There Are Still Many Questions About Grab’s Fintech Business

Ever since it realized that the inherent difficulties in making a profit from ride hailing, Grab has been working to build up its digital financial services offerings. While the super app value proposition looks increasingly shaky, the Singapore-based company has nonetheless developed a wide range of fintech products across Southeast Asia.

Some of these offerings have been more successful than others – and Grab has, as a public company, had to exit businesses that are unprofitable and do not show significant potential.

Heading For The Exit

Before it listed 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 faced a steep learning curve since then, shifting from a growth-first ethos to one focused on achieving profitability. This means that sometimes less is more.

With that in mind, Grab shut down its retail investment offerings in Singapore in September 2023 – a remarkable reversal given how the company had hyped its potential as a wealth management provider when it launched its first such product 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 to differentiate AutoInvest from other digital products that put customers’ money into money market and short-term fixed income mutual funds. Key selling points, such as the fact that investments could be as little as S$1, or that returns were up to 1.18% per annum, failed to resonate with customers. Ditto for Earn+, which was promoted as a “low-risk” way for users to invest into institutional funds and earn returns of 2 to 2.5% per annum on their idle cash.

Second, we ask this: What does wealth management have to do with ride hailing and food delivery? It’s a big jump from those two services to investing customers’ money, especially given how many other choices they have in Singapore – from established financial services providers.

Lastly, Singapore is a small market at just 5.6 million people. While the city-state has more millionaires than London, and is a wealth management hub in Asia, it caters to high-net worth individuals, not those who want to make micro-investments. The latter business makes more sense for a huge emerging market like Indonesia than Singapore.

Digital Banking Play

Having exited retail investing and facing the inherent limits in payments, Grab is betting on digital banking to drive the future growth of its fintech business. It has digital banking businesses in Singapore and Malaysia while it is a key investor in Indonesia’s Superbank. Singtel is Grab’s partner in each of those ventures.

According to Grab, customer deposits in its digital banking business (including both Singapore and Malaysia) reached S$479 million at the end of the first quarter 2024, up from $374 million in the fourth quarter of 2023 and $36 million a year earlier. Driving the growth was a relaxation of a deposit cap in Singapore – which happened in July 2023 – as well as strong interest from customers in the Grab ecosystem in Malaysia. The number of customers at the Malaysian online lender GXBank 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 Superbank, which launched last week on the Grab app. Though Indonesia already has plenty of digital banks, it is also a large market where tens of millions of people still have limited access to formal financial services. Given that Superbank is also backed by South Korea’s Kakao and the Indonesian conglomerate Emtek, it has a strong chance of becoming a significant digital banking player – which could pay off for Grab.

Still In The Red

Despite the significant progress Grab has made in the fintech sector, it continues to face challenges making its digital financial services offerings profitable. Case in point: though Grab’s digibank in Singapore, GXS Bank, reported a sixfold increase in net interest income in the financial year ended December 31, 2023, its losses still rose to S$208.2 million in 2023 from S$131.1 million the previous year. Further, non-interest income fell to S$1.18 million from S$2.6 million in 2022.

Grab attributed the losses to increased operating costs, which is understandable as it has been adding staff as it tries to grow the business. That said, we wonder just how strong the inherent attractiveness of the Singaporean digibank is. Its core value proposition rests on its connection to Grab’s ecosystem – something which has less brand power and stickiness than proven super apps like Alipay, WeChat Pay and Kakao.

The tepid performance of Grab’s share price since its IPO in December 2021 is a sign that investors have yet to be convinced of the viability of its business model. Grab’s stock is currently trading at $3.51, which is about 72% less than its market debut – though it has risen almost 10% over the past year.

Looking ahead, Grab will have to prove to investors that it can effectively differentiate itself in ultra-competitive Southeast Asian markets. An ongoing issue to watch is the commoditization of fintech services that Grab offers. While this is less of an issue in Indonesia where low-hanging fruit is still ample, both Singapore and Malaysia are well banked. To gain market share in both of those countries, Grab will need to invest in greater innovation that allows it to stand out from the competition.