For Siam Commercial Bank (SCB), Thailand’s largest lender by assets, investing in Indonesia-based ride-hailing unicorn GOJEK was a strategic way to counter the rise of tech-enabled models that are disrupting traditional businesses.
“We try to find a way to partner quickly and scale with startups. Even with the big platforms, if you cannot beat them, partner with them. So find more strategic partnerships that you can invest in and grow out of them,” SCB executive vice-president Tana Pothikamjorn told DealStreetAsia on the sidelines of the Bangkok Fintech Fair.
Pothikamjorn said SCB sees more such strategic partnerships as its answer to the rise of technology.
Earlier this month, GOJEK announced an undisclosed investment from SCB as part of its ongoing Series F funding round. The lender will also partner with the ride-hailing startup’s Thai affiliate GET in the area of payments.
The oldest bank in Thailand, SCB is also among the most active in terms of investing in the fintech sector. It operates a venture capital fund, Digital Ventures, which is also a limited partner in other funds such as Siri Ventures, Golden Gate Ventures, Nyca Fund II and Dymon Asia.
In addition, with the doubling of Digital Ventures’ fund size, Pothikamjorn said the firm expected to do more direct investments in startups.
“Initially, it was mostly a strategic mandate, so you have seen a lot of the fund-of-funds operation. But there are opportunities like GOJEK where we have a solid partnership that we can build on a single direct investment.”
Edited excerpts of an interview:-
Thai banks have been proactive in adopting fintech and other tech platforms. What do you think has been the driver of this change?
We have to [be proactive]. First, the Thai population is very digital. They are always on social media and consume a lot of digital content. As consumers are changing, banks have to change [too] especially in Thailand, where we have a very dynamic consumer base with different behaviours. Many Thai banks have spent significantly on transforming [themselves] in the past five years.
Thai people top consumer behaviours around platforms such as Facebook, Instagram, Line, and YouTube. They are very used to digital platforms, which makes them demand services that are just as convenient and instant. In that sense, it’s ripe for disruption. You cannot be physical-based anymore but have to redesign services so customers can directly get access to your services much more conveniently.
Some people say that fintech companies are not competitors to banks but several others say that these startups are actually a threat. What’s your take?
In the initial days, I would say people liked to put it as a threat. Any competitor was a threat. But from the way I see it today, fintech is a broad term. It can be a small startup to Ant Financial. I would put it this way: big platforms are a threat, not small startups. One word we use is ‘fintegration’ – small startups want to work with banks or big platforms because it is too hard today to get access to a big distribution of customers. It is too expensive, while customers are already with the big networks or luckily with the banks, too. But for a traditional bank, what is scary are the big platforms.
Then how do you respond to the rise of fintech?
Move quickly. We try to find a way to partner quickly and scale with startups. Even with the big platforms, if you cannot beat them, partner with them. So find more strategic partnerships that you can invest in and grow out of them. SCB has announced a partnership with GOJEK. Since GOJEK has been building a network of customers and service providers, we can do many synergies. The same customers can access our payments and other financial services. We can be lending to the merchants and drivers, too. So there are a lot of opportunities we can put together in such a framework.
You have doubled down on the corpus of Digital Ventures too? Does that mean you will write bigger checks or will you do more deals? What is your VC investment approach?
We will do more deals. The CVC arm looks into relevant and strategic technologies that could potentially help us build different services. We have been doing a lot of the fund-of-funds model to get exposure to new technologies, and we also look into direct investments if we can get some lineups. Initially, it was mostly a strategic mandate, so you have seen a lot of the fund-of-funds operation. But there are opportunities like GOJEK where we have a solid partnership that we can build on a single direct investment.
We take a ‘try and learn’ approach towards investments. I’d say we learn more as we do it, and know exactly what we want. The scene is always changing, so we want to diversify our businesses in different ways. Investing is one of the ways.
You are not doing many Thai deals. Why?
When we say ‘strategic’ and we want to touch the best technologies, we have to be global. If it is just a local partnership, you are not getting access to best-in-class technologies. We see some (investable startups) in Thailand. But Thai startups are still very local, which limits access to growth. The problems for them are talent, and the market is not big. If you think locally, it is too small. And it’s tougher for small startups to think globally at the beginning.
Payments remain the most popular segment in fintech. How does it look like in 2019?
At least in Thailand, banks have done very well to put payments and interbank payments on the same standard and the same system. With PromptPay (a real-time payment initiative by the Thai central bank to move to digital money), we have an open system where everybody can connect to and do payments throughout the country. Thailand has the fundamentals in place now and is getting users to use it more.
What is the percentage of the unbanked population in Thailand?
It is not high. Thailand is a banked country. We have 65 million, and over 40 million are banked. The early 20s and retirees do not need banking services deeply, so most people can get access to bank services. The room to develop financial services is better because people are used to digital products, so it offers opportunities to put better experience into the services.
How do you see the impact of Chinese giants on the ecosystem in the region? Do you see any challenges for banks like yours?
Not yet. But if you look at China and what is happening there, they have the power, the people and the technology; they could come to Southeast Asia if they want to. In fact, they are already here but not fully in yet. They are doing e-commerce with some basic payments for Chinese tourists, but you can see the signs. They are still working with the banks, but maybe one day, for certain products and services, they can do it better than local banks. That would be interesting.
In new areas of fintech like AI, big data and biometrics, is it fair to say that Southeast Asia has not kept up with other parts of the world?
I think it is a global issue, not just in Southeast Asia. Some big tech companies do it well, everybody else is still learning how to do it. So I would not single out Southeast Asia.
What is your observation on data usage in financial services?
It is the most important thing not just in financial services but in any industry. If you understand your customers, you serve them better. If you don’t serve them well, they will go to your competitors, and it’s all about data. We are leveraging data in many ways, from the basics of being a data-driven organisation to making decisions based on facts and data. It is a big change within the organisation towards having the data capabilities and an organised technology data stack. We have spent so much time making the company ready to be able to better utilise data, so we have some fundamentals set. It’s now the question of how do we actually put the brains in order to actually do it. The challenge of talent is top on my mind. It has to take time to be able to acquire talent. First off, you have to pay more. And then you have to change your structure, to educate the system to put out more engineers.
For SCB, how has the fintech business contributed to the bank’s growth?
Around 90 per cent of our financial transactions are being done on mobile banking. Putting all kinds of transactions together, from opening an account to deposits and withdrawals, around 60 per cent is done through the mobile app, some 30 per cent through the ATMs, and less than 10 per cent through the branches. We have seen our customer changing their behaviour a lot, and now around 10 million out of our more than 15 million customers are on mobile banking. That means new ways that we have to look into servicing.