With the recent establishment of a new holding company to acquire the additional stake in Myanmar-based fintech company Wave Money, Singapore-listed Yoma Strategic Holdings aims to become central to the country’s financial system in the near future.
In an interview with DealStreetAsia, Yoma Strategic Holdings CEO Melvyn Pun said Wave Money is targeting as many as 11 million monthly active users on its platform in the next four years. “If we achieve that, this will hopefully be the first tech unicorn in Myanmar,” he added.
Last month, Yoma Strategic announced that it will acquire partner Telenor Group’s stake in Wave Money for $76.5 million. Upon completion of the transaction, it plans to invest up to $25 million in the fintech company. After the transactions, Yoma Group will own roughly two-thirds stake in Wave Money, while Ant Group will hold the rest.
Pun said this was the right time for Yoma Strategic to acquire a controlling stake in Wave Money in a country where 70 per cent of the population is unbanked.
“We looked at the future potential and felt that this is a very opportune time for a local business to take over as a controlling shareholder to help us navigate the long-term business plan,” he said.
Edited excerpts of the interview:-
Telenor sold its 34.2 per cent stake (post-Ant investment) in Wave Money for $76.5 million. That puts Wave Money’s valuation at about $224 million. Is this a fair valuation and how do you see the business going forward?
This is a very attractive valuation for Yoma. We see this as one of the highest growing business in Myanmar and in our portfolio for Yoma.
If we can execute our business plan over the next four years, I’m certain we will have a target of more than 11 million monthly active users. If we can achieve that, this will hopefully be the first tech unicorn in Myanmar.
How much did Wave Money contribute to the performance of your financial services segment in the six months ended March?
It is the bulk of it. We also have a reasonably profitable car leasing business – the net income contribution is still quite small, but I think that will be quite large in the next couple of years. For now, money transfer accounts for the lion’s share.
Why do you think this was the right time for Yoma to acquire a controlling stake in Wave Money and what would the ownership split between Yoma and Ant Financial be after the recent stake purchase from Telenor?
Yoma Group will at least control two-thirds of Wave money and Ant will be roughly a third.
The success of the business has been really very encouraging and more than what we had expected.
Having built a strong business over the last four years and accelerating on the growth through the building of the e-wallet, there was a coming together of the shareholders on how we can bring this business forward.
So our vision is for Wave Money to be the centre of all financial transactions. It could be part of a banking transaction, collection of money and helping financial services reach remote places.
We looked at the future potential and felt that this is a very opportune time for a local business to take over as a controlling shareholder to help us navigate the long-term business plan.
Yoma is the local partner who can navigate the long-term direction of the business while Ant can provide technical support. We’ve leveraged Telenor to get the initial building out of the network and I think that’s been very powerful. But, going forward, Telenor also felt that it’s probably the right time for them to step back and let Yoma take the lead.
Related to growth strategy, a lot of countries in Southeast Asia are dependent on the telco network. Who would be your telco partner moving forward?
We actually don’t think we need a telco shareholder. Wave Money is built as a network-agnostic platform and, in some ways, the separation with Telenor allows us to be even clearer that we serve all telecom networks. That’s very important because we want to be able to serve everyone.
Just to be clear, Telenor will continue to be a very strategic partner for Wave – we will continue to have a contractual arrangement where we would have a very good level of collaboration with Telenor to ensure that our customers are served properly.
Sometimes, it is even more powerful to have those contractual arrangements because all the other telco networks have their own wallets. For Telenor, it’s also very important to have Wave as a very close ally to ensure they are able to compete effectively with their competitors.
People in emerging countries tend to be hesitant about putting their money into something they can’t touch. How did you manage to build up that trust?
It’s all about the experience and word of mouth. So what are we replacing or displacing in the traditional money transfer business? Myanmar is a very large country. For example, if one of the family members in a remote village takes a manufacturing job, that person is paid daily or weekly and the money is sent back home on a regular basis. The way the money is sent is not through the banking system as most of them do not have a bank account.
