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Why are Grab, AirAsia, and other big names moving aggressively into FinTech?

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Why are Grab, AirAsia, and other big names moving aggressively into FinTech?

06 Apr 2018

Just last week, Grab announced its next move: a financial services venture. AirAsia similarly announced a new digital payments platform, BigPay. Add that to Go-Pay, WeChat Pay, Sea Group’s AirPay, and we have a host of digital payment platforms from companies that didn’t originally start out in fintech.

We asked two experts why this is the case.*

Lawrence Cheok, senior research manager at IDC

In the short term, it’s about customer acquisition and changing consumer behavior. Once early adopters are well penetrated, market expansion involves enticing early/late majority segments, which in SEA includes the unbanked segments.

One way to do this is to enable consumers to convert cash into digital forms. This typically involves leveraging physical points of sales to top up wallet credits/balances. Examples such as Go-Jek Pay and AirPay point to this trend. It is only when late followers are able to make digital payments can tech companies sell to them.

A single payment platform unified with complementary services would facilitate cross-selling. Billing, ticketing, gaming, and O2O services increase the “stickiness” of digital platforms among consumers. For businesses, it can reduce acquisition cost and improve loyalty. In segments where products/services are highly commoditized (e.g. ride-sharing), the service synergy plays an important role in driving loyalty and possibly offset aggressive promotions.

To this end, digital platforms have rolled out loyalty-like programs such as credit points, which consumers can use across a range of services accessible from one single platform. One example is GrabPay’s credits which can be used for taxi rides or at partnering businesses.

In the mid to long term, these digital platforms can leverage data across its ecosystem to drive innovation. As we’ve seen with AliPay and Ant Financial, financial products such as Sesame Credit arise from consumer data which Alibaba’s ecommerce platforms generate. The Grab Financial launch seems in line with this strategy. If you look at China in its developing years and SEA today, there are similarities in the opportunities these unbanked segments present and how companies are addressing it.

Jianggan Li, founder of Momentum Works

Many big tech companies are moving aggressively into fintech, and it makes sense. Lending (not payment) is ultimately what makes big money.

These companies have multiple advantages to make it work: They have much more data than banks and wider access to consumers through multiple (and frequent) touch points. This means these tech companies potentially have a much better understanding of consumers to provide financing solutions. Also, because of their agile nature, they do not need a year to roll out a new IT program (as banks often do).

All these factors make them formidable competitors to banks and other established financial institutions. This is particularly relevant in developing countries, with their low bank penetration rates and less developed regulations.

It’s good to look at the success of Ant Financial for this. They’ve gone from a pure payment/escrow service, seller financing, to what is now a myriad offerings covering virtual credit cards (Huabei), unsecured short-term loans (Jiebei), deposit (Yu’ebao), and insurance (through Zhong’an). Their Zhima (Sesame) credit system provides the backbone of credit control. This is a very attractive vision for many tech companies that have built a large, frequent user base.

Of course, just as taxi companies protested against the uneven playing field between them and Uber and Grab, banks and established financial institutions will actively lobby against these tech companies. Regulators in certain countries might require them to abide by the same rules on underwriting, risk control, and leverage ratio. This would diminish their potential but still keep them more competitive than banks.

Credit: Jaclyn Teng note: Answers have been edited for clarity.