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Grab Financial Could Disrupt Banking Sector

via THE EDGE MARKETS: BANKS might soon be the next taxis. Grab’s new fintech platform Grab Financial – which it launched on Tuesday – will impact and may one day disrupt the banking sector much like its ridehailing services have disrupted the taxi sector, industry players told The Business Times.

Through Grab Financial, Grab will offer loans and insurance to “millions” of consumers in South-east Asia. This new platform was unveiled by Grab chief Anthony Tan at the Money 20/20 event, and will encompass all of Grab’s fintech offerings: payment services, financial services, agent services, as well as rewards and loyalty services.

Arvind Sankaran, venture partner at venture capital firm Jungle Ventures, said: “Grab’s financial services push is targeted at the unbanked, a micro-segment which today is outside the scope of traditional players. So I don’t think it has immediate implications.

“However, it is not unreasonable to think that over time, Grab will move their focus upwards, at which point banks serving the broadest end of the mass market will begin to see some impact. What this does, however, is to intensify the arms race for hiring critical talent such as data scientists and engineers. In this regard, some banks may see some immediate impact.”

To provide loans to consumers, micro-entrepreneurs and small businesses across South-east Asia, Grab has embarked on a joint venture (JV) agreement with Credit Saison Co, one of Japan’s largest consumer financing companies. The JV, known as Grab Financial Services Asia (GFSA), will tap Grab’s datasets to provide reliable alternatives to traditional credit ratings.

Grab said: “By analysing behaviour from the app, such as transport movements, geo-location, and GrabPay transaction data, the company can offer alternative data points to assess credit worthiness, filling the gap left by traditional credit scoring methods.”

In its early stages, the JV will focus on providing its own lending products to “meet the needs” of Grab drivers, agents and merchants, such as working capital loans, financing for smartphones and consumer goods financing.

In the near future, the JV will offer credit scoring services to financial institutions which can use the information to provide other products such as virtual credit cards. Plans are also afoot for the JV to partner banks and financial institutions in South-east Asia and globally to provide other financial products and services.

Jason Thompson, managing director of Grab Financial, said: “The new JV, GFSA, puts in place a much-needed infrastructure that will accelerate financial inclusion in South-east Asia.

“Many in our region have no access to loans that they can use to purchase a new home or grow their small business. GFSA is building a reliable alternative to traditional credit scoring methods that is customised for the unbanked majority of consumers and small businesses in South-east Asia, which will create economic opportunity for millions across the region.”

Hugh Mason, chief of corporate accelerator JFDI.Asia, told BT: “The interesting thing here is that ride-hailing companies can now give banks and financial institutions the sort of granular data that previously was only available to organisations such as telcos.

“In the future, we will have to accept that we are going to be watched not just by governments but by private organisations, and whether we like it or not, that information will be shared with other organisations.”

When asked if GFSA will complement or compete with banks, Mr Mason said: “Ultimately, he who owns the data holds the power. My own view is that banks risk dying by a thousand cuts as cheeky fintech startups chip away at the edge of their offerings and steal the less regulated, easiest to copy businesses. So maybe ‘frenemies’ is the right word.”

Koh Ching Ching, group corporate communications head at OCBC Bank, told BT that competition is a constant in the banking industry. “It gives consumers more choice and spurs innovation. We will continue to focus on delivering value with innovative financial products and services that meet the needs of our digitally savvy customers.”

To date, Grab has facilitated the deployment of some U$$737 million worth of capital (including smartphone and consumer goods financing) across its drivers and agents in South-east Asia, at a default rate of under 1.5 per cent, the company revealed on Tuesday.

Separately, Grab has also signed a partnership with property and casualty insurance company, Chubb, to offer insurance plans to Grab’s drivers and customers. Initial offerings include accident, hospitalisation and other critical insurance coverage to Grab’s 2.6 million drivers, accessible through the Grab driver app.

Jungle Ventures’ Mr Sankaran said: “All of this makes absolute sense for Grab. It has a strong base proposition, a regional franchise, big and relevant data such as driver and rider income, cash-outs, user ratings and telemetry, to build robust alternative credit scores that can help scale lending sensibly to the middle economy.

“A JV partnership route with Credit Saison means that Grab does not need to build underwriting expertise. In addition, providing insurance solutions through the Chubb partnership begins to round out a true personal financial proposition for their customers, and delivers a fee revenue stream, further diversifying their base.”

Shailesh Naik, chief of Singapore-based, Credit Saison-backed payments startup MatchMove, added that the market for lending in South-east Asia “needs to expand” and that the JV will go a long way in accelerating financial inclusion in the region. “Grab is a good brand and has a vast base of drivers. Credit Saison has decades of experience in building lending models.”

Mr Naik however cautioned that as Grab grows “this side of the business regionally”, the regulations and frameworks in each market could pose a challenge. “Also, their current addressable market are only their drivers and agents. Their challenge will be to scale this up.”

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