Hello there

Hope you’re doing well as another wave of Covid-19 spreads across the world.

While I was doing some research on the buy now, pay later segment in India late last year, I found that people here were even ordering food online and buying market shares using BNPL products.

The data was astonishing: In the next four years, BNPL is expected to be a US$50 billion market in India compared to only US$3.5 billion now.

That’s why our fintech Big Story this week caught my attention. My colleague Melissa talks about how the impossible-to-ignore BNPL trend, which hit a record high in Australia in early 2021, is now seeing signs of waning in the country. The Land Down Under is one of the most mature BNPL markets in the world, with several listed players such as Afterpay, Zip, Splitit, Openpay, and Fatfish Group.

So is this the end of pure BNPL? Much like in India, BNPL is in its infancy stage in Southeast Asia, and it may go the way of Australia. But can BNPL players in the region avoid this downward trend? To find answers to these questions and more, read on.

-- Samreen

THE BIG STORY

BNPL sours in Australia, but will SEA players buck the trend?

Image credit: Timmy Loen

Australian BNPL stocks have gone into a tailspin since February 2021 as the model’s defensibility, rising competition, and regulatory risks are called into question.

THE HOT TAKE

Singapore fintech firm iFast finally buys a bank

Here’s what happened:

• The Singapore Exchange-listed fintech firm intends to acquire 85% of BFC Bank, a full licensed UK bank.
• The acquisition is driven by a belief that banks operate at the “foundation layer” of the financial industry, and having direct access to this will allow iFast to innovate at a faster pace.
• The S$73 million deal values loss-making BFC at an above-average multiple.

Here’s what it means:

The planned acquisition of an 85% stake in BFC may have come a little late for Christmas, but is certainly a present that iFast has long coveted.

Having applied for - and failing to receive - a digital banking license in Hong Kong and Singapore, iFast’s prospects in Malaysia are uncertain. The company is one of at least 29 applicants chasing five licenses there.

Why is iFast so keen on having a digital bank?

The company, which started life as an online distributor of unit trusts, now owns businesses spanning the B2B, B2C, and B2B2C segments in financial services.

Lim Chung Chun, iFast’s founder and CEO, thinks that the fintech sector will become more globalized over time. As such, a digital bank would improve the company’s ability to build a cross-border wealth management business.

With the acquisition of BFC, Lim is putting his money where his mouth is.

However, the deal values BFC at a price to-book multiple of 1.6x. This is higher than the average for UK banks, which is around 0.7x. Moreover, BFC is not profitable - it lost S$4 million in the first nine months of 2021.

The market’s initial response was skeptical, with iFast’s shares falling by 4% after the deal was announced and the trading halt was lifted on January 7.

Perhaps investors were unsure of how a UK-licensed bank fits with iFast’s current business, which is solely Asia-focused. Unlike other sectors, banking remains a country-specific industry, with regulators jealously protecting their turf. For example, while BFC is licensed by the UK authorities, the bank cannot simply offer its services to customers in Malaysia.

IFast may be hoping that this acquisition will give it experience owning and operating a bank, which will boost the company’s credibility with regulators in other markets it hopes to enter.

Still, one wonders why it didn’t follow other regional tech players with digital bank aspirations like Sea Group and Grab, which both have acquired a bank in Indonesia instead. IFast may be more comfortable operating a bank in a developed market like the UK, despite its geographic distance from Singapore.

While many are excited by the rise of decentralized finance (DeFi), the scramble to build digital banking businesses shows that tech players still believe in the potential of regulated banks, which act as a trusted centralized provider of financial services.

– Simon

NEWS YOU SHOULD KNOW

Also check out Tech in Asia’s coverage of the fintech scene here.

1️⃣ Tiger Global co-leads $25m round of 🇮🇳 B2B fintech startup

Rupifi saw a 50% month-on-month growth in disbursals in the last 12 months while covering more than 50,000 SMEs.

2️⃣ BharatPe co-founder in legal tangle after alleged 'abusive call'

Ashneer Grover allegedly verbally abused a Kotak bank employee over the phone for failing to deliver Nykaa shares to him and his wife during the company's IPO.

3️⃣ Microsoft CEO joins Groww as investor and advisor

The fintech unicorn raised US$251 million at a US$3 billion valuation in October.

4️⃣ Pine Labs to raise US$500 million in US listing

The listing could give the Temasek-backed company a valuation of about US$5.5 billion to US$7 billion, according to a Bloomberg report.

That’s it for this edition - we hope you liked it! Do also check out previous issues of the newsletter here.

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See you next week!