Southeast Asian ride-hailing app Grab moves into lending space
Grab, the dominant ride-hailing service in Southeast Asia, is to start providing loans and lending services, after announcing a partnership with Japanese credit card company Credit Saison.
Grab Financial Services Asia will offer micro-financing services, initially to meet the needs of Grab drivers, agents and merchants. The services will include working capital loans, financing for smartphones and durable goods, and consumer goods financing.
In a statement, the Singapore-based company says it will look to use its huge access to consumer information to “analyse alternative data points on consumer behaviour, which can be used to develop sophisticated credit and risk assessments”.
The joint venture seeks to “provide loans and lending services to millions of unbanked and underbanked consumers, micro-entrepreneurs and small businesses across Southeast Asia”, with only 27% of adults in the region having access to a bank account, according to World Bank estimations.
Data extrapolated from more than one billion annual transactions, such as transport movements, geo-location and transaction data from its GrabPay service, provide alternative data points. This access allows it to perform the requisite credit checks that banks struggle to undertake in the region.
Grab, which has been rumoured to be ready to buy out rival Uber in Southeast Asia, also plans to offer credit scoring services to financial institutions in the future. Ancillary offerings are payment services, rewards and loyalty services and agent services.
Fintech has been heralded as a way in which Southeast Asia’s trade finance gap can be narrowed. Companies in the space are not beholden to the same regulatory constraints as traditional banks, while the potential to integrate verticals and service offerings allows for cross-selling of financial services by consumer companies.
In China, offerings such as WeChat and Alibaba staddle the social media, e-commerce and financial services spaces. WhatsApp this week announced plans to enter India’s payments market, joining the likes of Google and Paytm, an Alibaba company, in the sector.
Many potential users have never had a bank account, nor will they ever need to enter a brick and mortar bank branch. Technology is allowing consumers and small companies to bypass the traditional stages of banking services.
A recent study by the Centre for Global Development argues that technologies such as machine learning and blockchain could allow banks to solve their de-risking problems, therefore widening the access to finance for small companies in emerging markets.
However, a separate report from the Asian Development Bank (ADB) suggests that the development of fintech has yet to leave a significant dent in the trade finance gap.
The report found that despite the industry’s zeal for digitisation, just 20% of firms taking part in the survey have used digital finance platforms. In line with global trends, peer-to-peer lending is the most-used fintech model (23%).
And while 80% of banks surveyed said fintech will reduce compliance costs and 66% said that it will enhance their ability to assess SME risk, the rejection rate of SMEs continues to rise.
Grab Financial managing director Jason Thompson says the joint venture will “create economic opportunity for millions across the region”.
He adds: “Many in our region have no access to loans that they can use to purchase a new home or grow their small business. Grab Financial Services Asia is building a reliable alternative to traditional credit scoring methods that is customised for the unbanked majority of consumers and small businesses in Southeast Asia.”take me back