The rise of the Asian 'super app'

Demand for digital services poses a threat to traditional banks in the region but many start-ups are bleeding cash

Rice Basket Queen is the name of a stall run by Ms Ruri Ruhyaty in a bustling suburb of Jakarta. A year ago, it was typical of thousands of others. Ms Ruri would place her fish and vegetable dishes on banana leaves on the front counter and wait for customers to walk by.

Then she signed up with Grab, a food delivery and digital payment start-up that is one of the leaders of South-east Asia's fintech revolution. Now her food is delivered to diners on the back of motorbikes through miles of traffic-snarled streets in the Indonesian capital. Her accounting system has evolved from a pen and scraps of paper to an automatically updated digital log. Clients who used to hand over cash now pay with a smartphone app.

And as revenues soared, Grab's partner Ovo offered Ms Ruri's company a loan of 50 million rupiah (S$4,900) - enough for her to open a new stall. "I will take the loan when I expand my business next year," says the 34-year-old, as she cooks a sambal vegetarian dish, one of her top sellers.

Rice Basket Queen's story captures in microcosm the transformative effects that financial technology is having across Asia. The disruptive forces that were first unleashed in China, as tens of millions of consumers embraced digital payment platforms, online lenders and other forms of fintech, are now being felt in South-east Asia, a region of 655 million people in 11 countries. The same trends are also visible in the Indian subcontinent, with its population of 1.7 billion.

At the level of a single market stall the changes can seem insignificant, but they are being repeated by millions of businesses across thousands of cities.

While the impact from such start-ups has been restrained in most Western countries, that is not the case in Asia. Fintech firms such as Ant Financial, Paytm and Gojek are among the region's biggest business disrupters, posing a threat to traditional banks and other financial institutions - and forging business models that could yet be used in other parts of the world.

"What people in London, New York and Silicon Valley don't understand is that Asia is now setting the pace in financial services innovation," says Mr James Lloyd, a partner at EY Asia-Pacific focusing on fintech and payments.


"Benefiting from powerful network effects, big tech firms have been venturing ever further into financial services, initially in China but increasingly across the region," he says, adding that the threat to incumbent banks is "greater in Asia than anywhere else in the world".

As well as GrabPay, its payment platform, Grab also runs the GrabCar and GrabTaxi ride-hailing businesses and other operations, including GrabBike for on-demand motorcycle services, GrabFresh for grocery shopping and GrabFood for food delivery. ST PHOTO: CHONG JUN LIANG

Mr Jan Metzger, Asia-Pacific head of banking, capital markets and advisory at Citibank, points to huge regional demand. "This is a revolution for the whole world. Asia is 12 years ahead of the rest of the world. It is a time machine to the world," he says. "The key point is not because they are better at tech. It's because the demand for digital and mobile services is so much higher. They are leapfrogging generations of paying by plastic and cheque books to paying online through e-wallets."

The sheer scale of the fintech groundswell is captured by the number of start-ups across Asia. Almost 800 companies have received financing from venture capital and private equity houses since December 2016, according to data compiled by the Asian Venture Capital Journal (AVCJ).

China leads the way, with 266 fintech start-ups. India is second with 190 while South-east Asia ranks third with 183. Some 44 are in Indonesia and 86 in Singapore, according to AVCJ numbers.

Many of the start-ups will be little more than a flash in the pan. But some are already proving to be formidable competitors to traditional banks, offering electronic payments, online loans, credit cards, digital insurance and other services.


This is a revolution for the whole world. Asia is 12 years ahead of the rest of the world. It is a time machine to the world.

MR JAN METZGER, Asia-Pacific head of banking, capital markets and advisory at Citibank, on the fintech boom in Asia.

Indeed, some of the emerging fintech groups display more financial muscle than long-established banks. Grab, for instance, is valued at US$14 billion (S$19 billion), following investments from backers such as the Japanese fund SoftBank, Singapore's Temasek, Chinese sovereign wealth fund China Investment Corp and other blue-chip investors.

This means that after just seven years of doing business, the market has put a higher value on Grab than it does on 15 of South-east Asia's top 25 established banks, ranked by market capitalisation.


The challenge to incumbent banks is made all the more serious when the regional ambitions of China's tech giants are factored in. Having built vast businesses in their home market, several are now looking to back similar firms in other Asian countries. Ant Financial - which is valued at US$150 billion or three times the market capitalisation of DBS Bank, South-east Asia's biggest bank - announced last month a US$1 billion investment fund for the region. It has already invested in Paytm, India's biggest fintech company with a valuation of US$16 billion.

One reason for the premium valuations of fintech start-ups such as Grab and its Indonesia-based competitor Gojek, which is valued at US$10 billion, is that these companies do much more than financial services.

As well as GrabPay, its payment platform, and Ovo, its lending partner, Grab also runs the GrabCar and GrabTaxi ride-hailing businesses and other operations, including GrabBike for on-demand motorcycle services, GrabFresh for grocery shopping and GrabFood for food delivery.

This "super app" approach gives the Singapore-based company a large and highly engaged client base. Since its launch in Malaysia in 2012, Grab has expanded to 339 cities across eight countries in South-east Asia. Its app has had 163 million downloads.

GoPay, the financial arm of Gojek, is used in 370 cities across Indonesia. In a challenge to another strand of banks' traditional business, Gojek has launched a service called PayLater, which Mr Andre Soelistyo, Gojek's co-chief executive, says works like an "Amex charge card" and provides a gateway towards offering wealth management services to its clients.

"It was a raving success," Mr Soelistyo says.

The service works by Gojek, which has backing from China's Tencent, providing credit up to a certain level for customers, which they pay off by the end of the month. "When we have the opportunity to start on the monthly planning, then you can start getting into investment," he says.

