Grab-Singtel will hunt for more digital bank licences in Asia, say analysts
WITH one digital bank licence already in the bag, the Grab-Singtel venture is expected to be in contention for more such licences across Asia under its regional expansion play, analysts say.
Singapore's largest telco, through its joint venture with Grab, on Thursday announced it has applied for a digital bank licence in Malaysia with a consortium of other investors.
Citing guidance provided by Bank Negara Malaysia (BNM), Z74 said the country's central bank will issue up to five digital bank licences by Q1 2022.
This comes about six months after the Grab-Singtel consortium and consumer Internet company Sea bagged two of Singapore's digital full-bank licences up for grabs, and are expected to emerge onto the Republic's banking scene from early 2022.
DBS analyst Lim Rui Wen told The Business Times (BT) that Malaysia may be a potentially bigger market for the Grab-Singtel consortium, given a higher percentage of unbanked consumers there.
Estimates from BNM showed that about 8 per cent of the population is currently underbanked, compared to less than 0.5 per cent in Singapore.
Given Grab's existing consumer ecosystem in Malaysia, the firm will likely roll out its agenda via its app, with or without Singtel, added CGS-CIMB analyst Andrea Choong.
She further said the consortium's successful bid in Singapore should give it added credibility as a worthy candidate.
On a broader scale, Ms Lim reckoned there are also plans for Grab to apply for more licences in the region, with Indonesia expected to finalise its digital bank regulations this month.
According to Fitch Ratings, there are around 290 million unbanked and underserved people in South-east Asia. "We believe this represents a large untapped market that Grab-Singtel has identified and will want to serve," said Terence Chua, senior research analyst at Phillip Securities.
While much of South-east Asia remains relatively unbanked, not every market may be fertile ground for a new digital entity.
"The banking opportunity in Malaysia isn't the most outstanding compared to, say, in Indonesia, firstly became the country's growth is maturing, secondly because overall debt penetration is already very high," said Bernstein analyst Kevin Kwek.
Household debt in Indonesia accounts for less than 20 per cent of the country's gross domestic product, compared to over 90 per cent in Malaysia.
Mr Kwek told BT that high growth in Malaysia will likely come from market share gains. "It is one thing for a digital bank to tap the untapped, it is a harder thing to gain share by being distinctive, not just against incumbents but fellow digital banks."
Still, he noted that digital banks can have a proposition to be worth a shot. In highly-penetrated South Korea, for instance, Kakao Bank was able to carve a niche and differentiate meaningfully to gain early success.
Grab-Singtel is not the only Singapore-based venture looking to tap the Malaysian market. Earlier on Wednesday, AI said it is leading a consortium to apply for a digital bank licence in Malaysia.
Car marketplace startup Carro is also "exploring being part of a consortium" in Malaysia, its chief executive and founder Aaron Tan told BT.
"We are mostly interested in digital financing and digital insurance. It is not our business to compete with banks, but we certainly believe we can provide customers across South-east Asia with a differentiated experience if we actually own part of a bank," he said.
CGS-CIMB's Ms Choong said competition will be stiff in Malaysia, with over 40 applicants reportedly vying for up to five licences.
On Thursday evening, Malaysian budget airline AirAsia Group said its fintech unit has also thrown its hat in the ring for a licence.
Other potential contenders such as Razer, V3 Group, Advance.AI, Revolut, Nium, Funding Societies and Validus declined comment when queried by BT.
Meanwhile, EZ-Link CEO Nicholas Lee confirmed that the firm is not pursuing the licence at this point in time.
Ms Choong said iFast is "well-positioned" to contend for the licence in Malaysia given its financial standing, technical expertise and domestic presence.
DBS analyst Ling Lee Keng agreed, adding that the group is one of the few profitable fintech plays in the region with a good track record.
If the application is successful, iFast Corp will own a 40 per cent stake in the digital bank. The beneficial equity ownership of the consortium will be approximately 57 per cent Malaysian.
iFast Corp's Malaysian partners in the consortium are credit-co-operative Koperasi Angkatan Tentera Malaysia Berhad, private investment holding company THZ Alliance and the founder and major shareholder of grocery chain 99 Speed Mart, Lee Thiam Wah.
Yillion Fintech, which provides the core digital banking technology and capabilities for Yillion Bank, is the international partner in the consortium. Yillion Bank is one of four digital banks in China.
iFast intends to focus on local opportunities in the unserved and underserved market segments, such as the bottom 40 per cent of the population in the country, which it feels has been left behind in the country's progress.
It also aims to offer this segment solutions with "immediate benefits and results", such as free life insurance, interest-free loans for daily necessities, and micro investments and insurance.
Jefferies analyst Krishna Guha pointed out that iFast has helped in digitising pension fund services and mutual fund distribution in Malaysia. It counts local credit cooperatives and grocery retailers as partners who can help with credit-risk management, a ready pool of customers and supply-chain financing.
"As such, we think chances are even, but to be sure, it is a keenly contested one," said Mr Guha.
Still, Phillip's Mr Chua believes it is still too early to tell at this stage.
iFast had failed to secure a digital wholesale bank (DWB) licence in Singapore from the Monetary Authority of Singapore (MAS) last December. In the Singapore bid, iFast had teamed up as well with Yillion Group, and another Chinese partner, Hande Group.
Key factors for consideration for the licence by BNM include serving the best interests of Malaysia by driving financial inclusion, particularly in unserved and underserved segments, including retail and micro, and small and medium-sized enterprises.
Similar to the process in Singapore, successful contenders will operate in a foundational phase (for a minimum of three years, up to a maximum of five years), and will be subject to an asset limit of RM3 billion (S$970 million).
During the foundational phase, the minimum capital fund amount is set at RM100 million and will be subsequently raised to RM300 million at the end of this phase.
CGS-CIMB's Ms Choong noted that capital fund requirements for digital banks in Malaysia are lower than the RM2 billion requirement for domestic banking groups. A minimum total capital ratio of 8 per cent will be required for the digital entities, which is consistent with the requirement for other domestic financial institutions.
Last December, MAS in Singapore awarded full digital banking licences to Sea and the Grab-Singtel consortium, as well as digital wholesale bank licences to China's Ant Group and a consortium led by Greenland Financial.
MAS has said that it will review whether to grant more of DWB licences in the future.
Singtel closed at S$2.28, down S$0.01 or 0.4 per cent on Thursday, after a day of heavy trading.
Shares of iFast closed up 1.6 per cent or S$0.13 to S$8.28, after clocking an intraday high of S$8.35.
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