We brought together Philippine digital bank Tonik CEO and founder Greg Krasnov and Tokyo Stock Exchange APAC Deputy Head and IPO Specialist Beomsu Son for a conversation on the Philippines digital banking opportunity (from a Japan POV), opening up Japan’s public markets to more issuers internationally, the first Philippine company in TSE’s Asia Startup Hub, and the value of going public in Asia’s deepest liquidity pool.

Timestamps

(00:08) Not Beomsu’s first time in the Philippines;

(00:50) Introducing Tonik and the Philippines;

(01:54) Japan Public Markets going global;

(03:38) A Philippine Digital Bank’s View of the Japan Public Markets;

(04:54) Southeast Asia’s Impact on the Japan Public Market Playbook;

(06:18) Leveraging Tokyo Stock Exchange’s Asia Startup Hub;

(07:48) Making the Most out of Going Public in Japan;

(09:29) What Makes Digital Banking in the Philippines exciting;

Directed by Paulo Joquiño

Produced by Paulo Joquiño

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The content of this podcast is for informational purposes only, should not be taken as legal, tax, or business advice or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any ⁠⁠⁠⁠⁠⁠Insignia Ventures⁠⁠⁠⁠⁠⁠ fund. Any and all opinions shared in this episode are solely personal thoughts and reflections of the guest and the host.

Transcript

The Exciting Growth of the Middle Class in the Philippines

Greg: Beomsu, is this your first time in the Philippines? How are you finding it so far?

Beomsu: Actually, this is my third time in the Philippines. And I usually visit the Philippines to look for some promising companies. I’m impressed by how energetic and lively the business scene is, especially in Makati. And personally, I’m learning about some Philippine culture, including some drinking rum responsibly, of course.

So Greg, what makes you excited about the Philippines and where Tony is today?

Greg: I think the Philippines is at a real inflection point in terms of middle-class development. And it’s a very exciting time to be here. This is actually why we’re here, because one of the key things about the development of the middle class is you get this kind of explosion of consumer lending, which hasn’t happened in the Philippines yet. We’re at the very beginning of this.

So what we have is actually a situation where the top 10% of Filipinos have way too much credit from the traditional banks, and the remaining 90% have no credit from traditional banks. And we have the lowest consumer finance penetration of anywhere in Southeast Asia on a per capita basis.

This is changing now, also largely due to the digitization of the economy and the entry of guys like us who can access those customers digitally. So, it’s a very exciting time to be a digital bank in this country focused on consumer finance.

Japan Public Markets and Southeast Asia Startups

Greg: How have the Japan public markets evolved in the last few years with respect to more global listings?

Beomsu: In the past, only a few blue-chip Western companies listed on our market, and rarely did companies from Asian countries list. But things have changed. From 2013, Japanese investors invested in Southeast Asia, and those portfolio companies have grown and started listing on the Tokyo Stock Exchange.

To respond to this, we established a dedicated team to support Southeast Asia startups and promote our IPO market to foreign companies in our Singapore branch. More than that, we run the TSE Asia Startup Hub. Thank you for joining.

Greg: Thank you for having us.

Beomsu: This program launched in 2024. This is the second batch. And Tony is the first company chosen in this program from the Philippines. The environment for IPOs on the Tokyo Stock Exchange has totally changed, and we are very open to global firms.

Greg: Fantastic. That’s great to hear. And thank you for having us on the program.

Beomsu: It’s my pleasure.

The Role of Digital Banks in Japan’s Public Market

Beomsu: Apart from having Mizuho as an investor, what makes the Japan public market interesting for a digital bank like Tony?

Greg: As we grow, we will grow our assets. And every bank that is rapidly growing like us—we’ve been doubling our asset size every year for the last three or four years—we intend to continue doubling because the capacity of the market is very large.

Since we’re a regulated institution, this means we also have to proportionally keep increasing our capital base of the bank. So for any bank that is growing as fast as us, you need access to a deep pool of long-term capital that the bank can tap on for growing its capital base. And of course, in Asia, Japan is such a market. It is by far the deepest market and with the most long-term capital that exists.

So we’re very excited about being part of the Tokyo Stock Exchange Program now. And especially, thank you for selecting us as the first Filipino company. For us, it’s very interesting to build within that capital base of the Tokyo Stock Exchange, form partnerships, and ultimately, hopefully, lead to our listing on the Tokyo Stock Exchange.

