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Digital transformation is among the key objectives of global businesses and the Asian financial sector is evolving fast to meet the needs of a technologically smart customer. A recent example of the potential of digital banks in Asia is the bumper debut of Japan’s Rakuten Bank, which also became the biggest IPO in Japan since 2018.
The World Bank in 2018 said that over 70% of adults in Asia did not have a bank account, whereas more than 65% of businesses did not have access to loans or lines of credit. India, China and some Southeast Asian countries have the highest number of unbanked citizens. Digital financial inclusion is one of the Sustainable Developmental Goals (2030) set down under the Paris Agreement, and digital banks in Asia are emerging as a cornerstone for achieving the goal in the region.
A Mastercard research found that Asia-Pacific consumers were the most enthusiastic adopters of digital payments in the world, with 88% having used some form of technology for commerce. The Covid-19 pandemic was a significant catalyst for the adoption of digital banking services.
“APAC banking customers today demand a smooth, hassle-free and digital on-boarding process, improved pricing on financial products, and personalized products. Where before online banking might have been for the young and adventurous, it is now an essential part of our digital society,” as per digital transformation firm Atos.
A fifth of the world’s digital banks are in Asia, and the majority of them were established between 2016 and 2020. However, a major concern for these internet-based banks is achieving profitability, which has been achievable by only a few in the sector. Additionally, digital banks have only achieved 2% of the total market share in terms of the total value of deposits and loans.
Growth of digital banks in Asia
While profitability has been a major concern for neobanks around the globe, Asia-Pacific is home to 10 out of 13 profitable digital banks. China, Japan and Singapore have some of the largest digital banks.
“While digital banks in other geographies are often startups, Asian digital banking is being driven largely by established companies and consortia. Despite structural challenges with regard to governance, consortia bring significant advantages in terms of achieving scale,” said McKinsey in a 2021 report.
Regulatory hurdles have been the biggest challenge for digital banks in Asia, as financial stability remains a top priority for governments. China was among the first to start license for digital licenses, with central banks in South Korea, Hong Kong, Singapore and Malaysia following suit.
India has the largest number of neobanks but the legal policy is still nascent. Indonesia, Thailand and Vietnam are among the top laggards in digital banking adoption but also have the highest number of unbanked populations in the region.
However, the potential is immense. Asia-Pacific will see the highest growth in cashless transaction volumes which will constitute more than 50% of global volumes, as per PwC Strategy & Global Payments Model 2021.
WeBank (China)
Established in 2014, WeBank was the first digital bank in China. The company is not listed, but Tencent owns 30% of the company. The company targets underbanked individuals and small and medium businesses while providing services around the clock. The company claims it has over 320 million customers, the largest among digital-only banks around the world.
MYbank (China)
MYbank was launched in 2015 by Ant Group and was the first bank in China to have a complete digital infrastructure and no physical branches. The bank focuses on serving small and micro enterprises and operates on the financial cloud computing platform.
MYbank claims to have majorly served the unbanked population in China and is using technology to reach rural areas. The official website said it has served more than 40 million SMEs.
Jibun Bank (Japan)
Jibun Bank is a joint venture between KDDI Corporation and MUFG Bank and provides banking services to its customers via a mobile application. The bank has over 40 million customers, with a large focus on retail banking, wealth management, e-commerce and rewards and expense management.
The bank offers AI-based services, smartphone ATM, and other tech-driven features.
Rakuten Bank (Japan)
A recently listed digital bank, Rakuten Bank is one of the oldest digital banks in Asia. The bank was set up by Rakuten Group, a top e-commerce firm in Japan, and was later spun off.
Rakuten Bank offers a range of services — travel booking, insurance, stock trading, lottery tickets, loans, foreign exchange, and others.
“Rakuten Bank is not only unique with its lack of branches and its purely online focus, but with its financials and growth. The bank saw 65% YoY net loan growth in the most recent quarter ending December 2022,” said analyst Daniel Tabbush of Tabbush Report, which publishes on Smartkarma.
KakaoBank (South Korea)
Established in 2016 by Korea Investment Holdings and Kakao Corp, KakaoBank is a digital-only bank in South Korea. Listed in 2021, the bank had 21.8 million customers as of March 2023 and offers a range of banking and financial services.
“KakaoBank is a large internet bank of which there are few and far between in the region. This should give KKBank a meaningful scarcity premium, at 11 bn USD in market capitalization. Where the bank operates in Korea, quite possibly the most internet connected country in Asia-Pacific and still with a relatively young population base – unlike well connected Japan – the potential returns can be greater than if operating in Philippines or Thailand or Indonesia,” as per Tabbush who publishes on Smartkarma.
While these are some of the most prominent names in the region, other leading digital banks are Digibank (DBS) and GXS Bank in Singapore, Malaysia’s CIMB, CBA and Westpac in Australia, and Mox and ZA Bank in Hong Kong, Timo in Vietnam and Jenius in Indonesia, among many others.
