Grab’s financial services expansion shows power of data

The ride-hailing app says its low default rate is a result of the credit profiles it has built on its drivers. No wonder it is expanding in lending and insurance.

Singapore-headquartered Grab wants to attract 100 million entrepreneurs across Southeast Asia onto its ride-hailing platform by 2020.

The ambitious target outlined by co-founder and group chief executive Anthony Tan on Monday sees financial services enabled by its data-gathering platform as a key part of the enticement.

Grab’s default rate on its US$737 million loan book is below 1.5%, which beats the average for similar emerging Asian markets lending to small-to-medium sized businesses, said Jason Thompson, the managing director for GrabPay across Southeast Asia.

The loans were extended across roughly two years helping its 2.6 million drivers fund such purchases as a mobile phone to use Grab’s apps, or to rent or purchase cars.

“We have a rich amount of data on our drivers,” said Thompson, such as the hours they work and their drawdown of capital form Grab’s digital wallets.

Grab also collects contextual feedback from its customers such as: “This driver is really aggressive; the way he talked to me was awful.” It adds this into the mix along with the data its telemetrics gather, such as the driver consistently brakes really hard or accelerates fast. It can also look at places and the times of driver locations to build its credit scores.

Grab can also predict the drivers’ growth in earnings and hence their ability to repay loans.

“We have so many taps of data, we can then contextualise this and make educated assumptions as to what we think the default rate would be,” Thompson said on the sidelines of the Money 20/20 Asia conference in Singapore.

Then after deployment of capital it continues to refine its financial models.

GREATER VISIBILITY

Only 27% of adults in Southeast Asia have a bank account, according to World Bank estimates, making it extremely difficult for banks to assess credit and risk ratings by analysing traditional data points such as bank account details, income and spending habits, or existing debt. This in turn restricts consumer access to credit.

“The completely invisible consumer is now visible for financial services,” said Thompson.

Grab’s ability to analyse this data is going to get a boost from its freshly sealed joint venture agreement with Credit Saison, one of Japan’s largest consumer financing companies. Together the partners will launch Grab Financial Services Asia, which will provide loans and lending services to consumers, micro-entrepreneurs, and small businesses across Southeast Asia.

“We just accelerated our learning. We’re saying hey, come and help us understand this data. How can we use it, how can we go faster,” Thompson said.

Thompson declined to say who owned the end user data or if Credit Saison would be able to sell its products directly to the end user. 

“We’re playing to our strengths: we’re a platform and data company [and] we’ll play to that strength. They’re a lending company,” he said.

While Grab is clearly moving onto banks' traditional turf, it still relies on financial institutions to a certain degree. Grab's drivers open accounts at banks and go through their Know Your Customer processes before they transfer money into Grab's digital wallets. It has about 60 financial institutions connected to its platform. 

Grab also signed a partnership with property and casualty insurance company Chubb to offer insurance for Grab’s driver-partners and customers focused on income-protection policies.

To be sure, Grab has offered insurance policies before but mainly in the form of discounts on policies provided by local insurance companies. The partnership with Chubb is of a much larger scale with a more strategic approach to insurance.

On Monday, Grab branded this nascent fintech platform within the Grab’s ecosystem as Grab Financial, encompassing payments services, rewards and loyalty services, agent network services, and broader financial services.

These announcements move Grab beyond both traditional ride-hailing and mobile payments and payments services into becoming an on-demand transportation and fintech platform in Southeast Asia.

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