What are Grab's virtual-banking prospects in Singapore?

Written by || June 27 2019

With an eye on going public, Singapore's ride-hailing giant Grab needs to show profitability, or failing that, strong potential to be in the black soon. Serving as a high tech taxi or food delivery service no longer looks like it will be enough for investors. Instead, Grab wants to be a go-to digital bank. If Singapore regulators grant Grab a virtual-banking license, the company will be poised to test out its fintech hypothesis in its home market.

Grab and its arch-rival Go-Jek have been on the defensive ever since Uber and Lyft's disappointing IPOs. Of course, the U.S. firms didn't have fintech arms. Maybe if they had, they would be profitable today, say the Southeast Asian ride-hailing giants. With a US$14 billion valuation, Grab is the region's most valuable startup. Pressure is mounting on the company to prove it merits that sky-high valuation.

In mid-June, Reuters reported that Grab may hire a consultancy to evaluate its banking prospects as the firm prepares to apply for a virtual-banking license in Singapore - provided that the Monetary Authority of Singapore (MAS) goes ahead with tentative plans to welcome digital-only banks.

We expect that the MAS will greenlight virtual banks. If it does not, Singapore will risk falling behind Hong Kong symbolically in the race to be Asia's fintech hub, and appearances matter. Besides, it's simple enough for a regulator to issue virtual-banking licenses, but not too many at once, and not in a way that fatally "disrupts" the business of incumbents.

The more important question here is what does Grab bring to the digital banking table besides food delivery? The answer is not surprising: customer data and technology. Ostensibly, it's a reasonable proposition. Grab has lots of information on its customers' transport movements and culinary predilections. Might that not be useful for banking purposes?

Perhaps, and perhaps not. In our age of "big data" hype, anything with the d-word attached to it is gilded. The problem for ride-hailing companies like Grab is that there's no straight line between where people hail rides or what they order for lunch and their banking needs, especially in Singapore, where the wealthy sometimes eat the simplest of street foods.

The Asian tech firms who have made user data pay the most started out in e-commerce selling their customers everyday goods, like Alibaba. Over time Alibaba was able to figure out a lot about its customers from their purchases of clothing, cosmetics, consumer electronics and the like on its Taobao and Tmall sites. It could similarly learn much about the sellers of goods on its platforms by observing what they sold in their stores. It hasn't been a stretch for Alibaba to build a digital banking ecosystem in large part because of its existing e-commerce business and its understanding of the supply and demand sides' financial needs.

At the same time, the MAS won't give Grab - any fintech for that matter - a carte blanche to dominate digital banking the way China's regulators did for Alibaba and Tencent. If anything, the MAS would probably like to see Grab partner with Singapore's banking incumbents. The ride-hailing firm already is working with UOB in a strategic regional alliance.

Provided the MAS decides to welcome internet banks, we expect Grab will be a top candidate for getting one of the first licenses, but probably not on its own. It would be more likely that Grab would apply for a license as part of a consortium that includes some notable incumbents, whether UOB or otherwise. The banking expertise would benefit Grab while the fintech/traditional bank tie-up would satisfy Singapore's regulators. Any traditional banks participating would have a new digital channel for their business.