Grab, Singtel aim to be mainstream digital bank without the cash burn

THE new digital full bank in Singapore proposed by Grab Holdings and Singtel will shy from cash burn, while driving down the cost to target those deemed "underbanked" in this matured market, senior executives from Grab and Singtel said on Monday. 

Grab and Singtel on Monday said they will apply jointly for a digital full bank licence via a consortium, with Grab holding a 60 per cent stake in the entity, and the telco giant holding the remaining 40 per cent.

This proposed digital full bank from two of the biggest new names to step into the banking arena here is meant to be "sustainable", in line with the Singapore regulator's objective of preventing any bank failure with its latest liberalisation move - even if the bank wears a new digital skin.

Speaking to The Business Times in an interview, Arthur Lang, CEO of Singtel's International Group, said the high capital requirements, among other prescribed regulations, suggest that in Singapore, financial stability is "paramount". 

"We cannot approach this as an entity where we're just going to burn cash and be loss making for years," he said.

"They (the regulators) want to make sure that the digital bank here is successful, and will become or has the potential of becoming a mainstream player. And that's the objective or the mindset that both of us are taking right now - we're here to make sure it's sustainable. It's not guns blazing... to grab market share."

Mr Lang added that Singapore remains a very well-banked market. "We're not going to kid ourselves that it's not," he said. "However, there are quite sizeable pockets of the customer base where we think we can make a difference."

He referred to a recent report issued by Bain & Company, Google, and Temasek, showing that four in ten of adults living in Singapore were deemed unbanked or underbanked, despite Singapore being a matured financial market. Thirty-eight per cent of those polled said they were not well-served in financial services, as they fret over being underinsured, or having no long-term savings.

This comes then as Grab told BT in November that it is moving to tap the trillion-dollar wealth market across South-east Asia by offering low-cost investment products. Grab will, from the first half of next year, offer a handful of cash products - that is, money-market funds - here, with more complex products to follow.

It has also rolled out microinsurance products, with 70 per cent of its drivers in Malaysia already signing on to a usage-based insurance sold by Grab's partner Zhong An Insurance that offers per-day coverage for a daily payment.

Reuben Lai, senior managing director, Grab Financial Group, told BT that Grab is "very cognisant" that while consumers are comfortable with Grab as a ride-hailing firm, "putting money with us is a whole different matter".

"Having a brand name like Singtel (to have) that sense of trustworthiness was very important for us as well," he told BT on Monday. 

Grab would not confirm if its entire Singapore business is profitable. Mr Lai said that Grab is Ebitda (earnings before interest, tax, depreciation and amortisation) positive in "matured markets" and for certain "verticals".

Mr Lang, who also comes with years of experience in the investment banking sector, pointed to the demand for fractionalising of investment products, akin to how real estate investment trusts, or Reits, have been constructed such that investors can today own a piece of a building, or shopping mall. "Now we're taking it one level further."

Both executives would not be drawn into their regional ambitions for digital banking, saying it was "too early". 

Singtel is Singapore's largest telco, and has a customer base of more than 700 million across the region, including in the Philippines, Thailand, and Indonesia. Grab has a user base of 166 million across the region, and operates the dominant wallet in Singapore, Malaysia and Vietnam, Grab told BT in November.

Grab had also told BT in November it would boost its SME financing from 2020, piloting this with "hundreds" of SMEs in the Philippines and Thailand, a large number of which are expected to be distributors of Fortune 500 retailers that have operations all across South-east Asia. 

Grab has already rolled out loans to several SMEs in Singapore alone via its joint venture with Japanese financial services group Credit Saison. The fintech had declined to disclose the size of its SME loanbook in Singapore, or a target size for its SME financing business. In Singapore, half of its borrowers have been operating for five years or less, and about half were granted loans of no more than S$30,000. Six in 10 have an annual revenue of under S$1 million. 

The Monetary Authority of Singapore is issuing in 2020 up to five digital banking licences - two full-bank licences that permit retail banking, and three for wholesale banking.

Meanwhile, a prominent consortium comprising OCBC, Validus Capital, Keppel Corporation and Vertex Ventures has decided against applying for a digital wholesale banking licence, BT understands. 

The late breakdown in talks, BT understands, comes as Keppel is undergoing a strategic review of its core operations, with Temasek Holdings due to take control of the conglomerate via a partial offer. 

BT had earlier reported in November that OSIM founder Ron Sim's V3 Group is said to have plans to apply for a digital full-bank licence through a consortium with stored-value card operator EZ-Link, property group Far East Organization and Temasek-owned Heliconia Capital.

Standard Chartered had likewise told BT it was exploring a digital bank licence.

Razer told BT in mid-December that it has been in talks with "prospective partners" to apply for a full-bank licence, but said that the application timeframe was "tight".

Digital banking applications in Singapore close on Tuesday.