So they will give the money to friends or go to a bus depot and send the money through the bus driver, who will go to their home and pass it on to the family. As you can imagine, that’s a pretty scary experience. There’s no security at all and of course, money frequently “goes away.” And it’s not cheap because there’s a fee charged to it.
So we’re displacing very informal ways that money has been moving around and putting a much clearer system with real-time tracking. You may not be very comfortable doing this digitally the first time, but if you’re able to do it on a weekly or monthly basis, very soon you trust it. I remember the very first time that people were transferring money. There were lots of concerns and people were worried, thinking: “If I put money into this phone, if I lose my phone, you know, is my money gone?”
Over time, we’re able to dispel some of those concerns partly due to the national network that we’ve built. We have 58,000 agents and they are organised in distribution networks. Over the last four years, we estimate more than 20 million people have used this service. They keep coming back so I think it shows that people are getting very comfortable with this method.
Have you seen an uptick since the virus outbreak of people wanting to use it?
COVID-19 has been a great catalyst and enabler for digitalisation of money. When we had the first case of COVID-19, I think there was a 20 to 30 per cent uptake [in the subsequent days].
Since then, we’ve also had a number of important partnerships. For example, the government has been handing out pension money, and they were doing that physically in the past, through the government banks, etc. Post-COVID-19, we’ve signed an agreement with the government to distribute pension money. We have actually had a small trial running a year ago but with COVID-19, we were able to do that for a lot more pensioners immediately.
We’re also doing similar things with the agriculture banks – the government is providing subsidies, grants and loans to farmers. So I think that number of end-users has increased but probably what is more exciting is that we’ve more strategic partners or corporate partners who are doing payrolls, money distribution, as well as collections through the Wave network.
Another thing that I’m very glad about is that we are getting traction from microfinance companies. Earlier, they had a network of people going to remote villages to collect money, which is a huge operating burden. We’ve been talking with them for a long time about Wave being their collection agents.
With the COVID-19 pandemic, there was no other way for people to physically go and collect, so we’ve signed up a lot of microfinance companies for bill collection, and that’s very important.
Part of the discussions we’ve had with Ant Financial is on the role that Wave will play in the financial system. We’ve made it very clear that Wave wants to be an open platform for all financial service providers and that includes people who provide lending. In order to do that, we’ve committed to not actually doing our own lending, so we don’t want to be competing with our customers. I think that clarity has been very good at signing more people up.
So what does the monthly active user base right now look like?
[After the initial uptick the number of users] stabilised and actually even fell off for a while. That was because, for a period of probably two to four weeks, there was reduced economic activity. We are already largely back to the pre-COVID period and continuing to grow again.
For the money transfer business, we’ve said that roughly 20 million people have used it in the past. We don’t really track the monthly active user, we just track how many people have used it.
The e-wallet is where we’re tracking the monthly active user. We started off at the end of last year, we only had 100,000 monthly active users. So by the end of this year, we’re on track to be north of a million monthly active users. And in four years, our target is to have 11 million monthly active users.
Do you have a kind of profit-sharing or revenue-sharing arrangement with the banks or financial institutions?
It’s a progression in stages. Right now, we’re simply doing collections and charging a fee on the amount collected.
In the future, what we would like to do is to help MFIs by sending business their way. If we can do that, then of course, maybe there’s revenue sharing or larger fee split.
Can we say that you’re like a tech company or tech enabler rather than an aspiring bank?
Absolutely, and we’re very clear that we do not wish to be a bank. I think we offer very different services. We want to be a platform and enabler for financial services firms. We don’t intend to provide a balance sheet, and we don’t need to lend directly. People can store money with us, but we don’t give them interest.
Do you have plans to offer other types of services on Wave Money in the future?
The biggest opportunity in my mind is to work with finance companies to provide loans to the masses in Myanmar.
We would like to work with microfinance companies or finance companies so that they can lend through the Wave platform, and consumers will be able to get much more attractive interest rates. That’s enabling customers as well as lenders who are trying to access them.
We would like our agent network to work with all banks to do KYC [know your customer] for account opening, to allow people to deposit money into the formal banking system through the Wave network and to take money from the bank accounts through the agent network.
Leslie Shaffer contributed to this story.