Malaysia digital bank race sees new battleground for Grab and Sea

THE neck-and-neck competition between e-commerce rivals Grab and Sea just got more heated, with both snagging another digital bank licence each, this time in Malaysia. Grab and Sea, along with Malaysian partners, were on Friday (Apr 29) awarded two of the three retail digital bank licences offered by Bank Negara Malaysia (BNM).

The licences open up a bigger unbanked market for Grab and Sea to tap into, where an estimated 15 per cent of the population remains unbanked in 2017, according to a study by Bain and Temasek. Sea and Grab have both already acquired stakes in Indonesian banks, and now compete in the digital bank space in most markets across South-east Asia.

Coupled with the more stringent road map and requirements for Singapore’s digital banks, Malaysia might become a bigger focus for Grab and Sea, as the country offers a comparatively easier framework. BNM requires digital banks to operate with an asset limit of RM3 billion (S$950 million) for up to 5 years.

“That gives them more leeway to try out some models that could potentially work across the region,” said Jianggan Li, founder of venture builder Momentum Works.

Both companies cannot build their Singapore banks any faster, and will need to meet predefined progression tiers by the Monetary Authority of Singapore (MAS) to expand their scope. Still, it doesn’t seem like either has taken their foot off the pedal. Furthermore, there might be expectations that MAS has for the digital bank licensees. (*see amendment note)

“I think the government and regulators would be very unhappy if Grab and Sea didn’t fully utilise what was offered to them in terms of the digital bank licence. It would have a negative impact and even though it is a smaller market, they need to continue to push,” said Zennon Kapron, founder of consultancy Kapronasia.

Yet, Malaysia represents a much bigger opportunity for both, even as they stock up on banking licences across the region. But there is a danger of spreading themselves too thin. Negative perceptions in either market are likely to spill over.

“The management teams will be very focused on making sure they've got the bandwidth to deliver in both markets,” said Andrew Gilder, EY Asia-Pacific banking and capital markets leader.

The value proposition both Sea and Grab have to offer to differentiate themselves will have to centre around serving one of the customers they have in their ecosystem - small and medium enterprises (SMEs). Both have these in droves: in Sea’s e-commerce platform, Shopee, and on Grab’s food delivery platform.

“The more you can leverage technology to products and services, the more cheaply you can provide it, the more accessible they become,” said Kapron.

One way digital banks may also be able to aid SMEs is through quicker credit approvals. The slow process had often been a pain point for such entities which need funding quickly, said Sam Kok Weng, markets and financial services leader, PwC Singapore.

“The question for digital banks now is: can that be disrupted?” 

While Sea and Grab already compete fiercely in most markets across the region, what will set them apart will likely be the resources they will get from their partners. Grab has partnered telco Singtel, and for its Malaysian venture, Kuok Brothers, Robert Kuok’s conglomerate. Sea has partnered YTL Digital Capital, a unit of the YTL conglomerate.

These partners also provide user bases for both players to tap into for their digital banks. The key would be serving them well rather than competing with each other head-on.

"New entrants will have to focus on profitability even as they keep acquisition costs low enough to approach significant scale... Tapping into existing user bases looks like a prudent strategy to start with,” said Swarup Gupta, EIU industry manager.

“The banking market is big. If each of them can serve their existing customer base and use cases well, it is already very good progress,” said Li.

*Amendment note: The Monetary Authority of Singapore has clarified that there is no predefined time limits for digital restricted banks to become digital full banks.