Chinese fintech companies, hoping to diversify from increasingly stiff competition at home, are aggressively seeking to expand in Southeast Asia, where the digital economy is expected to triple in size to $300 billion over the next five years.
Following in the footsteps of e-commerce giants such as Alibaba Group Holding, Chinese fintech companies -- with their established prowess in digital payments -- are leading the charge, often using Singapore as their jumping-off base into the region. Malaysia for some is a likely next step.
On Tuesday, Singapore's central bank said it had received 21 applications for its new digital bank licenses. Although applicants' names were not revealed, at least four Chinese companies, including Alibaba affiliate Ant Financial, have confirmed their participation.
Singapore has said the eventual winners of the up to five licenses available will have to offer innovative financial products to underserved businesses and individuals -- an area where Chinese companies are world leaders. Some $17tn of transactions were conducted online in China in 2017, more than 50 times the level in the U.S.
"Singapore is the pivotal base of fintech development in Southeast Asia," Hong Feng, co-founder and senior vice president of Chinese smartphone maker Xiaomi, said.
Xiaomi, which has joined a consortium led by Hong Kong-based financial company AMTD Group, will bring "new energy" to Southeast Asia with its 5G and other technologies, he added.
Ant Financial, which operates the Alipay mobile payments service with about 900 million users in China, is another hopeful. Last year, it acquired a digital bank license in Hong Kong and invested in Indian payment startup Paytm. A successful Singapore bid would be a significant step for Ant in Southeast Asia.
"We look forward to building stronger and deeper collaborations with all participants in the financial services industry in Singapore, as we work together to make financial services more accessible for small and micro enterprises," a company spokesperson said.
Meanwhile, China's Yillion Group, which counts Hong Kong-listed food delivery operator Meituan Dianping as a major shareholder, has also joined a consortium led by Singaporean fintech company iFAST. Yillion operates a digital bank in China, according to the consortium. Hande Group, another Chinese fintech service provider, is also in the consortium.
Chinese fintech companies are interested in Singapore's new digital licenses as way of expanding into the region because "Southeast Asia has a lot of opportunities where digital banks can make a difference with financial inclusion," Zennon Kapron, director of financial industry research firm Kapronasia consultancy in Singapore, told the Nikkei Asian Review.
Southeast Asia, he added, is "one of the largest yet most accessible markets" for Chinese companies. Kapron favorably compared Southeast Asia to the U.S., a saturated market with a lot of regulations and challenges, he said.
He also said stiff competition in China's fintech sector, particularly in the digital payment and wealth management fields, are pushing companies to expand overseas.
Singapore's central bank, which will issue up to five digital banking licenses, will announce results of the bidding in June. If these Chinese companies win licenses, they would start taking deposits from and providing loans and investment products to local business customers by the middle of next year.
Later, they could use the know-how gained in Singapore to venture into other Southeast Asian nations.
Malaysia will also issue digital banking licenses. "Up to five licenses may be issued to qualified applicants to establish digital banks to conduct either conventional or Islamic banking business in Malaysia," the central bank said in a statement on Dec. 27. The application period will open this year.
Several Chinese e-commerce companies have already expanded into Southeast Asia, via both acquisitions and local partnerships. Alibaba has acquired Singapore-based Lazada and has invested in Indonesia's Tokopedia. JD.com has launched online shopping in Thailand through a partnership with local retail giant Central Group.
This year, Chinese tech companies will likely increase their Southeast Asian presence in other sectors too.
Online health care provider Ping An Healthcare and Technology, better known as Ping An Good Doctor, in December started smartphone-based telehealth consulting services in Indonesia through a joint venture with Singapore's Grab. Many Southeast Asian countries are short of doctors, which presents opportunities for online health care businesses.
Last year, Chinese online insurer ZhongAn Online P & C Insurance tied up with Grab to build a digital insurance marketplace for the ride-hailer's drivers in Southeast Asia.
"We'll see those footprints [by Chinese tech companies] continuing to grow [in Southeast Asia]," Kapron said.
According to a 2019 report from Singapore's Temasek Holdings and Google, the size of Southeast Asia's digital economy will triple to $300 billion in 2025 from $100 billion last year. The report also forecasts the penetration rate of online lending will rise to 8% from 3%, while that of investing will go to 11% from 3% during the same period.