Grab is also rolling out more financial services. It offers insurance to small businesses through a tie-up with ZhongAn, the large Chinese online-only insurance company. Next year, it plans to launch a wealth management service.

"Ever since we took over Uber's South-east Asia operations, we have pivoted to becoming a super app, and expanded our mission to provide economic opportunities for our millions of merchants," says Mr Reuben Lai, co-head of Grab Financial.


Even much smaller start-ups are making inroads into South-east Asia's financial marketplace. Oriente, a firm co-founded by Mr Geoffrey Prentice, who previously helped found digital telecommunications group Skype, has made more than two million loans to people who have downloaded the firm's apps in the Philippines and Indonesia. "We charge interest of 3 per cent a month, a lot lower than the pawnshop lenders that typically charge over 10 per cent a month," says Mr Prentice. "We are disrupting the pawn shops."

The same dynamics are in play in India. Paytm, founded in 2010, had more than 350 million registered users as of June. The number of monthly active users is much lower than the headline figure but still tops 100 million, according to the company. It uses the payment platform as a springboard for other services, including selling gold, offering insurance and exchanging foreign currencies.

Another Indian payment start-up, BharatPe, has used its platform to offer loans to the small retail merchants that form the backbone of the country's economy but are largely under-served by banks. It provides loans with face values ranging from 25,000 rupees to 250,000 rupees (S$480 to S$4,800).


It is an open secret that Asia's fintech feeding frenzy has been enabled by decades of aloof, inefficient and expensive service from traditional banks and other financial institutions.

A survey of 4,500 banking customers in Hong Kong, Singapore and Malaysia conducted this year by PwC, the professional services company, found that the proportion of respondents experiencing problems with their bank was 82 per cent in Hong Kong, 71 per cent in Singapore and 65 per cent in Malaysia.

Common frustrations included a poor online experience and long waiting times at their bank branches or on the phone, the report said. There exists a direct correlation between the number of "pain points" experienced by customers and their desire to open an account with a virtual bank, the report added.

Some executives are honest about the issues faced.

Mr Deniz Guven, who is leading Standard Chartered's efforts to build a new virtual bank in Hong Kong, says that when customers were asked to think of an animal that characterised their current bank, many chose "sloth, elephant or mosquito" to describe the inadequate service they received.

This legacy is now coming back to bite incumbent banks. But their reactions are very different; some are moving with an almost unseemly haste to embrace a virtual future while others appear unable to shake off their inertia.

Analysts say some mid-sized banks which fail to adapt may perish, or be forced to merge. Others may suffer a sharp erosion in their returns on assets. "In a world that changes this much, can a big bank get it wrong? Absolutely. Can that big bank be hurt? Absolutely," says Mr Metzger.

The message for traditional financial institutions appears to be: Adapt rapidly to the digital zeitgeist or risk becoming irrelevant. "We are seeing a lot of banks saying 'OK, how do I make sure I don't lose customers?'," says Mr Harjeet Baura, a partner at PwC. "Every single large bank in this market is running at 150 miles per hour trying to get ahead of these virtual banks by saying, let's take away the pain (of poor service)."


Standard Chartered, one of eight recipients of a virtual bank licence in Hong Kong, is a case in point. When its virtual bank opens for business early next year, the aim is to display a sharp improvement in terms of customer service, Mr Guven says.

A bank account will take just two minutes to open, rather than the typical Hong Kong experience of spending hours or even days standing in a queue. Credit cards, similarly, will be issued within minutes, he says. Currently in Hong Kong it is far from unusual - for example at the territory's biggest bank HSBC - to wait months for a credit card approval.

However, such attempts at self-improvement may turn out to be inadequate. Fintech start-ups not only offer speed and agility, they also offer a ready-made ecosystem. If you use Grab's payment app, you are also able to get discounts on a range of other services from massages and food delivery to ride-hailing available through the Grab "super app".

Banks cannot match this, so they are scouring the region for partnerships, says Mr Baura. But their longstanding emphasis on pushing products to customers has left them flat-footed. "When you sit there and talk about customers, they say 'yeah, yeah, yeah but what products can we sell?'," he adds. "Customers and their needs are not in the DNA."

Nevertheless, some traditional banks are making striking efforts. Citibank has gone further than most. The US lender works in China with WeChat Pay and Alipay, the two biggest payment platforms, by allowing its customers to link their credit cards to these platforms.

Citibank has partnered with Paytm to launch India's first physical unlimited-cashback credit card and it has also launched co-branded credit cards with start-ups, including Grab, this year.


But traditional lenders face an added problem. As they pick fintech partners, they must judge which are likely to survive what analysts predict will be a thorough winnowing process.

Even some of the best known fintech champions are haemorrhaging cash. A prime example is Paytm. In September, the Indian payment group's parent said its net losses for the year ending in March had widened to US$559 million after adjustment for fluctuations in exchange rates, from US$210 million for the previous year, while revenues were up only slightly to US$456 million from US$430 million.

For Gojek and Grab in South-east Asia, actual profitability is an aspiration rather than a short-or even medium-term goal. But at some stage, even the most well-heeled of investors will start demanding that the start-ups demonstrate a pathway to profitability. Those that cannot will perish.

For now, businesses such as Rice Basket Queen in Indonesia are reaping the benefits of the region's fintech revolution.

Ms Ruri, for example, had inquired about a 30 million rupiah loan from a traditional bank, but was discouraged after hearing of the hefty collateral it demanded as security.

With her fintech loan provider, however, collateral was not required. Ovo already had all the information it needed about her creditworthiness through the app logging her business transactions. She is now planning to open her new stall before Ramadan in April next year.