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Asia’s digital banking race dominated by big names

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Digital bank fever is sweeping through south-east Asia.

Around 29 groups entered a race for just five new bank permits in Malaysia ahead of a deadline for applications last week.

The winners, who will be announced early next year, will join a wider wave in the region of 655m people. Ten to 15 new digital banks are expected to open across Singapore, Malaysia, the Philippines and Indonesia over the next three years according to EY, the professional services firm.

With 400m internet users — more than the US — and large chunks of the population that don’t currently have bank accounts, the opportunity for start-ups, conglomerates and big tech companies in south-east Asia is enormous. Malaysia alone is home to some 32m people. 

The potential benefit for the region’s consumers should also be obvious. Digital banks are touted as nimble, fast-growing new companies that have already started shaking up traditional banking in Europe and the Americas. 

But a lot of the names vying for the licences look suspiciously familiar. Many of the fintechs are backed by big local conglomerates and corporates that have been around for decades. Meanwhile the same big regional tech companies are winning multiple licences across different countries. 

Experts say that giving such groups ever more power over the space is a risk.

“Large transnational entities and conglomerates controlling a larger share of the digital financial-services market could lead to cartelisation of this space and could also at some stage exacerbate the “too big to fail” threat,” wrote Ramkishen Rajan and Bhavya Gupta from the Lee Kuan Yew School of Public Policy at the National University of Singapore in April. 

Take Malaysia, for example. Big names that have disclosed their applications include Axiata, the Malaysian multinational telecommunications conglomerate and BigPay, a unit of Malaysia’s AirAsia, which runs the eponymous budget carrier. Singapore-headquartered Sea, a gaming and ecommerce group which already won a full digital banking licence in Singapore last year, is partnering with Malaysian conglomerate YTL Corp Bhd. 

Another familiar face is Grab, the ride-hailing and food delivery company which also already won a Singapore license. Grab and its partner Singtel, the Singaporean telecommunications conglomerate have also applied for the Malaysian process. 

Chinese tech giant Tencent has also reportedly put its hat in the ring in Malaysia, after being granted a virtual bank licence in Hong Kong in 2019. 

“Regulators need to recalibrate their policy frameworks to better equip themselves to deal with particular types of systemic and contagion risks arising from the interconnected activities of Big Tech traversing multiple industries and sectors across various jurisdictions,” wrote Rajan and Gupta. 

Sea and Grab both operate throughout south-east Asia, for example, and the expectation is their banks will ultimately be regional companies. 

The trend is not contained to south-east Asia. Hong Kong’s banking regulator granted eight virtual bank licences in 2019. Alongside Tencent, the other winners included local conglomerate Jardine Matheson, whose family-run empire has long held a concentrated share of commercial power in the city, UK firm Standard Chartered — which already earns the bulk of its profits in Hong Kong — and Chinese multinational ICBC. 

Some of China’s biggest tech companies, including Ant Group and Xiaomi, were also amongst the winners. Ant Group has now also been granted a licence in Singapore. 

It’s true that many of the large companies do form consortiums with smaller fintech companies. Without the support of big groups, many start-ups would be unable to meet the stringent capital requirements demanded by regulators in countries like Singapore.

But traditional players still grapple with the same legacy issues that put off consumers and ushered in the rise of neobanks in the first place, including slow governance and concerns around cannibalising their existing businesses. Big tech companies are also already battling a regulatory crackdown to curb their excess market power, especially in China.

Digital banks are undoubtedly a good thing, especially in Asia where there are so many underbanked customers. But it is clear that there are regulatory challenges that authorities have to manage — and soon —as the new banks become more interconnected and operate across different countries in the region.

Fintech fascination

More stories from the industry that caught our eye this week

Robinhood gears up for IPO Some companies might be tempted to lie low for a while after being accused of causing “widespread and significant harm” to their customers. Not so Robinhood, the digital broker that helped drive the recent surge in retail investing. A day after agreeing a record $70m penalty with the Financial Industry Regulatory Authority, it published a prospectus paving the way for what will be one of the most closely-watched initial public offerings of the year. The company is targeting a valuation of $40bn or more, but the Lex column warned that further regulatory run-ins could make that target look a little too ambitious. Meanwhile, the FT’s retail investing and venture capital reporters give a run through all the other most important numbers from the prospectus.

More European M&A This week saw yet another M&A milestone in the European fintech market, following a series of landmark deals in recent weeks. This time it was a merger of three of the continent’s largest bank-owned mobile payment providers. Norway’s Vipps, Denmark’s MobilePay, and Finland’s Pivo announced they will combine to create a mobile wallet group with 11m customers and more than 700m annual transactions. Many banks in the rest of Europe are hoping to emulate the way Nordic lenders have positioned themselves at the forefront of the shift to digital payments, but the deal highlights the resources needed for bank-backed groups to keep competing with big tech rivals like Apple and Google. Read more from the FT’s Nordic and Baltic correspondent Richard Milne.

Crypto Corner: what did we learn from the Binance crackdown? Last week we highlighted the UK Financial Conduct Authority’s crackdown on Binance, the crypto exchange, as a further sign of growing regulatory unease around cryptocurrencies. Since then we’ve seen further interventions from regulators in the Cayman Islands and Thailand. That could mean more negative headlines in the short-term, but some are hopeful that in the long run, tighter regulatory enforcement will improve confidence enough to help the sector grow. Dig deeper into the Binance debacle in this long read. And if the news in recent weeks has you worried about the fate of your own crypto portfolio, check out Madison Darbyshire’s explainer on what consumer protections you might be entitled to (spoiler: not many).

Quick Fire Q&A

Stay up to date with up-and-coming disrupters. Each week we ask a fast-growing fintech to introduce themselves and explain what makes them stand out in a crowded industry. This week we spoke to Spark Commodities, a Singaporean startup trying to take on centuries-old incumbents like Baltic Exchange and S&P Global Platts that provide data on commodities markets.

When were you founded? Early 2019, with the first product available by summer 2019.

Where are you based? Singapore, with additional presence in London as our customers are based all over the globe

Who are your founders? Tim Mendelssohn (ex-BP, Koch Industries) and Charles Vallantin Dulac (ex-Kpler)

What do you sell, and who do you sell it to? Price transparency to opaque commodity markets, starting with LNG. Our clients include commodity traders, oil and gas majors, hedge funds, banks and research institutions.

How did you get started? We recognised that traders didn’t have optionality with price indices. We built Spark with a singular focus on providing a tech-orientated alternative.

How much money have you raised so far? $5m USD

What’s your most recent valuation? Undisclosed

Who are your major shareholders? Kpler, the commodities data & analytics provider, and EEX, a global exchange that’s part of the Deutsche Boerse Group.

There are lots of fintechs out there what makes you so special? We’re using industry knowledge and technology to provide greater price transparency to commodity prices that impact almost everyone on the planet. 

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