Dumb pipes, mobile money, smart move?
Telcos are pioneers in mobile money
The poster-child for the transformative value of mobile money is M-PESA, which when first launched in Kenya in 2007 by Vodafone and Safaricom, catalyzed financial inclusion and economic development in the country. Singtel and its associates are major players and pioneers in mobile money in the region. For example, Globe’s GCash, launched 2004, even before MPESA, has evolved into an emerging superapp in the Philippines. As part of Singtel’s strategic reset, it is tying up with Grab on regional digital financial services. We are constructive towards this venture given the case studies from our report.
Telco-digital native tie-up augurs well for GXS Bank
GXS Bank, Grab-Singel’s 60/40 JV in digital financial services, brings together one of the leading telco groups in Asia and one of ASEAN’s leading superapps. There is a strong precedent for success in digital banking, with banks launched by KT Corp (telco) and Kakao (superapp) in South Korea profitable in 2021. GXS Bank, backed by both a telco and a superapp, will find success in scaling rapidly and tapping onto regional telcos to gain market share and leveraging on data to service the under-banked in the region.
Globe GCash is an emerging Filipino ‘superapp’
Following a carve out in 2015 and the receipt of investment from external investors in 2017, including Warburg Pincus and Chinese superapp Alipay, GCash rapidly gained adoption, with 2Q22 registered users at 66m (60% of Philippines population). GCash launched mini-apps in 1Q21, modelling itself after Alipay. With Grab and Singtel tying up, we see opportunities for Singtel to transfer best practices from its associates to the joint venture.
Reiterate BUY on Singtel
GXS Bank has won bank licenses in Indonesia and Malaysia while in Singapore it expects to launch in 4Q22. With its huge existing customer base and established network of partnerships, we expect this digital bank to come up with new financial solutions that leverage its existing ecosystem. We think that this will be an exciting opportunity for both Singtel and Grab, as GXS Bank has a formidable set of assets and significant synergies to make banking more accessible and intuitive, and create more value-add for the partners’ customers. While we currently have a SELL on Grab, we are positive of the development of its digital financial services segment. Reiterate BUY on Singtel.