Grab Financial Group – the unit at Grab that develops its digital payments and financial services, is taking on a growing role in Grab’s overall business strategy. There are even plans to spin out Grab Financial as a separate company, with industry pioneers Ant Financial and Paypal as possible partners, according to TechCrunch.
With approximately 438 million unbanked individuals, Southeast Asia has a strikingly low bank penetration rate and thus holds immense opportunities for fintech service providers in lending, insurance, and digital payments. Grab isn’t the only one going after this market, but it’s one of the few whose app is already used by millions across the region.
Headed by Ankur Mehrotra, a former banker, Grab Financial recently announced a roadmap that more clearly defines the types of financial products that it is developing for Singapore and the rest of Southeast Asia.
Mehrotra first joined Grab to set up the company’s car financing business before moving to lead various fintech joint ventures and financing deals. He is now spearheading Grab’s strategy to scale up its financial services. KrASIA caught up with him to take a closer look at the ideas behind Grab Financial.
Q: What’s the overall vision for Grab and where does Grab Financial fit in?
Ankur Mehrotra (M): Grab Financial’s suite of services articulates Grab’s overall vision. There are three parts: tools, protection, and growth.
Firstly, we want to provide tools for the middle economy and micro-entrepreneurs to make more money. That’s GrabPay [Grab’s mobile wallet and mobile money], an extension to make the overall user experience more seamless and convenient when ordering food or rides. This is a way of giving the merchants and micro-entrepreneurs on our platform the instruments to boost their income.
Secondly, Grab wants to offer protection through insurance. The reason insurance hasn’t had much adoption in Southeast Asia is that there are no bite-sized solutions. We need to find ways to protect micro entrepreneurs at a cost they will buy, we need to package it in the right way for them.
Thirdly, the lending part. Grab’s SME loans provide merchants and micro-entrepreneurs access to credit when they need it, either to tide by or grow their businesses.
We are talking about 20x of the ride-hailing business in terms of market opportunity.
Q: Can you describe those “bite-sized” products offered to drivers, merchants, and passengers?
M: We are always looking at offering products to make the lives of our merchants, drivers, and passengers more convenient.
It started from car financing [which lets drivers sign up for a program that lets them acquire a car over time while driving for Grab]. We asked ourselves, how can we do more of this, with a similar level of impact? Can we make the loans smaller, can we make them instant?
With Grab Financial’s SME loan services, we are looking at the provision of financial resources for all the micro-entrepreneurs and merchants on our platform. Banks can’t lend to them due to the lack of credit data. Some of them have never taken any form of credit in their lives. There’s a gap of 300 million people who just have no credit history.
We hope to offer affordable lines of credit through the SME loan services to small business owners at the right time. We have a 0.8 to 1.5 % interest rate depending on the risk profiling. Loan sizes are 42,000-70,000 on average. Banks would not finance this segment, but for us, the cost to serve them is lower than for banks.
We do not do personal loans, but we do offer driver incentives. Loyal Grab drivers will stand to gain more perks. One example would be the granting of an advance at a fixed upfront fee to allow our drivers to meet that unforeseen but urgent expenditure. There are no interest charges for this service.
Our PayLater service for passengers is similar to what credit cards offer. However, unlike banks, we don’t have that financial proposition and have no interest charges for the PayLater service. Users can easily purchase big-ticket items via installments conveniently through the Grab app.
PayLater can double up as a budgeting tool. As a frequent Grab user myself, this service will allow me to track my expenditures – food delivery and Grab rides -on the Grab app and pay my bills on a monthly basis.
The longer-term plan is also to expand PayLater further online – allowing consumers to pay for their online shopping products via installments – before taking it offline, where shoppers get to enjoy the same service at the physical store.
For insurance, we are looking at solutions that fit like a glove. Say you purchase car insurance that only covers the hours you drive, rather than paying the premium 24 hours a day, 365 days a year. It will simply be too costly. By taking this “risk on, and risk off” approach, more people can purchase things like safety insurance, fire insurance all at the right proportion, at the right time.
Q: What’s the rollout strategy? Where are these products available and to whom?
M: Last year we mapped out the path. 2018 was a year of partnerships, building the ecosystem so that we can execute this year.
We run the same rollout strategy across all the countries that we operate in. It’s usually done in stages. We address a segment of the passengers who are most engaged, most loyal first. In May, you will start seeing more and more of this [PayLater feature].
Also, at any given point in time, Grab has multiple products that are being tested in each market. We are concurrently testing out different versions – installment plans, bullet loans (usual principal + interest repayment), and credit lines – whilst working with different partners. SME loans are already available in Singapore.
In general, it is only when we see that the product becoming hyper-localized and it makes sense for a particular market, then we will proceed with scaling.
Q: What’s Grab’s big advantage over other players?
M: Grab’s incredible reach gives us a huge advantage when it comes to data which translates into more granular insights to structure more fitting financial products. Currently, we serve 9 million merchants and drivers, with 144 million downloads. One in every four smartphone users has our app. Contrast this with the banks which usually have anywhere between three to ten million accounts.
Back to the insurance example: With deeper insights, we can allow, say a Grab driver to pay a premium for that 4-hour daily drive that he/she is on the road on weekdays. This then drives down the cost to insurance in an efficient manner and becomes more affordable for more people.
The ability to gather new data on a daily basis enables us to run daily feedback loops, which is much more frequent than the industry norm. Thus, our credit scoring model invariably becomes more robust and we are better equipped to price our loans to suit the business owner.
When it comes to limiting the extent of loan losses, we also have the upper hand. By having access to the daily business transactions of merchants, as well as the capability to automatically deduct payments through the Grab Wallet, we are well equipped to monitor and implement the right controls in an effective manner.
Our wide plethora of convenient services also serves as a deterrent for borrowers to default. We will suspend the accounts of those who persistently don’t honor their loans, which means they’ll get cut off from all of Grab’s benefits.
Editor: Nadine Freischlad