Fintech Research

Turkey’s lone fintech unicorn has growing global ambitions. Papara, an Istanbul-based payments firm valued at roughly US$2 billion, recently acquired SadaPay, one of the most prominent Pakistani fintech startups. While the sum that Papara paid for SadaPay has not been disclosed, startup funding tracker Crunchbase estimates it could be about US$50 million.

The Japanese fintech sector exhibits a rich diversity, underscored by robust growth in digital payments. This is evident in the ascendancy of e-wallet ecosystems such as d-Barai, PayPay, and LINE Pay. Also growing briskly are fintech segments such as Buy Now, Pay Later (BNPL) services, digital banking, crowdfunding, insurtech, and regulatory technology (regtech). The broad adoption of fintech across different segments of financial services signals a departure from Japan’s traditional reliance on cash transactions.

Super apps in Southeast Asia have been forced in recent years to confront a harsh reality: More is not necessarily better, at least when it comes to the number of services provided by the same app. Sea Group, the most valuable listed company in Southeast Asia, has never branded itself as a super app, but its business model has sought to tap the synergies among its gaming, e-commerce and fintech arms.  Recently, however, the fintech business has begun to grow rapidly – and not necessarily because of integration with Shopee.

Sea’s fintech business had a solid first quarter. Revenue rose 21% to US$499.4 million, while adjusted EBITDA was US$148.7 million, up 50.3% year-on-year. Sea’s digital financial services revenue and operating income are primarily attributed to its consumer and SME credit business. As of March 31, 2024, consumer and SME loans principal outstanding was US$3.3 billion, up 28.7% year-on-year.

While Sea’s first digital bank was in Singapore, and it also has one in Malaysia, we like the prospects for its online banks in the Philippines and Indonesia. These markets have ample low-hanging fruit, and Sea can bring onboard customers who are entering the formal banking system for the first time, not just those who are opening a secondary account just to benefit from a promotion.

SeaBank Philippines posted a profit of P110.7 million in the January-March period, the company’s first profitable quarter since launching its app in June 2022. SeaBank attributed the profitability to the doubling of its loan portfolio to P13 billion over the previous year and a 75% growth in deposits to P20.23 billion. What is interesting about Sea’s bank in the Philippines is how it has carved out a niche as a so-called “rural bank” – for which licensing requirements are less stringent than the six official digital banks in the country.

We suspect SeaBank Philippines’ loan portfolio is benefiting from the tie-up inked last with WeFund Lending, owner of the JuanHand app. Under the agreement, SeaBank announced last November that it planned to provide roughly 300 million pesos in loans to eligible borrowers through the JuanHand app. JuanHand offers loans from US$36 to US$902 payable within 30 to 120 days.

Meanwhile, Sea is also considering increasing its fintech presence in Indonesia. While it already has SeaBank Indonesia, which was originally Bank BKE before Sea bought it, the Singaporean company is expected to acquire a 10-15% stake in HiBank, a subsidiary of PT Bank Negara Indonesia Tbk (BNI), according to Royke Tumilaar, BNI’s president director. The deal could close as early as the end of June, and would give Sea a new channel from which to tap digital financial services opportunities in Southeast Asia’s largest economy.

Across Asia Pacific, there have been many regulatory sandboxes launched in recent years intended to support fintech innovation. However, in many cases, big fintech success stories emerged outside of the sandboxes, usually because the sandboxes were too restrictive. While regulatory support is important to facilitate a healthy fintech ecosystem, it is not usually government that spurs the most significant innovation – but the private sector.

In many cases, the sandbox concept looks good on paper, but once put into practice, it constrains a fintech’s ability to grow. This can be especially detrimental for very young companies that are trying to scale up and build significant user bases.

One characteristic of regulatory sandboxes in the APAC region that seems to vary little despite the significant disparities in market environments, regulatory systems and consumer financial habits is that they put a heavy emphasis on structure and control – the overriding objective seems to be to promote financial innovation without taking any real risks. But by eliminating almost any potential risk, sandboxes also constrain the options that their participants have to develop their products and services.

The Taiwan experience: High expectations, unremarkable results

With a reputation as one of the more conservative financial markets in Asia, Taiwan seemed like an ideal candidate for a fintech regulatory sandbox that could allow startups some room to experiment. At the time its first sandbox law was passed, in late 2017, Taiwan was eager to develop its fintech sector. With a large amount of idle capital held by its incumbent financial services giants, Taiwan wanted to guide this money into productive investments instead of real estate speculation.

