SINGAPORE -- Japan's Mitsubishi UFJ Financial Group's $706 million strategic investment in Grab will help the Singapore ride-hailing company fulfill its ambition to become a regional fintech player as it counts on the partnership to reach millions of Southeast Asia's underbanked population.
The linkup comes as reports surfaced of potential merger talks between Grab and its Indonesian rival Gojek -- a development that would create the region's biggest tech group if realized. Financial expansion, though, is key to Grab's future plans, as it sees the sector as a growth generator that will bring in more profit.
Southeast Asia's largest ride-hailing company has developed what it calls its "super app" strategy, under which it will operate multiple digital services, from transport to food delivery, with just one app. It sees finance as a natural extension of this strategy as the company can capitalize on its existing customer base.
Beyond the GrabPay mobile wallet launched in 2016, Grab had planned to expand into smartphone-based insurance, lending and wealth management services. As such, the MUFG partnership "allows us to jointly create innovative financial services such as payments and micro financing to meet the needs of underbanked customer segments in Southeast Asia," according to Reuben Lai, Grab's head of finance.
The company is also seeking banking licenses in Southeast Asia, starting from Singapore, to unlock more opportunities in the finance sector.
"With Grab's digital bank license application pending in Singapore, bringing on MUFG as a strategic investor would be very valuable as Grab seeks to navigate the challenges of potentially launching their own digital bank," said Zennon Kapron, director of Singapore-based financial research company Kapronasia.
"Although Grab may have technical expertise, banking is a complicated business especially when it comes to operations and compliance, and MUFG's decades of experience could help," he added.
For Grab, the $706 million investment -- among the biggest after SoftBank Group's $3 billion and Toyota Motor's $1 billion -- would be crucial to expanding its financial businesses.
It is understood that Grab plans to use the investment on marketing campaigns for its financial services. The money would also enable Grab to invest in cutting-edge technologies such as artificial intelligence and machine learning in the sector.
Grab has also raised another $150 million from Japanese IT solution provider TIS, which will help the company to develop digital payment infrastructure in Southeast Asia.
Already, Grab offers lending and insurance services in the region. In tandem with the finance expansion, Grab added business partners including Thailand's Kasikornbank, which invested $50 million in Grab in 2018 and became a payment partner in Thailand, as well as Japan's Credit Saison in 2018, which offers loans to Grab drivers.
Grab's expansion into the finance sector has accelerated over the last few months. Shortly after it applied for a Singapore banking license in December, it started offering smartphone-based travel insurance service in Singapore in January with an insurer Chubb. Grab also acquired Singapore-based automatic advisory startup Bento Investment to begin offering wealth management services.
Grab claims its app has been downloaded over 160 million times and that it has 9 million business partners such as ride-hailing drivers and restaurants in Southeast Asia. Its main target is the vast numbers of Southeast Asians who are considered unbanked or underbanked, Grab said.
In large part, such a move is to improve profitability. Grab's Lai told Nikkei in a December interview that the financial unit was "a major pillar of growth for Grab" and it would "continue investing in this new business."
Yet, the finance market is already full of potential rivals -- 21 applicants filed for five new digital banking licenses in Singapore. Grab is one of seven bidders for two full bank licenses that will allow companies to serve both retail and non-retail customers.
S&P Global Market Intelligence said in a Feb. 10 report that Grab and Sea, a Singapore-based e-commerce and online gaming operator, are leading the race.
"The central bank will look at candidates' ability to offer financial services to underbanked segments in the city-state and to use Singapore as a gateway to expand into other Southeast Asian countries," S&P analyst Sampath Sharma Nariyanuri wrote.
If successful, Grab could start banking services from mid-2021.
Google and Temasek Holdings last year released a report forecast that online lending penetration will rise to 8% in 2025 from 3% in 2019, while that of online investing will increase to 11% from 3% over the same period.