DURING the height of the fintech revolution that’s been taking place over the last few years, one prominent banker in Malaysia made an interesting comment during a private dinner.
The banker said that while he welcomes fintech companies into the market, he wasn’t really afraid of losing any significant business to them. What he really feared, if anything, were the technology giants turning on a banking facility for the millions of users they have on their platforms.
“This Facebook Bank, Google Bank or Whatsapp Financial Group,” he quipped in half jest.
The logic is simple: with those platforms even then having had the myriad users globally, they are able to tap that user group to offer financial services.
But banking remains a highly regulated space. Not every technology company will be able to fulfill those criteria or even have such intentions.
Still, there are a number of virtual banks that have sprung up globally.
Here are some of the more notable ones in this part of the region.
China: WeBank
WeBank is China’s first private digital-only bank, launched in early 2015.
It is backed by tech giant Tencent Holdings – China’s biggest messaging and social networking company, which is also the operator of WeChat
Besides Tencent, its other backers include investment firms Baiyeyuan and Liye Group.
According to its website, WeBank provides consumer banking services through digital channels, as well as microcredits and other loan products.
The Internet-only lender had turned in a profit one year into operation thanks to surging demand for microloans among blue-collar workers and small entrepreneurs.
In 2017, WeBank made a net profit of 1.4 billion yuan or US$209mil, while its return on equity came in at 19.2%.
Its total lending in that year was nearly twice that of closest rival MyBank for the same period.
A recent stake sale of the bank values the company at US$21bil, making it one of the world’s largest “unicorn” companies.
Banking Tech recently reported that the lender is now eyeing an Australian expansion to compete with payments company Alipay, which is its largest rival.
MyBank
MyBank is backed by billionaire Jack Ma’s Alibaba Group Holding Ltd.
Alibaba affiliate company Ant Financial owns 30% of the online lender.
Not unlike WeBank, it has a focus on consumer and small and medium-sized enterprises, a sector underserved by traditional banks in China.
It uses credit data from the e-commerce giant’s AliPay product to conduct analysis for loans.
By circumventing human involvement, the bank said it was able to deliver loans to borrowers faster and up to 1,000 times less than it would cost brick-and-mortar banks to do so.
Like WeBank, it turned profitable one year into operations due to its less capital-intensive model.
Ant Financial is reportedly looking to go public in the near future.
India: Digibank
Singapore’s banking giant DBS Bank launched Digibank in April 2016 – a move that has enabled it to penetrate the Indian retail banking market.
Breaking away from conventional banking norms with their onerous form-filling and cumbersome processes, Digibank incorporates a host of ground-breaking technology, from artificial intelligence to biometrics.
DBS CEO Piyush Gupta expects the mobile-only bank to break even in three to four years, which according to him is not such a bad deal as compared to the traditional branch model, which needs 15 to 20 years to break even.
Digibank has over 1.5 million customers and it is handling them with 60 people rather than the 400-500 staff members it would normally need under the traditional model. Its cost-to-income ratio is in the low 30s.
Following its Indian venture, DBS went on to launch a similar mobile-led bank in Indonesia where the government expects the country’s digital economy to reach US$130bil or about 12% of its gross domestic product in 2020.
Other Singaporean lenders have also jumped on the bandwagon. United Overseas Bank (UOB) said it would launch “digital banks” for its five key markets in Asean, starting in Thailand. It aims to have three to five million customers in the next five years
Elsewhere, OCBC is also reportedly pursuing a similar idea in Indonesia.
Japan
Established in 2008, Jibun Bank reached profitability in less than five years. The outfit is a joint venture between Bank of Tokyo-Mitsubishi UFJ and local mobile network operator, KDDI.
The story goes that instead of competing with each other, the two organisations decided it would make more sense creating a “separate bank” that complement their goals.
The Asian Banker in a case study on Jibun Bank noted that in its first year, the lender had accumulated over 500,000 new customers. By 2015, Jibun Bank’s asset volume surpassed that of Japan’s oldest Internet bank, Japan Net Bank. Asian Banker also noted that the lender’s deposit volume has grown to a size that is comparable to that of a mid-tier regional bank – all of this without the help of a branch footprint.
South Korea:K-bank and Kakao Bank
The two South Korea’s online-only banks have signed up new customers by the millions since beginning operations in 2017.
Kakao Bank is run by mobile messaging Kakao and Korea Investment Holdings, while K-bank is operated by telco KT.
The authorities there are hoping that K-bank and Kakao Bank would spur growth in a banking industry that has stagnated amid rising credit costs, narrowing interest margins and heavy regulation.
The Financial Times in an October 2017 report wrote that about 300,000 new accounts were opened with Kakao Bank in the 24 hours following its launch in late July. This figure was more than what traditional banks in South Korea got in a year through online channels. And as at end-September that year, it had already garnered 3.9 million users.
The news agency said that Kako Bank users can wire money abroad for just a tenth of typical commission fees.
Its peer K-bank, meanwhile, attracted over half a million users in the few months following its April 2017 launch.
In contrast, international banks operating traditional branch networks in the country were looking at downsizing their branches.
Early this year, Shinhan Financial Group inked a deal with mobile app maker Viva Republica to set up an Internet-only bank, making it the third player in the game.
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