao Bank.

It’s earnings season and Southeast Asia’s platform companies are trying once again to convince investors that they are on the path to profitability. The jury is still out as far as we’re concerned, especially in the case of any company that started out in the business of ride hailing and until recently emphasized growth at all costs. Having lost 75% of its market valuation since going public a little over a year ago, SoftBank and GIC-backed GoTo has yet to convince investors that it has turned a corner on the path to profitability, and we see little in its second-quarter earnings results that suggest anything has fundamentally changed for the better.

Investors are bullish on the potential of Singapore-based digital wealth management platform Endowus. Though the company’s current revenue is modest, and profitability remains very much in the future, Endowus still managed to recently raise US$35 million from some huge banks and four Asian billionaire families.

Sea Group’s stock took a pummeling on Tuesday, falling almost 29% to US$40.58 as investors reacted to a second quarter earnings report in which the company missed revenue forecasts though made a profit of US$331 million. In a nutshell, Sea’s triumvirate of digital services that once looked unassailable now seems a bit shaky as consumer spending in many of its key markets is not robust. We think the fintech business still has plenty of potential, and probably the same holds true for e-commerce, but the erstwhile profitable gaming arm has become a laggard.

Who says digital banks cannot make money? We often do – because it tends to be true. But Kakao Bank is a notable exception to the rule, and all the more unusual because its success has come in one Asia’s best-banked countries. Kakao Bank is one of the few digital lenders that has reached profitability and stayed there, as it showed with its solid second-quarter earnings.

Singaporean sovereign wealth fund GIC's annualized 20-year real rate of return - its main performance gauge - for the year ended March 2023 was 4.6% after accounting for inflation, the highest since 2015 and up from 4.2% a year earlier. GIC has a diversified portfolio of which certain Chinese investments are a big part, including Alibaba and Ant Group. The diversity of the portfolio likely helped GIC insulate its performance from the 2022 market correction.

Philippine President Ferdinand Marcos on July 18 signed a bill creating the Philippines’ first sovereign wealth fund, a move aimed at accelerating infrastructure and economic growth in one of the largest countries in Southeast Asia. The Philippines follows Singapore – whose two sovereign wealth funds are both success stories – as well as Indonesia (so far, so good) and Malaysia (failure) with observers divided over whether Marcos’ Maharlika Investment fund will deliver on its promises or be less successful.

It isn’t the most obvious recipe for success: digital banking and groceries. But it seems the Standard Chartered-FairPrice Group offshoot Trust Bank is doing something right. By late May, just eight months after its launch, the Singaporean digibank had accrued US$739.5 million in deposits and was – by its own estimates – on track to break even in 2025.

With the surge in popularity of environmental, social and governance (ESG) investing, it has become more important than ever to ensure that related companies and projects are as “green” as they purport to be. PwC estimates that ESG-related assets under management (AuM) will reach US$33.9 trillion by 2026, from US$18.4 trillion in 2021. With a 12.9% annual growth rate, ESG assets are on track to make up 21.5% of global AuM by 2026.

Naver’s Line has been keen to leverage the strength of its messaging app and e-wallet in select markets to expand into digibanking. Yet Line Bank Japan, which was supposed to be a tie-up between Line and Mizuho Bank, quietly folded in March, 4.5 years after the venture’s first preparatory company was established. Chalk up its failure to regulatory woes. However, Line has set up three other digibanks in the Asia-Pacific region that rely on a similar strategy of teaming up with incumbents.

While it may not be a sure thing, the Kakao Bank-SCBX tie-up looks promising. Following the Bank of Thailand’s (BOT) announcement earlier this year that it would allow digital banks by 2025 – no rush, it seems – some of the biggest financial groups in the kingdom have expressed their interest in setting up a digital lender. It just so happens that Thailand’s decision to greenlight digibanks comes as South Korea’s Kakao Bank is preparing for international expansion.

Indonesia is the most important digital financial services market in Southeast Asia, given its overall size, unbanked population of 181 million, and island geography. With 6,000 populated islands, Indonesia is almost uniquely suited for branchless banking.

It is thus no surprise that the region's most prominent platform companies, all in search of a shorter road to profitability after burning cash in the days of low interest rates and easy venture funding, are betting big on the Indonesian market. Singapore's Grab and Sea Group, as well as Indonesia's own GoTo and Bukalapak, are all vying for market share in Indonesia's burgeoning digibanking market.

Data from Redseer suggests that Indonesia's "total addressable market for financial technology services" will reach US$70.1 billion in 2025, up from US$17.8 billion in 2020.