At the time, the Act on Financial Technology Innovations and Experiments was passed, the Taiwanese legislator who initiated it, Karen Yu, said that its passage made Taiwan the first country in the world to introduce a financial regulatory sandbox law. She said that “the legislation would greatly increase the flexibility of financial-oriented regulations that have been limiting innovation, while “breaking down barriers between sectors, so that tech and financial firms can work together seamlessly.”

Though the lawmakers who played a key role in the legislation sought to overcome expected bureaucratic inertia, in practice, red tape became a formidable obstacle to the sandbox’s success. For instance, the sandbox committee was supposed to decide within 60 days if a submission qualified, but we learned by talking to fintech startups that slow review of applications became the norm, while in some cases, simply getting the application completed correctly was difficult because of its many requirements.

We observed during the creation of Taiwan’s fintech sandbox that incumbent financial institutions, which maintain close relationships with Taiwanese financial regulators, may have used their clout to shape the sandbox’s rules – and ensure that the risks of disruption were minimized. This “regulatory capture” caused Taiwan’s Financial Supervisory Commission (FSC) to emphasize prudential regulation more than financial innovation and enhanced competition. Citing observations from a UK fintech firm, Taiwanese researchers noted in an in-depth research report on fintech sandboxes published in November 2021 that “financial researchers from the U.K. and Singapore proactively respond to fintech entrepreneurs while the Taiwanese counterpart’s response is comparatively reactive.”

As of May 2024, there have not been any notable success stories from Taiwan’s fintech sandbox. The number of participating firms remains extremely small, and the last time the FSC reported on a new entrant was November 2020, when the regulator authorized the company Joinvest to launch a group buy platform for bonds in the sandbox.

Australia sees room for improvement

The first iteration of Australia’s fintech sandbox is only slightly older than Taiwan’s – by about a year – and similarly has struggled to produce any notable successes. However, while Taiwan seems willing to leave its sandbox “as is” – Australia is moving to rejuvenate the experimental space in a bid to make it more useful for fintech startups. Canberra’s approach is likely informed by the determination of regulators to introduce greater competition to a financial services sector historically dominated by the Big Four banks: National Australia Bank (NAB), Commonwealth Bank of Australia (CAB), Westpac and Australia and the Australia and New Zealand Banking Group (ANZ).

Notable fintech failures in Australia over the past few years may have convinced regulators that the sandbox has an important role to play. These include the abrupt implosion of the Australian neobank Xinja in December 2020, the January 2021 acquisition by NAB of online lender 86 400, effectively eliminating a new competitor, and the collapse of the digital bank Volt in June 2022. By one estimate, 41% of Australian fintechs are not reaching their capital raising targets.

In April, the industry group FinTech Australia called on the Australian federal government to urgently review the current iteration of its fintech regulatory sandbox, which has been in place for less than four years. Fintech Australia said that the sandbox is “underutilized and not fit for purpose.” The industry group highlighted what it sees as the sandbox’s major shortcomings. Onerous restrictions prevent it from being practical as a testing ground.

One possibility to improve the effectiveness of the sandbox would be to require approval from the Australia Securities and Investments Commission (ASIC) before testing can begin. This approach could ease the regulatory burden on startups, speed up their time to market and still ensure adequate protection of consumers.

To increase the likelihood of sandbox reforms being successful, FinTech Australia has called on the federal government to earmark specific funding in Australia’s A$15 billion National Reconstruction Fund.

Sandbox for stablecoins

For its part, Hong Kong is taking the sandbox concept in a different direction than Taiwan or Australia. The city appears intent on using a fintech sandbox as part of its plan to build a hub for cryptocurrency.

To that end, the Hong Kong Monetary Authority (HKMA) in March announced the launch of a sandbox for stablecoins. Per the sandbox rules, applicants should have genuine interest in developing a stablecoin issuance business in Hong Kong with a “reasonable business plan” with a limited scope and in a risk-controllable manner,” the HKMA said in a news release. I

It seems the HKMA wants to use the sandbox in a consultative manner. HKMA chief executive Eddie Yue said in the news release that the sandbox is intended to allow industry and the HKMA to exchange views on the city’s stablecoin regulatory regime. The regulator expects that the sandbox “will facilitate the formulation of fit-for-purpose and risk-based regulatory requirements, which is key to promoting the sustainable and responsible development of the stablecoin issuance business,”

One of the sandbox’s first projects is a proof-concept pilot involving Standard Chartered, the digital bank Mox Bank, Mastercard and Libera. The project explores the operational and risk management benefits of tokenized deposits to support the settlement of tokenized assets.

