Just when it seemed Capital A had put aside its digital banking ambitions, the ever-ambitious airline/platform company announced its partnership with the Philippines’ ascendant online lender UnionDigital Bank. The tie-up between Capital A and UnionDigital Bank comes amid a growing travel recovery in Southeast Asia and strong demand for digital financial services in the Philippines.

During the pandemic, AirAsia X moved into fintech strategically at a time when its core business was facing an existential challenge. The pivot was best encapsulated by the creation of the Capital A holding company under which the AirAsia brand is now included. CEO Tony Fernandes bet that in the short run, focusing on booming digital services would keep the company afloat – and tell investors a reasonably good story – when it could not normally operate its airline business.

Capital A’s boldest gambit was applying for a digital banking license in Malaysia via its BigPay e-wallet. If that had been successful, the company would have had a formal digital banking arm that probably could have expanded beyond its Malaysia home base. Alas, it was not meant to be. Malaysian regulators were probably concerned about AirAsia’s then distressed financial state and they may still be: Bursa Malaysia Securities still classifies the airline as a financially distressed company. That may change, however, following a solid second quarter in which Air Asia X posted its fourth consecutive quarterly profit and a fourfold increase in revenue compared to a year earlier.

As it turns out, the unsuccessful digital banking license bid in Malaysia may not set back Capital A’s digibanking ambitions because the Philippines is a much larger market, brimming with low-hanging fruit. Malaysia has less than 3 million unbanked people, while the Philippine has more than 31 million. Further, the Philippines has a vast underbanked demographic that could be amenable to innovative digital banking products.

And that’s what BigPay and UnionDigital Bank intend to provide. According to a Capital A press release, UnionDigital Bank’s role will be to provide embedded finance in partnership with BigPay within the AirAsia super app travel platform, the main booking channel for AirAsia flights in the Philippines. In a nutshell, the two companies aim to bundle travel booking and digital financial services to create a seamless travel booking experience. They will look to create digital financial products tailored for travel.

One of the first products will be “fly now, pay later,” assumedly offering the ability to use installment payments for airline tickets and perhaps other aspects of travel. Because UnionDigital Bank is a licensed subsidiary of UnionBank of the Philippines, we do not expect any regulatory issues to arise. Capital A and UnionDigital Bank are not the first companies to offer fly now, pay later – Klarna, Afterpay, Affirm and Uplift all offer the buy now, pay later option with certain travel partners – but they are among the first to bundle travel and digital banking in this manner in emerging Southeast Asia.

Chances are that this strategy will help Capital A and UnionDigital Bank cultivate a niche in the Philippines’ large and fast-growing digital banking market. However, it remains to be seen how they manage interest rates and terms of the loan. In developed economies, the APR on this type of loan range from 7% to 30%, though some companies do offer 0%. In addition, in most cases, if travel is delayed or cancelled, the payment is still due.

There is also a perception that fly now, pay later may cater to a demographic that cannot really afford to travel for leisure, so that's something for Capital A and UnionDigital Bank to consider.