Fintech
There are still many questions about Grab’s fintech business
Singapore, Singapore – October 14, 2023: Logo outside of ride-hailing and food delivery app Grab’s… [+] located in One-North.
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Since realizing the inherent difficulties in profiting from ride hailing, Grab has been working to develop its digital financial services offering. While the value proposition of super apps appears increasingly shaky, the Singapore-based company has nevertheless developed a wide range of fintech products across Southeast Asia.
Some of these offerings have been more successful than others, and Grab, as a public company, has had to abandon businesses that are unprofitable and do not show significant potential.
Heading towards the exit
Before listing on the Nasdaq in December 2021, Grab was accustomed to breakneck expansion fueled by seemingly endless flows of venture capital funding. Yet the company has since faced a steep learning curve, moving from an ethos focused on growth to one focused on achieving profitability. This means that sometimes less is more.
With this in mind, Grab closed its retail investment offerings in Singapore in September 2023 – a notable turnaround given that the company had touted its potential as a wealth management provider when it launched its first product of this like in 2020. The business was known as GrabInvest and included the two wealth management products AutoInvest and Earn+.
Grab pulled the plug on this business for several reasons. First, robo-advisory services have become increasingly commoditized given the plethora of competition. There was little that differentiated AutoInvest from other digital products that put customers’ money into money markets and short-term fixed income mutual funds. Key selling pointssuch as the fact that investments could be as low as S$1, or that returns were as low as 1.18% per annum, did not resonate with customers. The same goes for Earn+, which has been promoted as a “low-risk” way for users to invest in institutional funds and earn returns of 2 to 2.5 percent annually on their idle money.
Secondly, we ask: what does wealth management have to do with ride hailing and food delivery? It’s a big leap from these two services to investing customers’ money, especially when you consider the wide range of choices available in Singapore, including established financial services providers.
Finally, Singapore is only a small market 5.6 million peopleWhile the city-state has London’s most millionairesand is a wealth management hub in Asia, it caters to high net worth individuals, not those who want to make micro-investments. The latter activity makes more sense for a huge emerging market like Indonesia than for Singapore.
Play with digital banking
After abandoning retail investments and facing limitations inherent to payments, Grab is betting on digital banking to drive future growth of its fintech business. He has digital banking businesses in Singapore and Malaysia and is a key investor in the Indonesian Superbank. Singtel is Grab’s partner in each of these initiatives.
Second Prey, customer deposits in its digital banking business (including both Singapore and Malaysia) reached $479 million at the end of Q1 2024, compared to $374 million in Q4 2023 and $36 million for the year previous. Driving the growth was a easing of maximum deposit limit in Singapore – which occurred in July 2023 – as well as strong customer interest in the Grab ecosystem in Malaysia. Malaysian online lender GXBank’s customer base doubled from 131,000 at the end of 2023 to 262,000 by March 2024.
Meanwhile, in Indonesia Grab and Singtel together have a 32.5% share of the Superbanklaunched last week on the Grab app. While Indonesia already has several digital banks, it is also a large market where tens of millions of people still have limited access to formal financial services. Since Superbank is also backed by South Korea’s Kakao and Indonesian conglomerate Emtek, it has a strong chance of becoming a major player in the digital banking sector, which could pay dividends for Grab.
Still in red
Despite Grab’s notable progress in the fintech sector, it continues to face challenges in making its digital financial services offerings profitable. A concrete example: Although Grab’s digibank in Singapore, GXS Bank, reported a six-fold increase in net interest income in the financial year ended December 31, 2023, his losses it still rose to S$208.2 million in 2023 from S$131.1 million the previous year. Additionally, non-interest income fell to $1.18 million from $2.6 million in 2022.
Grab attributed the losses to rising operating costs, which is understandable given that it has been adding staff in a bid to grow the business. That said, we wonder how strong the inherent appeal of Singapore’s digital bank is. Its core value proposition is based on connecting with Grab’s ecosystem, something that has less brand power and stickiness than proven super apps like Alipay, WeChat Pay and Kakao.
Grab’s tepid share price performance since its IPO in December 2021 is a sign that investors have yet to be convinced of the viability of its business model. Grab shares are currently trading at $3.51, which is about 72% lower than when they debuted on the market, although they have risen almost 10% during the last year.
Looking ahead, Grab will need to demonstrate to investors that it can effectively differentiate itself in Southeast Asia’s ultra-competitive markets. An ongoing issue to keep an eye on is the commoditization of fintech services offered by Grab. While this isn’t a problem in Indonesia, where the low-hanging fruit is still plentiful, both Singapore and Malaysia have good banks. To gain market share in both countries, Grab will need to invest in greater innovation that allows it to stand out from the competition.