Chocolate Finance halts instant withdrawals following a run, but customer money not at risk: CEO

[SINGAPORE] Financial services firm Chocolate Finance sought to reassure investors about its liquidity position as investors raised the alarm when it temporarily suspended instant withdrawals due to “high demand”.

A notice on its mobile app on Monday (Mar 10) that the platform was experiencing an unusually high volume of withdrawal requests quickly went viral among the online community.

Chocolate Finance launched to much fanfare last July, offering a return of up to 4.2 per cent for the first S$20,000, just as rates on the popular Treasury bills (T-bills) were dropping. The platform’s latest rate is now 3.3 per cent, which is still higher than the T-bills rate.

The Singapore-based company boasts close to S$1 billion in assets under management as at February.

The firm has made clear that the amounts are not guaranteed by the Singapore Deposit Insurance Corporation – which protects funds in banks up to S$100,000 per depositor. Investors were undeniably concerned about the delay in withdrawing their funds.

Monies deposited into a Chocolate Finance account are used to buy a number of fixed-income funds, allowing customers to see returns based on the funds’ performance.

Before the suspension, customers could request for instant withdrawals of up to S$20,000 a day. The notice said that withdrawals made during this period would take three to 10 days to reach users’ accounts.

Maintaining a buffer

In a press statement on Monday, Chocolate Finance explained that liquidity issues were not the reason behind the pause in instant withdrawals. Instead it is a “matter of managing increased transaction volumes”.

It pointed out that, typically, fund managers do not offer instant withdrawals, and customers only get their redemptions after a few days.

Chocolate Finance “fronts” the cash before receiving settlements, said founder and chief executive Walter de Oude in a LinkedIn post on Monday.

A spike in withdrawals would deplete its liquidity buffer, which is why a temporary pause is required, he said.

“At no point is customer money at risk,” he added.

Online personality Seth Wee, who blogs about finance matters, posted a video on Sunday in which he cited the platform’s withdrawal from AXS as a reason for him to take out his money from Chocolate Finance.

Chocolate Finance’s withdrawal from AXS means that customers can no longer pay their bills using the platform’s debit card.

A partnership with rewards platform HeyMax offered a two-mile-per-dollar reward for all spending categories, including bill payments. It was a success for customer acquisition, but was unsustainable for Chocolate Finance, said de Oude. A surge in bill payments led the platform to withdraw from AXS, sparking unhappiness among Chocolate Finance users.

He admitted that the change was communicated poorly and that Chocolate Finance’s frequently asked questions section had mistakenly implied at first that AXS had initiated the change.

“I’ve also learnt that offering a freebie that you know to be unsustainable is not a great way to build long-term trust and relationships,” added de Oude.

Zennon Kapron, an industry observer, said that Chocolate Finance would likely have risk models based on the assumption of a certain percentage of customers making instant withdrawals.

“(Chocolate Finance) likely just hit a point where more people were redeeming than (it) thought,” he noted.

It will likely have custodian accounts for its customers and segregated customer funds from company funds, added Kapron.

De Oude also started Singlife in 2014. He exited the insurance provider after Japanese insurance provider Sumitomo Life acquired Singlife in December 2023, with a transaction that valued Singlife at S$4.6 billion.

The company said it specialises in providing investment opportunities that cater to Singaporeans’ appetite for better returns.

It is licensed as a fund management service provider by the Monetary Authority of Singapore (MAS).

In a response to queries from The Business Times, MAS said that Chocolate Finance is required to segregate customers’ monies from its own and place it under independent custody.

They added that besides a “risk management framework”, Chocolate Finance has to provide transparent disclosures on the terms of its services, including circumstances when withdrawals may not be instantly available.

The authority has separately queried Chocolate Finance about the representations of its instant withdrawals “programmes”.