Impact of Southeast Asian Companies on Japan’s IPO Playbook

Greg: So how are companies from Singapore and Southeast Asia impacting the IPO Playbook in Japan?

Beomsu: So in the past, honestly, there was no playbook for Southeast Asian companies. But Southeast Asian companies have grown dramatically in several years, and they needed a venue to exhibit their growth with higher valuation and liquidity.

Focusing on the change, our structure updated the system. Thanks to the update in 2021, we welcomed two foreign startups from Singapore: YCP Holdings and OMNIPRO System. They can still keep their domicile in Singapore. Before that, if they wanted to list on our market, they had to change their domicile from Singapore or their country of origin to Japan. So now, that means we are very welcoming to not just changing domicile, but also to foreign entity companies as well.

Beomsu: So what are you most looking forward to becoming one of the supportive companies in the TSE Asia Startup Hub?

Greg: We’re very excited about becoming part of the program, especially as the first Filipino startup to join the program. And we’re very thankful to our partners at Insignia as well for helping us to meet TSE and definitely become part of the program.

The most exciting thing for us is, of course, access to long-term capital and long-term partnerships for building our capital base. We’re also funded mostly by venture capital investors who will be looking for liquidity eventually. And a traditional way for a technology company to access that liquidity is through an IPO. And of course, TSE is by far the deepest liquidity anywhere in Asia today. We see that potential to both grow our capital base and provide liquidity to our historic investors will be something that will be playing out.

On a personal level, I’m a huge fan of Japan and Japanese culture.

For me, it started in high school when I started training karate, and I’ve been actually trying to come to Japan and learn about Japan. I’m very much looking forward to more excuses to come to Japan and visit more often and participate in the culture.

Beomsu: Not just the business side, but the personal side is quite a good point.

Advice for Non-Japanese Companies Entering Japan’s Market

Greg: Ben, can you share with me some examples of how non-Japanese headquartered companies have leveraged being public for further growth? And what advice would you have for companies that are interested in Japan when it comes to maximizing the public market?

Beomsu: Yeah, that’s a great question. We don’t have a straight Japan relationship or some criteria to list on the Tokyo Stock Exchange, but having some Japan office or Japan relation is quite helpful to persuade the retail investor, which is the biggest player in our growth market, the entry market of the Tokyo Stock Exchange.

That doesn’t mean you have to set up your office or your headquarter in Japan. There are lots of Japanese companies looking to be partners that make some vision expansion in Southeast Asia. So, like your relationship with Mizuho, my advice to other startups is just to look for some good business partners.

And before then, they have to establish credibility. Knocking on the door to JETRO or the Tokyo Stock Exchange is quite a good option because we will support penetrating the Japanese market or looking for business partners, of course, without charge.

I should say more: being invested by some Japan-related VCs or investors like IGN Venture Partners is quite a good option.

Opportunities in the Philippines Digital Banking Sector

Beomsu: How would you describe the Philippines digital banking opportunity to Japanese public markets investors?

Greg: I think what is most exciting about the digital banking opportunities in the Philippines is that 90% of the Filipinos have never had a bank account. So what this means is there is this tremendous, $100 billion-plus untapped market for consumer credit that is going to be opening up over the next decade as the middle class of the Philippines matures.

Of course, it’s not easy to access this market because you don’t have credit histories, and it’s difficult to assess credit. So you need to deploy digital tools for credit assessment, digital footprint analytics, and alternative scoring. You also need to be very efficient with your operations, which digital banks are.

If you put these elements strategically together, then what you can actually access is very high growth as well as very high profitability. To give you an example, we’ve been growing at 100% plus, doubling every year for the last three or four years. We plan to continue doing that. The market certainly allows us to grow that and even more.

But at the same time, we’ve been able to generate very attractive profitability. Our lending products now are operating at a risk-adjusted return on capital of over 25%. This is actually not the type of return on capital that is available in the more mature markets. For example, for Japanese banks, typically the growth is single-digit, if that. And the risk-adjusted spreads are in single digits in basis points, not percentage points.

Actually, what this means is if you layer the digital efficiency on top of this, then you become a very profitable and very rapidly growing operator. And this is an inflection point that we’ve passed in the last few years.

So our next milestone that we’re working on is achieving cash flow breakeven. We believe this is a few months away for us. We’re already at contribution margin breakeven on the P&L level. And from that point on, it’s just compounding our customer base, continuing to compound these relationships, and growing into this $100 billion consumer lending opportunity.