SEA flies the BNPL flag as crypto tries insurance on for size

In The Top Up this week, we look at how BNPL players in SEA plan to face global headwinds, what insuring crypto entails, and why Volt Bank fizzled out [Read from your browser]( The Top Up 💵 Welcome to The Top Up! Delivered every Wednesday via email and through the Tech in Asia website, this free newsletter breaks down the biggest stories and trends in fintech. If you’re not a subscriber, get access by [registering here](. Written by Qishin Tariq Journalist Hello {NAME} When it comes to dealing with problems, the present never feels like the right time. So what could be sweeter than enjoying retail therapy without immediately facing the pain of paying up? Unfortunately, even when we procrastinate making payments today, it’s still our problem tomorrow. The thriving buy now, pay later (BNPL) industry, however, suggests we have little sympathy for our future selves or regard for our finances. With inflation going up faster than some people’s blood pressure and a recession looming, will Asian consumers keep leaning on BNPL? Quite likely as it turns out - or at least that’s what regional BNPL players are hoping they’ll do, as Melissa discusses in this week’s Big Story. For those who have bleaker outlooks, insurance is probably your preferred financial instrument. In our second Big Story this week, Deepti explores a relatively new form of decentralized finance (DeFi) insurance, where premiums are calculated on a “decentralized basis” rather than being determined by an insurer. Given how prone crypto assets are to a free fall, getting such a product could be like strapping on a parachute before skydiving. Meanwhile, in this week’s Hot Take, I discuss how Australian neobank Volt went from being first to going bust, shuttering after it ran out of runway. What went wrong for the company? And while we’re at it, are Southeast Asia’s digital banks doing any better? -- Qishin THE BIG STORIES  1️⃣ [BNPL struggles amid global recession - except in Southeast Asia]( Rising interest rates, inflation, and a looming recession have cast doubt on the viability of the BNPL model. But SEA’s players may be an exception. 2️⃣ [Terra, Celsius raise prospects for crypto insurance]( Investors are looking to put their money behind crypto insurers who can cut through the red tape of the traditional insurance sector. THE HOT TAKE Australia neobank Volt pulls the plug on banking ambitions Here’s what happened: - Last week, Australia’s Volt Bank - the first licensed neobank in the country - announced that it will shut down. - The move comes after its failure to raise a targeted A$200 million (US$137 million) in capital to support a plan to write mortgages. - It is the second Australian neobank to close after Xinja, which also ran out of funding and exited the market in late 2020. Here’s our take: Australia’s neobanking scene saw an upset in June: Volt [bowed out]( after failing to secure additional capital to support a plan to write mortgages and cover costs. The firm had A$113 million (US$77.56 million) in deposits and A$80 million (US$54.91 million) of housing loans as of April, according to government data. But Volt was burning through about US$690,000 [each week]( while it was still operating. Volt CEO [Steve Weston]( said that fundraising challenges were twofold. A 20% cap on ownership stakes in local banks prevented established backers from investing further, while new investors were weary due to the state of capital markets. Its plans to add more income-generating businesses took longer than expected to implement. Volt [was looking to introduce]( personal loans and mortgage products by the middle of 2021. However, Weston [revealed]( earlier this year that mortgage lending was still being ramped up, with personal lending to start in late 2022, followed by lending targeted at small and medium-sized enterprises. At the same time, Volt was [investing heavily]( in its banking-as-a-service (BaaS) capabilities, which allowed it to provide loans to partner companies such as mortgage aggregator [Australian Finance Group]( and cryptocurrency exchange [BTC Markets](. This entailed a hefty cost. Volt’s holding company [reportedly]( posted a US$18.6 million loss in the six months to October 2021. At one point, it was burning through [A$1 million]( a week. It didn’t help that Australia’s [inflation]( exceeded 5% as of June 8, 2022 - the highest since 2008. This dampened investor sentiment at time when Volt needed funding the most. To grow its mortgage book till 2024 as planned, US$1 billion in capital - in addition to the US$200 million Volt was seeking to raise - would have been needed, the Australian Financial Review [reported](. Part of Volt’s failure could have been tied to its inability to scale its business. In two years of operation, it had captured just a fraction of Australia’s [A$3 trillion mortgage market](. Neobanks offer products that are neither competitive nor capable of generating sustainable revenue for the business, so they find it difficult to go up against and to differentiate themselves from incumbents, [noted]( [Dimitrios Salampasis]( who lectures on fintech at Swinburne University. Drawing customers away from incumbent players also requires offering more attractive perks such as high interest rates on deposits, which may not be sustainable in the long run. That said, several digital banks in Asia have proven that profitability is possible, though it is a long road to trek. Indonesia-based Bank Jago, for instance, [posted]( a US$5.8 million net profit after tax in 2021, two years after super app Gojek took over the business. This was buoyed by a 6x increase in loan disbursements to US$378.1 million in Q4 2021, owing to partnerships with investment app Bibit, stock trading platform Stockbit, and local peer-to-peer lending firms. Bank Jago achieved this while offering the average interest rate of [between 3% to 4%]( on its time deposits. After posting an operating loss of US$59.4 million in 2021, Bank Neo Commerce - the digital banking arm of Jakarta-headquartered Akulaku - is also expected to [hit profitability by 2023](. A shift in focus towards higher-yielding consumer loans is expected to drive this push, though it might come with risks in the current economic downturn. Was Volt trying to do too much, too fast? Perhaps it did: Its BaaS product showed much promise, but without income-generating lending products to support that expansion, the neobank had no choice but to rely on external funding for that growth. Banking, after all, is a costly business - a reality that unfortunately led to Volt’s demise. Currency converted from Australian dollar to US dollar: US$1=A$1.46 dollars. – Qishin NEWS YOU SHOULD KNOW Check out Tech in Asia’s coverage of the fintech scene [here](. 1️⃣ [Indonesian conglomerate set to pour $259m into WeLab-backed digibank]( Astra International’s attempt to buy a 49.56% stake in the local bank is pending approval from regulators. 2️⃣ [BNPL provider Atome receives $45m from parent firm]( Advance Intelligence Group became a unicorn late 2021 after a US$400 million round co-led by SoftBank. 3️⃣ [Klarna discussing valuation cut to $6b from $45.6b]( The Swedish fintech firm’s valuation is in flux as it talks to investors about raising new equity. The level could settle to around US$10 billion after negotiations, sources said. 4️⃣ [Indian revenue-based financing firm bags $36m from Chiratae, others]( The deal was one of the largest growth rounds in the country, pushing GetVantage’s total funding raised to date to more than US$40 million. FYI 1️⃣ [China’s internet watchdog cracks down on online scams amid growing number of counterfeit financial services apps]( The Cyberspace Administration of China took down 42,000 fake apps that copy popular platforms like JD Finance and Mashang Consumer Finance. That’s it for this edition - we hope you liked it! Do also check out previous issues of the newsletter [here](. Not your cup of tea? You can unsubscribe from this newsletter by going to your “edit profile” page and choosing that option in our preferences center. In the meantime, if you have any feedback or ideas, feel free to get in touch with Terence, our editor-in-chief, at terence@techinasia.com. See you next week! P.S. 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