Island Fintech (1 May 22)

May 01, 2022

Hey Islanders,

Malaysia recently issued the digital bank licenses.. but they sure took their time though. The applications closed in Jun '21. So naturally, lots of folks expected the state regulator BNM to share the results in the first quarter of 2022. Instead, nearly a year later, we've finally gotten the results - and they do not disappoint!

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🐠 Dips

① On digital banks, lending, and profitability in Indonesia

Bank Jago, or as I like to call it, the 🟡yellowest🟡 bank in the world, has posted a record 8x jump in revenue to $24m for Q1 2022. Before you start to talk about revenue-is-nothing-without-profitability.. Jago became profitable in Q3 2021 and has not produced a loss making quarter since. One of the key reasons appears to be Jago's push towards lending, including newly-launched Shariah compliant loans.

Lending is one of the most profitable lines of business in financial services. In Indonesia, profitability really depends on your license. As a digibank, you can collect deposits so, lending is cheaper. But as a pure P2P lender, you cannot collect customer deposits. You must use either P2P loans or use wholesale lines of credit - so the cost of capital is generally higher. That's why Jago can command the profitability that it has. I just wonder how other digital lenders, especially like those who remain firmly in the VC-backed + P2P reliant space, can compete when true depository lenders continue offering great rates with sustainable margins.

② Singapore's payment schemes tries to level up

Ah, EZ-Link. Singapore's quintessential transport card. Come to think of it, this is has been my OG wallet - except that topping up and knowing your balance has always been a chore, and never really adopted the “e” that typically comes with e-wallet. Perhaps consequently so, in recent years, EZ-Link has lost much of its commanding presence in Singapore's transportation payments, with the advent of Google and Apple Pay. As buses and trains have modern terminals that support these services, this removes the need for an EZ-Link.

In an effort to stay relevant, EZ-Link has now tied up with MasterCard to offer an product called Pay by Wallet, that apparently goes beyond transportation, and makes your EZ-Link usable for online spend. It appears that there are some sign up incentives to try and get you through the door. Given that I'm not quite sure how the feature itself is useful, I wonder if EZ-Link is able to find its feet by simply becoming another e-wallet.

In other news, Stripe now offers Singapore's PayNow as payment method for its merchants. This is pretty cool, as it opens up access for faster and more convenient payments than say, your typical card transaction, and also costs much less. Stripe's extra value add is the tech - when a customer chooses to pay with PayNow, Stripe generates a dynamic QR codes for that transaction. This automatically populates the PayNow app with the exact payment amount and unique transaction reference. No manual errors! Amazing - especially if you're an accountant.

③ Nium acquires Socash

Money transfer player Nium has entered a deal to acquire Socash, a platform for turning cash into digital payments. The deal for Nium to acquire Socash will provide local payment acceptance for digital commerce, particularly in emerging markets. Socash’s network lets its customers deposit, withdraw and make payments in cash from more than 30,000 local merchants. Cash usage is higher in emerging markets, where financial inclusion can be low. For example, cash accounted for 89 percent of total transactions by volume in 2020 in India, 96 percent in Indonesia and 87 percent in Argentina, according to the 2020 McKinsey Global Payments Report. [ Finews ]

While the cash-collection angle is lucrative, it's often very risky when it comes to cross border payments - the lack of clarity when it comes to end-user KYC, transfer screening and fraud controls means that there is an additional risk associated with cash-driven transfers. If you ask me, this deal is testament to Nium's risk appetite and ambition.

🐋 Dives

Acceptance Hurdles (Starpoint LP)
Dune: the data must flow (Mario Gabriele)

🍹 Twitticisms

(P.S. Again, if anyone has SEA or Asia focused fintech Twitter accounts I should be following, tweet me. The accounts I see on my feed are overwhelmingly 🇺🇸 focused)