While the Singaporean firms have deeper pockets and arguably a larger talent pool they can deploy, GoTo and Bukalapak have a certain homefield advantage. They understand the market better, and their resources are not spread as thin because they do not have large operations outside of Indonesia.

Buying the way to success

Unlike some other regulators in Asia, Indonesia's Financial Services Authority (the OJK) has made it relatively easy for foreign firms to move into digital banking. It has actively encouraged the purchase of incumbent lenders that can be rejigged as digital banks. The OJK sees that model as a win-win, allowing a local bank that might otherwise have been uncompetitive to improve the quality of its services, while big tech companies that make the investments do not need to apply for a digital banking license: They can use the license of the bank they buy.

This strategy is working out well for Sea Group, which bought Indonesia's Bank BKE in early 2021 and revamped it as SeaBank Indonesia. It was easy for Sea to meet the 3 trillion rupiah capitalization requirement for digital banks.

It did not take long for the undisclosed investment to pay off, especially given the synergies between Shopee's e-commerce ecosystem and digital banking. SeaBank Indonesia recorded a net profit of 269.2 billion rupiah ($18 million) in FY 2022, compared with a loss of 313.4 billion rupiah ($21 million) in FY 2021. Not a huge profit by financial industry standards, but certainly a step in the right direction. Furthermore, SeaBank's loans disbursed climbed to 15.9 trillion rupiah ($1.1 billion) in FY 2022 from 6.1 trillion rupiah ($409.2 million) the year before.

Thus far, Sea is the only major platform company to acquire a local bank outright. GoTo has a 22% stake in the local bank Bank Jago through a US$160 million investment Gojek made in late 2020, while the Grab-Singtel consortium has a minority stake in Indonesia's PT Bank Fama.

Laser focus on Indonesia

Local platform company Bukalapak has also leveraged its e-commerce ecosystem, but in a different way than Sea Group. In fact, such is the company's experience with merchants that it is now moving into the offline segment with its Mitra business to help the owners of small shops known as warung digitalize their operations.

According to venture capital firm Flourish Venture, traditional warung represents 70% of sales in Indonesia's US$257 billion grocery market. Given that the roadside kiosk operators are facing increasingly tough competition from modern, larger retailers, Bukalapak reckons that better digital connectivity can help them compete more effectively against the big players.

Thriving amid competition

As platform companies battle it out for dominance in Indonesia's digibanking market, the country's unique landscape and unbanked population present a vast opportunity for growth. With Singaporean giants like Grab and Sea Group, along with local players GoTo and Bukalapak, vying for market share, the race is on to capture a piece of Indonesia's booming digital financial services sector.

As these platform companies continue to streamline their operations and focus on profitability, Indonesia's digibanking market holds immense potential, and all four companies have a chance to thrive if they adapt to the evolving landscape and embrace a profitability-first approach. The pie is certainly big enough.

The great irony of digital banking in East Asia is that it most often refers to large incumbent banks, conglomerates, Big Tech or a combination of the three launching online-only lenders. Not the Philippines’ Tonik Bank though. It’s a genuine startup that began as a rural bank and morphed into a digital one. Tonik’s financials for 2022 recently appeared in several media reports, and by the looks of things, the three-year-old digibank is doing reasonably well in terms of customer acquisition, but its losses are widening.

Japan’s financial sector has been on a shopping spree in Indonesia, with an eye on digital finance opportunities. Though Japan has gradually been increasing financial sector digitization, the pace is slow compared to Indonesia and financial inclusion needs are limited given the country’s advanced stage of development and high per-capita GDP. Japan’s megabanks have been the most active buyers of assets in Indonesia, but other financial firms are also starting to look into opportunities in segments like banking and payments.

With a population of 169 million, of whom 40% to 50% lack a bank account, Bangladesh is a prime candidate for digital banks. Unlike the advanced economies of East Asia, Bangladesh can genuinely benefit from online banks that can rapidly bring more people into the formal financial system. With that in mind, the Bangladeshi central bank in June announced that it is ready to approve a framework for digital banks.

Digital transformation in Japan’s financial sector has been a gradual process, with the earliest pure-play online lenders dating back to the early 2000s, but limited change occurring until recently. Among East Asia’s developed economies, Japan is unique in that it has an unusual number of barriers to digitization of financial services: limited financial inclusion needs, a deep affinity for cash, a comprehensive and mature banking system with branches almost anywhere customers would need them, and the world’s most elderly population. That said, the pandemic spurred Japan to speed up financial digitization, and the trend is proving to be enduring.

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