Grab Financial’s Reuben Lai discusses Emtek, OVO, crypto and next growth push

Reuben Lai, Senior Managing Director and Head of Grab Financial Group.

Grab Financial Group (GFG) may belong to one of Southeast Asia’s most influential internet apps, but it’s still early days yet for the fintech major. GFG’s top chief Reuben Lai has led the firm through a series of ambitious growth projects last year, including winning a digibank license in Singapore, raising its first $300 million Series A round while negotiating the complexities of the region’s largest and most coveted market, Indonesia.

The “groundwork” of building the basic infrastructure has already been laid, said Lai at DealStreetAsia’s Asia PE-VC Summit 2021, during a fireside chat – “Moving beyond payments to grow as a formidable fintech business in SE Asia.”

GFG’s next step will be to derive a greater proportion of its transactions outside the Grab platform. If GFG wants to be a meaningful fintech superapp for Southeast Asia, it needs to be a fintech player for all internet transactions, and not just for Grab.

It isn’t too far away. Some 40% of GFG’s transactions already come from external partners like Zalora, Lazada and Bukalapak, thanks to the post-pandemic tailwinds leading to dramatic surges in e-commerce purchases. But given how nascent Southeast Asia is as a market, the opportunities to serve customers and merchants are still constantly growing. GFG’s next big push will be in merchant cash advance and driver lending, said Lai.

“We realise that we’ve been very focused on the buyer ecosystem. What we’d like to do now…is to be a platform for micro-merchants where we are building tools to grow their businesses and deepen our integrations with them. That’s going to be another huge opportunity for us going forward,” Lai shared.

Executing this will mean several things for Grab. This includes ramping up its merchant count, rolling out more fintech products catering to merchants across lending, insurance, and wealth, among others. Grab’s friendly ties with Emtek Group will foster more opportunities on this front. Grab has already begun onboarding Bukalapak’s merchants onto GrabMart, shared Lai.

Edited excerpts from an interview with Lai, senior managing director and head of Grab Financial Group:

Let’s begin with the latest exit news. Grab recently announced its merger deal with Altimeter. How were you positioning Grab Financial during the negotiations? What brought Altimeter in?

I’ll speak for Grab Financial Group. For Altimeter and for many of our investors, the fintech component of the Grab story is one that’s very exciting. They were drawn to a couple of facts. For one, 6 in 10 people in Southeast Asia are either unbanked or underbanked so there’s tremendous headroom. The other is that 9 in 10 people in Southeast Asia don’t have access to credit cards which again speaks volumes about the opportunity we have. But what’s also really interesting is this whole ecosystem is that what Grab is building. Anthony has publicly shared that he sees it as a platform that provides economic empowerment for millions of micro-entrepreneurs. Grab Financial Group offers a plethora of services from payments and lending to wealth and insurance. Our plan is to embed into this platform and to really serve these customers well. It’s a great way for us to make the Grab platform even more powerful to meet our mission.

Many US investors including Altimeter were looking at successful Chinese fintech apps like Meituan and Ant Financial which have proven to be very lucrative businesses because they’ve built a very diversified platform. Is that how you see Grab’s future?

We are frequently compared to the giants in China. On one hand, we’re flattered. On the other hand, we are also extremely humbled because we know that in this part of the world, it’s different. China is one country but over here, we’ve got 10 different countries. In fact, for us at Grab Financial Group, we just focus on the top six economies in Southeast Asia. The reason for the complexity is this fragmentation where every single jurisdiction and regulator has its own rules, its own infrastructure. If I were to take credit bureaus, payment systems, or merchant integrations as an example, every single one of these countries has its own bespoke requirements. The challenge for us then is how do we build something that would be able to meet the needs of our customers in a way that is scalable across Southeast Asia? So, it’s quite different as we look at Southeast Asia, we believe that we need to chart our own path.

Does it then mean that Southeast Asia will take a much longer time to hit the kind of numbers and trajectory that China was able to exhibit? 

