Deposit cap hinders GXS’ growth, Allo Bank a drag on Bukalapak’s results

In The Top Up this week, we look at GXS’ deposit limit and analyze Allo Bank’s impact on Bukalapak’s Q1 earnings. [Read from your browser]( The Top Up 💵 Welcome to The Top Up! Delivered every fortnight 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 Budi Sutrisno Journalist Hello {NAME} Even if money were to grow on trees, there would still be a limit - there is only so much each branch can handle. This is why some banks are obligated to have deposit limits, which prevent the accumulation of funds beyond what they can manage and safeguard. In Singapore, S$50 million (US$37.5 million) is the maximum deposit limit imposed on digital full banks by the country’s banking regulator. While this measure protects depositors, it also places constraints on the growth of digibanks like GXS, compelling these players to explore alternative strategies to expand their user and revenue base, as my colleague Melissa points out in this week’s Big Story. The setup is different for banks that operate under a conventional banking license. Take Trust Bank, for instance. Not only is it not subject to the deposit cap, but it also allows withdrawals from ATMs that are owned by shareholder Standard Chartered Bank. Speaking of digibanks, Bukalapak benefited greatly from the acquisition of Indonesia-based Allo Bank early last year. However, as Allo’s share price slips, so too has the company’s contribution to Bukalapak’s earnings. More on this week’s Hot Take. -- Budi  --------------------------------------------------------------- THE BIG STORY [SG digibank GXS trails Trust in adoption as deposit cap hampers growth]( Trust has close to 60x more monthly active users than GXS, according to industry estimates, even though the two firms launched a day apart.  --------------------------------------------------------------- THE HOT TAKE Allo Bank’s effect on Bukalapak’s huge losses in Q1 Here’s what happened: - Indonesia’s Bukalapak [recorded a net loss]( of over 1 trillion rupiah (US$68.8 million) in Q1 2023, a striking contrast from its net profit of 14.5 trillion rupiah (US$993 million) in Q1 2022. - The company said that a major factor behind its profit from that period last year was the “substantial” gain from its investment in Allo Bank, which it acquired in January 2022. - The latest development comes as Allo Bank’s [share price]( continues to fall, reaching only 1,280 rupiah (US$0.09) per share as of May 1. Here’s our take: Bukalapak did not explicitly say that Allo Bank had contributed less profit to the company, but the ecommerce firm’s [quarterly financial reports]( suggested this. After Bukalapak spent 1.2 trillion rupiah (US$80.9 million) to [acquire]( 11.49% of the digital banking unit early last year, the ecommerce company saw its net profit move into the black. However, throughout 2022, Bukalapak’s gain from the investment kept declining. It went from 15.5 trillion rupiah (US$1.1 billion) in [Q1 2022]( to 3.9 trillion rupiah (US$268 million) in [Q4 2022](. In [Q1 this year]( the gain turned into an unrealized loss of 784 billion rupiah (US$53 million), pushing Bukalapak further back into the red. Despite this, Allo Bank still posted improving income throughout last year. It also recorded a net profit of 90 billion rupiah (US$6.2 million) in Q1 2023, an increase from 75 billion rupiah (US$5.1 million) in [Q1 2022](. Bukalapak’s [unrealized loss]( is likely because of the difference between the current market value of its digibank investment and its purchase price. Amid poor macroeconomic conditions, the share price of Allo Bank, which went public in August 2015, has fallen (and continues to decline). See also: [The tech companies bankrolling Indonesia’s digital banks]( ​​The price reached its peak on April 28 last year at 6,500 rupiah (US$0.44) per share. But it plummeted by 80.3% to 1,280 rupiah (US$0.9) as of May 1. Moreover, Allo Bank is still majority-owned by its parent firm Mega Corpora, a financial subsidiary of conglomerate CT Corp, which is owned by tycoon Chairul Tanjung. Bukalapak’s stake in Allo doesn’t give it control over the bank’s operations, although its rationale for the investment was to streamline the provision of financial services for its merchants and users. The deterioration in share prices is happening across the digital banking sector. IDX data shows that the stock prices for digital banks decreased by [6.27% to 76%]( in 2022. Katadata [reported]( that five of Indonesia’s seven prominent digital banks, including Bank Jago and Bank Neo Commerce, experienced a decline in the share price of more than 50% throughout the year. Four of these were still moving downward as of February 2023. Nevertheless, Tanjung believes that Allo Bank will see [a rebound]( soon. Though it’s hard to see when it will move out of the red, Bukalapak maintains a healthy cash position and has strong support from its Mitra Bukalapak business to continue operations. But Bukalapak’s case may serve as a cautionary tale for investors in digital banking. Muhammad Nafan Aji Gusta Utama, senior analyst with local securities firm Mirae Asset Sekuritas Indonesia, [warned]( that regardless of macroeconomic conditions, euphoria for the digital banking sector itself might have subsided. Currency converted from Indonesian rupiah to US dollar: US$1=14,674 rupiah. -- Budi  --------------------------------------------------------------- NEWS YOU SHOULD KNOW Also check out Tech in Asia’s coverage of the fintech scene [here](. 1️⃣ [Alipay transactions by Chinese tourists in SG nearly double in Q1]( Local brands and merchants in the city-state partnered with Alipay to enhance their offerings for Chinese travelers, such as giving out deals, promotions, and membership benefits. 2️⃣ [Capital A’s BigPay appoints new leader after CEO steps down]( Zubin Rada Krishnan, who previously served as BigPay’s Malaysia country head, succeeded Salim Dhanani, who stepped down in February. 3️⃣ [SG’s Endowus officially expands to Hong Kong]( The fintech firm now allows investors in Hong Kong to build single- and multi-fund portfolios through its offering of 140 funds across various asset classes. 4️⃣ [GXS Bank launches credit product for underserved SG consumers]( Called GXS FlexiLoan, the product combines features of a credit line and a personal installment loan. 5️⃣ [Temasek-backed fintech unicorn Open cuts 47 employees]( Founders of the India-based company have also taken a 50% pay cut as the firm strives toward growth and profitability.  --------------------------------------------------------------- That’s it for this edition - we hope you liked it! 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