SINGAPORE -- Southeast Asia’s largest ride-hailing operator Grab is expanding its financial services arm and considering applying for a banking license in Singapore as it seeks to boost profitability before a future IPO.
Reuben Lai, head of Grab Financial Group, told the Nikkei Asian Review that the company was looking at at the opportunities opened up by the city state's announcement on Friday that it planned to grant licenses for digital banks in a major shake up of its financial sector.
"We will study the digibank licensing requirements closely, and are keeping an open mind as we assess how best to pursue this, including whether to work with suitable partners," Lai said in a written statement.
The decision by Singapore's Monetary Authority to issue up to five digital only banking licenses in the coming weeks will open up opportunities for non-bank companies like Grab to offer banking services including taking deposits and lending. Up to two licenses will be for full bank services.
The government is hoping that digital banks, without the high costs of physical branches, will be able to offer their services much more cheaply to those retail and small business customers who have until now not been served by traditional financial institutions. Moreover, they could help to bring down costs by winning customers from these bigger banks with lower charges. Banking sector liberalization was “a great development for consumers,” said Lai.
Grab last week signaled its desire to expand its financial services business more rapidly after closing a $300 million fund-raising last week from U.S. investment company Invesco. Grab’s President Ming Maa said in a statement that it would “remain laser focused on expanding our financial services and mobility-enabled services businesses.”
Born in 2012 as a taxi-booking app, Grab has gradually diversified its operations, including the GrabPay e-payment service launched in 2016. Grab’s financial business now includes e-payment, micro-lending as well as insurance. Grab offers these services with own license as well as through partners already in the finance sector.
Grab offers the e-payment service in six countries in Southeast Asia, the biggest among the region's peers in terms of the number of countries. In Malaysia, GrabPay topped rivals, with over 30% of respondents using it, according to a FT Confidential Research in February,
The majority of Grab’s revenue still comes from the transport business, but ride-hailing has faced intense competition across Southeast Asia. Operators like Grab, backed by Japanese tech investor SoftBank, and its Indonesian rival Go-Jek have had to invest substantial amounts to acquire new drivers and consumers to maintain the pace of growth.
A recent analysis by Singapore’s DBS Group Holdings suggested that the competition was so fierce that it would be difficult for most players to be profitable if they remained pure ride-hailers. “Other players have to demonstrate the ability to leverage their user base and asset base to venture into other profitable businesses,” according to the bank’s tech analyst Sachin Mittal.
But investors are demanding that ride-hailers show a clear path to profitability before considering a listing, especially after U.S.-based industry leaders Uber Technologies and Lyft saw disappointing IPO results earlier this year. Grab has not yet indicated the timing of an IPO.
To speed up the growth of financial services, Grab is also considering acquisitions. The company has held talks to acquire Singapore-based payments processor firm 2C2P but was turned down, Bloomberg reported in June.
Yet Grab’s financial services arm will face strong competition, from other disruptors as well as traditional banks. Facebook’s recently-announced digital currency Libra is slated to launch next year. The social media platform has a big presence in Southeast Asia, with 82% of internet users in Singapore using it, and 81% in Indonesia, according to reports by We Are Social and Hootsuite.
Libra is expected to add to the competition between e-payment platforms like GrabPay, according to Emir Hrnjic, visiting senior research fellow at the National University of Singapore Business School.
"If Libra Association keeps their promise to charge very small transaction fees, Libra coins have the potential to be widely used. In that case, it will compete for customers and take some business away from existing e-payment platforms," he said.
"Libra can expand access to capital and help people in developing countries get involved in the global economy and, thus, help financial inclusion," he said. "This may be of great importance to ASEAN countries with hundreds of millions of people without a bank account, especially in the Philippines and Indonesia."
Grab declined to comment on Libra’s impact on its business.