China took a number of years to become so evolved. But what they’ve shown is that once you upgrade the infrastructure, there is tremendous ability to add value to customers. Let me take a step back by painting the picture of how we’ve approached the market first. Obviously, with a huge opportunity but a very fragmented market, we have had to be very thoughtful about it. Our focus in the last 3-4 years was really building infrastructure for payment acceptance, disbursals, micro-lending, microinsurance. Last year, we launched micro wealth. We spent a lot of effort just building the Grab platform. In the recent Q2 results, we hit a record high TPV of $2.9 billion. We grew our merchant network by almost 3x. Last year alone, loans grew 4x year-on-year. Insurance was up more than 4x in terms of Gross Written Premium (GWP), and in terms of transactions, we’ve had more than 130 million since we launched two years ago. So, that’s great progress but it’s still in the early stages. 40% of our transactions right now actually come from outside the Grab platform, and that’s driven by e-commerce. E-commerce has two components, one is payment acceptance, and the other is Buy Now Pay Later (BNPL). Secondly, we’re very focused on cross-selling financial services products like micro-lending, micro-insurance. The big push really is in merchant cash advance and driver lending. We realise that we’ve been very focused on the buyer ecosystem or end-consumers. What we like to do now, in accordance with the Grab way, is to be a platform for micro-merchants where we are building tools to help them grow their businesses and deepen our integrations with them. That’s going to be another huge opportunity for us going forward.

You said 40% of your current transactions on Grab Financial are off the Grab platform. Is that your metric of success? Because if Grab wants to be a super app for Southeast Asia, you can’t afford to just have all of your transactions hosted within the Grab ecosystem. It needs to be an open platform.

That is exactly how we think about it. We are very focused on building an open ecosystem and it was intentional right from day one. How do we bring on board various partners to serve our customers better? We had to focus first on serving our own ecosystem. What we want to do is to embed ourselves into as many e-commerce sites as possible in order to make our products available to our customers.

Based on Grab’s adjusted net revenue in Q1, over 90% is coming from payments alone. How far do you see this contribution mix diversifying? What are some of the major hurdles for Grab Financial to diversify further into lending, insurance and other financial services within your portfolio?  

It’s very intentional for us to start with payments since we had that relationship between financial services, ride-sharing and food delivery. Through that, we’ve got a lot more understanding of what the consumer likes to purchase, and when and how they use the product. Being part of a customer’s journey is super important. That has allowed us to design products based on the insights that we had, and the first product we had was microlending. In terms of disbursals, we grew 4x in the last year alone. That was a time when we were still grappling with the pandemic. If we were to look at that as a trajectory, I think that the shape of our business is fast evolving. We have over 130 million transactions for insurance that we’ve sold. Today, customers can opt for three things. They can opt for insurance, ride cover for e-commerce delivery, they can also opt for microinsurance. We really expect that to drive the take up of microinsurance products on the buyer side of things. We see very encouraging statistics there, even in countries where people told us that it would be hard to sell insurance in countries like Vietnam. That’s where our delivery (insurance) cover really took off. The other point under insurance is also selling to our own ecosystem. This means providing our drivers with hospitalisation cover or any additional coverage to take care of them in the scenario of a loss of income if something bad were to happen.

But does it mean that payment will probably remain the biggest contributor to Grab Financial’s revenue?

I do agree that our market is extremely nascent. If we just look at e-commerce as a potential percentage of total retail for example, it’s growing super-fast. Naturally, payments being our first product will contribute to the bulk of revenues. The other thing that’s super exciting when we start launching next year is the digital bank. There’s so much going on that it’s hard to predict how our financials will look like.

We recently wrote a story about the growing relationship between Emtek and Grab. You have also taken minority stakes in each other. Could you shed some light on the status of this partnership and provide a teaser on some exciting projects that we can expect in the coming months?

We are so excited about our partnership with Emtek. Emtek is a very strong media conglomerate, but they’ve also invested in multiple digital assets like Bukalapak, for example. For us, what they bring to the table that strengthens our ecosystem is tremendous access to the end customer. More importantly, tremendous access to the micro budgets on the platform. What we want to do is embed each other into each other’s ecosystems so that we can extract maximum synergies for us. One example is onboarding Bukalapak merchants onto GrabMart. We spend a lot of time with merchants. Merchants care about two things – more demand at the lowest cost. That’s exactly what we can offer them by plugging directly into the Grab platform, which allows them access to all our customers at the lowest CAC. Not only that, we’re going to give them tools like financial services products to accelerate the growth of their business.

There is also an interesting trend that we’ve been seeing with regard to the opportunity for micro SMEs. There’s been a significant boom in online lending in Southeast Asia, and South Asia, but there aren’t too many companies which cater to this sector in the region. How big is this opportunity for you at Grab Financial?

