Financial services are Grab’s final hurdle in its push to profitability

GRAB’S recent cost-cutting measures appear to have paid off.

After slashing incentives and staff costs, the delivery and mobility platform posted its first positive adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) in the third quarter ended September.

Its adjusted Ebitda hit US$29 million in Q3, beating analysts’ consensus of US$9.5 million.

But investors would do well to hold back on celebrating for now – while Grab’s food delivery and mobility segments are already adjusted Ebitda positive, its financial services segment remains in the red.

This is the final hurdle in Grab’s push towards profitability, but there are some positive signs.

Its financial services segment gained ground in the latest quarter, posting a loss of US$68 million, down from a loss of US$105 million in the corresponding period a year prior.

Revenue for this segment surged 156 per cent to US$50 million in Q3 2023, from US$20 million in Q3 2022. This figure seems likely to grow as Grab does more with its digital banks in Singapore, Malaysia and Indonesia, as well as its separate financial services arm, GrabFin.

Payment volumes also inched up in Q3 2023, albeit by just 1 per cent, to US$3.9 billion from US$3.8 billion the year before.

A key difference, however, is that a bigger proportion of these payment volumes are on Grab’s platforms, rather than at physical stores that utilise Grabpay. Some US$2.6 billion of payments were transacted on Grab’s platforms in Q3 2023, up from US$2.3 billion in the corresponding quarter last year.

The higher volume of payments on Grab’s platforms translates into higher transaction margins, which contribute to Grab’s push for profitability.

If this trend continues, the improving margin mix for payments can be expected to improve the profitability of the financial services segment.

Grab has also been charting growth in loans, which contributes another revenue stream for the segment.

Loan disbursements hit about US$1 billion as at Sep 30. The loan book stood at US$275 million in Q3 2023, with non-performing loans remaining in the “low single digits”, noted Grab’s chief operating officer Alex Hungate.

Other factors could also push Grab’s financial services segment towards profitability. For example, its digital bank in Singapore, GXS Bank, has pulled in US$362 million in deposits.

With the coffers now full of deposits, GXS can disburse more of its loan product, FlexiLoan.

With the bulk of revenue growth in the financial services segment coming from loans, Grab believes loan numbers from GXS and its other digital banks will soon be significant enough to be reflected separately from GrabFin loans.

GXS is also rolling out its debit card product in phases, which should encourage usage among its customers.

Without a debit card thus far, consumers have been making payments only via PayNow, which charges merchants a fee of under 1 per cent. With debit cards in the picture, merchants would have to pay GXS a fee of between 2 per cent and 3 per cent – which should improve GXS’ revenue contribution to Grab’s financial services segment.

Elsewhere in the region, Grab is teaming up with South Korean digital bank, KakaoBank, to augment Indonesian digital bank Superbank. KakaoBank is to take a 10 per cent stake.

There are plans to tap the expertise of KakaoBank, which ranks first in loans and deposits in South Korea.

Hungate said: “We look forward to leveraging KakaoBank’s domestically proven competitiveness in digital finance and platform expertise to boost Superbank’s proposition, and drive digital banking innovation in Indonesia.”

In Malaysia, Grab’s digital bank, GX Bank, is gearing up for its launch, having received approval to commence operations. This will bring about revenue streams of payments and loans, with the chance of growing its loan book.

All these factors are likely to send Grab into the black – and not just on an adjusted Ebitda basis – sooner rather than later, as financial services look set to give the profitability engine the boost it needs.