It will be interesting to see how the pilot pans out. Though the participants laud the benefits of tokenized asset settlement in the context of carbon credits in a news release, it is not fully clear why tokenization would be necessary, and how it would better support sustainable finance than non-blockchain solutions. On the other hand, if the pilot is successful, there could be positive implications for the broader fintech sandbox concept – and even stablecoin issuance elsewhere in Asia.

New sandbox initiatives

It would be premature to draw the conclusion that cryptocurrency is the fintech segment best suited for sandboxes looking only at the Hong Kong example – especially as time will be needed to assess the project. That said, the sandbox environment might be suited for crypto startups. The reason is that compared to other fintech segments like payments (in fiat currency), digital banking, embedded finance etc. crypto is more volatile and prone to problems. In a sandbox scenario, the crypto sector could feel relatively free to experiment while being insulated from the typical regulatory challenges it faces.

With that in mind, in mid-May, the Philippine fintech said that it had started testing its Philippine Peso stablecoin, PHPC, as part of a Bangko Sentral ng Pilipinas (BSP) sandbox. The testing is expected to continue until June. Thereafter, the central bank will assess whether the stablecoin can be opened up for wider usage. believes that PHPC can be used for remittances, trading, B2B payments and Web3 gaming.’s leadership seems confident about its stablecoin. The platform is targeting 20,000 to 30,000 users of PHPC during the sandbox period and expects to receive full approval for the stablecoin in two to three months, while the pilot is expected to be launched on the platform early June. “We’re being monitored for performance and there’s a set of metrics that we have to hit. Once we hit those metrics, then we can leave the sandbox,” Chief Executive Officer Wei Zhou said at a media briefing in early May.

Given the Philippines’ payment digitization and financial inclusion goals, the PHPC stablecoin might well gain traction – and along with Hong Kong’s pilot, show that the sandbox concept can be helpful for at least one fintech segment. Meanwhile, it will be essential to keep in mind that previous fintech regulatory sandbox initiatives across the region did not come to fruition because regulators erred too heavily on the side of caution. The key for the success of these new initiatives and others in the future will be striking the right balance between prudent regulation and creating an environment that fosters innovation.

Across Asia, there have been many regulatory sandboxes launched in recent years intended to support fintech innovation. However, in many cases, big fintech success stories emerged outside of the sandboxes, usually because the sandboxes were too restrictive. While regulatory support is important to facilitate a healthy fintech ecosystem, it is not usually government that spurs the most significant innovation – but the private sector. That said, Hong Kong appears to be leaning into the sandbox concept as part to see that as part of its plan to build a hub for cryptocurrency.

It is no secret that super apps outside of China and Korea are struggling to reinvent themselves as investors challenge their core value proposition of bundling different digital services through a single interface. Share prices speak volumes about what investors think of these companies. Years ago, we said it, and we’ll say it again now: It is unclear that people in Southeast Asian countries prefer to use super apps for banking, or that all the business units in super apps can perform well enough to make the business model sustainable. There are plenty of pure-play fintechs out there in Southeast Asia with interesting value propositions who are leaner and more agile than super apps. Still, maybe Grab can prove the naysayers wrong.

For several years, there was much hype and excitement about copying China's immensely successful "super app" model to the rest of Asia and the world. China’s super apps, WeChat and Alipay, brought together products and services in a seamless platform, offering everything from messaging and social media to ride-hailing, food delivery, and financial services.

In recent years, several Persian Gulf countries have stepped up their efforts to become fintech hubs in the Middle East. While the United Arab Emirates (UAE) has the largest fintech ecosystem and is the country in the region with the most aggressive digital assets strategy, both Bahrain and Qatar are also keen to embrace digital finance.

Many platform companies have tried to replicate the success of Alipay and Tenpay as super apps, but very few have been successful. The concept has been difficult to execute in Southeast Asia, a culturally diverse region with many different regulatory regimes. Indonesia’s GoTo has always stood out, however, in that its main focus has been on its huge home market and it has avoided overextending itself in the manner of other super apps.

Given the fragmentation that characterizes many parts of Asia Pacific’s fintech sector, consolidation could improve the competitive environment, reducing the need to heavily subsidize customers and allowing firms to invest more in research and development as well as improving the customer experience. Yet across the region, from the most affluent economies to those that are still developing, big-ticket M&A transactions remain few and far between. In the past five years, there have only been a handful, such as the 2020 merger of Gojek and Tokopedia, the National Bank of Australia’s acquisition of the Aussie neobank 86 400 in 2021 and Square’s purchase of Afterpay in 2021.

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