Yes, I’ve seen wild estimates on this, but one thing consistent about these numbers is that they are large. If you add all the fintechs together, we’re just scratching the surface of it. We’re not even making a dent, which excites me. It’s almost like an infinite amount of growth going forward. I would just call out on what we’ve been very focused on. Let me share about Thailand. That’s where merchant cash advance has done really well for us. In fact, across the Grab Financial platform, 59% of our working capital loans have been made available to small and medium-sized merchants where they needed it the most – it was very tough for many during the pandemic. There was a lot of debt and working capital needed to just tide over the volatilities. The frequent lockdowns and opening up created a lot of stress for these merchants, and we were able to support them in a way that has just brought joy in their lives. It also makes the regulator super happy. We’ve had senior officials within the Bank of Thailand (BOT), for example, saying thank you for what we had done for the merchants in the country. I wish that many more banks and fintechs would also jump on this bandwagon to serve our micro-merchants and we look forward to that. I would point out as well, if we don’t do it ourselves, we do it in partnership with various banks and financial institutions. In Thailand, we work very closely with Krungsri, an MUFG partner bank. Together, we created loan packages, we designed the credit scoring algorithm, we embed it into our merchant platform and we did a collection in a very seamless way. The conversion rates that we see from these tight integrations has been pretty stunning.

You mentioned BNPL offerings on the Grab Financial platform. How do you look, assess, and even mitigate some of the default risks that may affect merchants and users?

Yes, mitigating risk is extremely important. I will point out that there is fraud risk and credit risk. What we’ve done in the last couple of years is to build up the tech infrastructure. We realised that at our scale, there’s just no way you can do manual processing. Many of these transactions are also small. And because the data volumes are large, there’s just no chance for a person to manually do that. So, in order to serve our customers well, we use data to customise the loans or the credit limits available to them. The second is using various signals. One very strong signal is Grab transactions. We make these products available first on our Grab platform. On a post-paid basis, you can take as many rides and food as you want during a month, and it is paid back at the end of that monthly cycle. So, with that, we’re able to understand who are the good paymasters, and from that, we move them off-platform into the various e-commerce sites.

There have been plenty of reports in the market around Grab Financial’s interest to invest in Indonesia. Your comments, please.

I can’t speak specifically on Indonesia, but most certainly if we were to look at any target, we would do what a normal acquirer would do, which is performing proper diligence, hiring advisers, and getting into the weeds of the analytics to figure out the books. But we don’t have specific details to share about this.

One question on OVO. There’s supposed to be a divestment process underway taking place between you and Tokopedia. Can you update on where the process is at this point? 

It’s going well, and we are very focused financially on consumers and merchants. So, for us, making sure that there’s no disruption is important. Business goes on as usual. Not only that, OVO remains a payment platform on Tokopedia and it’s doing really well. In addition to that, we’ve onboarded many other merchants, Zalora, Lazada, Bukalapak, and many more. OVO has also launched a very successful micro-investment product with Bareksa. They’ve also worked with Prudential and other insurers to make microinsurance products, as well as microloans available on the platform. So most certainly, this transaction is not holding the business back in any way.

Grab recently announced a partnership with Coinhako, a crypto wallet. It’s certainly not mainstream for Southeast Asian superapps to enter crypto yet. Could you share some of your observations on crypto and where Grab could participate in this space?

It’s super exciting and fascinating. As a player in fintech, we just cannot ignore what’s happening in the crypto space. Our perspective to partnerships like those with Coinhako is that we’ll work with those that are recognised by the regulator and with adequate Know-Your-Customer (KYC) processes in place. We do want to get involved in a very measured and thoughtful way, so we only bring on board those that are recognised by our regulator. The partnership right now is about providing payment acceptance on their platforms.

Do you foresee yourself partnering with more crypto wallets in the region? I believe Vietnam already sees the highest rate of adoption globally for crypto. Emerging markets like Indonesia and the Philippines are also seeing significant user growth. What are the next steps for Grab on this front?

It is interesting. We do see and hear from our users across Southeast Asia about their interest in crypto, but we will take a very measured and cautious approach to it. As much as crypto is exciting, there are still many areas within crypto that are still being studied very carefully by the regulators. Likewise, we want to be extremely responsible and not allow the excitement to get to our heads. So, our approach first is definitely to just work with those players that are recognised by the regulators.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.