MY digital banking license wins are a positive
The Grab and Sea consortia (Grab-Singtel-Kuok Brothers; Sea-YTL) are
among winners of five digital banking licenses announced by Bank Negara.
Whilst favourable, this has been a widely anticipated development given
their strong e-wallet positions, as well as dominant positions in respective
digital service verticals. We remain POSITIVE on the sector as we believe
that both companies offer a proxy to ride the digitization of the ASEAN
economy and rising consumer affluence.
Grab could have advantage over others in MY
Grab and Sea have strong e-wallet propositions, which is a plus. In
Malaysia, Grab should have an advantage over other digital bank
competitors in our view, as its e-wallet market share is the largest (38% in
2020). We believe advantages should accrue from i) e-wallets being a
gateway for more financial services adoption; and ii) more data to better
understand customer needs and risk management. In a highly fragmented
digital financial services space, industry winners will likely have to
command strong i) share of mind, ii) share of time, and iii) share of trust,
according to Google, Temasek and Bain. Grab and Sea, by virtue of
dominant positions in their verticals, possess these. The digital banking
license in Malaysia is a step in enabling both to deepen regional digital
finance offerings and is a positive over the longer term.
Proposition strongest for the Malaysian underbanked
According to a survey of 7,000 by the Association of Banks Malaysia in 2019,
81% respondents are satisfied with services from incumbents. This leads
us to think that the opportunity lies strongest with the underbanked.
Google, Temasek and Bain estimates that the underbanked and unbanked
forms 55% of the Malaysian population.
Growth should ramp up post-foundational phase
Sea and Grab are currently hiring for financial product roles such as in
retail finance, insurance, mutual funds, loans and deposits. We think this
should provide a glimpse of the type of products that they aim to roll out
in countries where they have digital banking presence. We believe growth
could accelerate upon the lifting of some material constraints of the
foundational phase in 3-5 years’ time, as the current cap of RM3bn total
assets is removed