Island Fintech Weekly (30 May)

May 30, 2021

Greetings Islanders,

Lots of activity coming from India this week, and it was cool to see that Singapore fintechs raised a record US $656 million in Q1 this year - a 355% jump from the year before.

Note: If you’re interested in contributing content or getting involved with Island Fintech Weekly, reach out to me! vinay.palathinkal@gmail.com.

🎣 Dips

🍛 South Asia

India-based banking as a service platform, Zeta, raised a US $250 million series C round that has helped it reach unicorn status.
Kodo, an Indian Brex-like corporate card startup, raised a US $8.75 million seed round which included participation from Brex.
Stockal, an India-based investment platform focused on global investing, raised US $3 million in pre-Series A round. It already claims to manage US $100 million in assets under management.
Paytm is planning to raise about US $3 billion in an IPO in India at a US $25 billion valuation. It will likely be India’s largest IPO to date.

🍧 Southeast Asia

DBS, SGX, Standard Chartered and Temasek are planning to launch a global carbon exchange in Singapore.
Singapore has reappointed Ravi Menon to be the managing director for MAS (Monetary Authority of Singapore) for another term, a post held by Menon since 2011.
MAS is trying to build a broader relationship with the African continent.
- Singapore’s MAS will collaborate with the Mojaloop Foundation, a nonprofit that works with central banks from less developed countries, particularly in Africa. MAS will be sharing learnings around implementing digital clearing and settlement infrastructures with Mojaloop, which runs an open source model.
- Discussions began last week on how Singapore and Ghana’s central banks will collaborate on cross border trade and finance opportunities, based on the MAS’s Business Sans Borders initiative, which is aimed at reducing trade frictions and distribution challenges.

🌎 Everywhere else

HSBC is leaving the US as part of a push to Asia, which is the bank’s largest market. Retail banking will be totally slashed - only wealth management services will be left alone.
Revolut launched ‘Invoices’, allowing business customers to send out professional invoices. These invoices can be paid using a variety of payment methods, such as card payments and bank transfers.
Square and Google have partnered. Square is an integrated partner within Google’s Merchant Centre, helping Square’s e-commerce customers leverage the Google ecosystem to be able to distribute and market more effectively.
Apple might be exploring opportunities with cryptocurrencies as it seeks to hire individuals with experience in alternative payments.
Mx15, an Australian payments as a service fintech, is raising a US $25 million series A round with Mastercard. Mx51 credits part of the growth to its partnership with Westpac.

🐋 Dives

🇸🇬 How to make SGX or HKEX the next Nasdaq?

Acorns, Stash, Paymentus…this week it seems like many of the American fintech unicorns of the late 2010s are making plans to go public. It makes me think of how the fintech startups of SEA are going through a potentially similar life cycle - hitting a growth phase, getting the coveted US $1 billion valuation, and then eventually going public. However, I begin to wonder if 10 years from now, startups will favour a more regionally-focused approach by listing on the SGX or HKEX (the main financial hubs in this part of the world) rather than the standard NYSE or Nasdaq approach. Listing on these exchanges would be a way to reach retail investors, who would be be excited to support the IPOs of their favourite SEA tech brands. For example, Paytm, an Indian household brand, is looking to list in India in November this year, eschewing the usual American IPO route.

Right now, Hong Kong and Singapore are not drawing many startup IPOs. One of the main reasons is the potential (lack of) liquidity. Singapore’s SGX barely attracts any major technology company IPOs right now - companies have complained that the cost of listing barely covers the potential liquidity gains from going public. Another reason has been the corruption scandal that has battered the HKEX’s reputation as a fair assessor of IPOs - it was found that the head of its IPO vetting team accepted nearly US $1.2 million in bribes between 2017 and 2019. Many companies withdrew their IPOs, including the world’s largest brewer - Anheuser-Busch InBev, which had planned to list its Asian business. Inbev’s listing could have potentially been one of the world’s largest IPO events in 2019 - a huge missed opportunity for Hong Kong. Last Monday, HKEX hired Nicolas Aguzin (a former JPMorgan exec) to be its new CEO, tasked to clean up shop and tighten controls to take the the bourse’s reputation back to pre-2019 levels.

Figs, a manufacturer of medical scrubs listed on the NYSE this week and showcased their product at the same time!

Before SEA, it will be China

So the current state of affairs is not exactly great for SGX or HKEX. But with the sheer growth in early and mid-stage investments in the region, it seems only natural that the SGX and HKEX should become preferred avenues for taking companies public. But something needs to happen before this is possible. And the key to unlocking this opportunity is China - I predict that all major companies from China will eventually decide to do secondary listings in ‘neutral’ exchanges like Hong Kong or Singapore.

Imagine you are a Chinese tech company listed on the Nasdaq. You watch as, on May 2019, President Trump places Huawei, along with several other Chinese companies, on something called the Entity List. Companies on this list are unable to do business with any organisation that operates in the US. For Huawei this meant that they could not use Google’s Android software or consume Qualcomm chips. Other restrictions included the banning of TikTok and WeChat from American app stores. With this heavy handed approach seemingly on the rise, you think to yourself - what if the US abruptly decides to delist us from the Nasdaq, NYSE and all other major US exchanges? You might be unable to do business with American companies and be banned from selling to American consumers. But if the Nasdaq or NYSE blocked activity with your publicly-listed shares, the associated consequences on the business could be catastrophic. Shares would tank, and your company would likely go into default. From a risk perspective, you want to avoid this at all costs.

So what do you do next? Have a secondary listing. What is a secondary listing, you ask? It’s exactly as the name describes - a way for a company to dual list, issuing primarily in a major exchange like Nasdaq, and having a hedge at a second exchange like HKEX. Since American regulators are putting greater scrutiny on China-based companies, the secondary listing approach makes for a solid backup plan. A major Chinese company that is currently Nasdaq or NYSE listed may elect to have a secondary listing in Hong Kong or Singapore, given the relatively neutrality and ease of business in these countries, just in case the US regulators place some further strain on the company.

I don’t think the US-China trade tensions are going to disappear anytime soon. So it will eventually make sense for all major Chinese firms to have a secondary listing on the table. If this ends up happening, it will lead to major associated capital inflows, improving international credibility, and leading to other companies electing to list in Singapore or Hong Kong for non-geopolitical reasons. This, in turn, will also help improve capital flows to the exchanges, leading to a virtuous cycle of investment.

The exchanges have been making attempts to make secondary listings more attractive. In 2014, the SGX amended its secondary listing framework to be more streamlined - if you issue in any major exchange like the Nasdaq, you don’t have to face any additional requirements from SGX. The SGX was exploring a dual listing arrangement with Nasdaq back in 2016 and is continuing to explore the possibility of doing so. So the SGX has done its part in laying the foundations for attracting investment. A next step will be to strengthen relations with Chinese capital institutions and investors to place a bigger emphasis on the strategic and risk-related benefits on getting listed in Singapore. The opportunity exists for both Singapore or Hong Kong. The question is, whose regulators will be creative enough to appeal to and attract global investment? In the words of Andrew Carnegie, “the first one gets the oyster, the second gets the shell.”

🗺 Some other cool reads

Travillan Group announced a ‘tech-forward bank index’ that highlighted some of the key banks that are helping to enable fintechs in the US. Some familiar names here!
Why Facebook, Google, and Amazon want to build online payments platforms for India, by Quartz.
David Farleme did an interesting piece on the hyperlocal strategy taken by Grab and Gojek in acquiring customers in SEA.
China’s largest bank, ICBC, is setting up a joint venture with Goldman Sachs to set up a wealth management arm in China. A good article by CGTN on why this matters.