BigPay, Grab Financial just the start of Transport’s jump onto Fintech bonanza in Asia

22 March 2018, Global – Last week saw the official launches of Grab Inc’s Fintech platform (Grab Financial Services) and AirAsia Group’s digital wallet (BigPay), reflecting the continued investments in Fintech by the Asian transportation giants. Grab completes over 2.5 million rides per day via its ride-hailing services in 8 South-East Asian countries while AirAsia Group is Asia’s largest Low Cost Carrier (LCC) with 65.7 million passengers in 2017, the commonality essential to Fintech success for these two seemingly different transportation companies is their highly valuable troves of user data.

 

The business model: positive feedback loop from user data to e-wallets and onto value-added financial services and back

Whether it is airlines, last mile delivery, ride-hailing; the transportation of people and goods from one location to another are a major part of everyday life, more so in the huge and densely populated cities prevalent in Asia. The user data obtained via the provision of these services can be alarmingly detailed and is only set to increase with technology advances.

The basic business model works as follows –  the transportation company’s customer base numbering in millions serves as a source of both data and users for its proprietary digital wallet/e-wallet. The proprietary e-wallet then serves as a gateway to more lucrative financial service offerings and 3rd party merchant partners. The salability and profitability of these lucrative financial service and 3rd party merchant products to these users is enhanced by the transportation company’s existing data on these users. At the same time, results from the sale of these financial services and 3rd merchant product is also used to enrich the transportation company’s troves of user data.    

Chart: Transportation Giants’ Fintech Business Model – Positive Feedback Loop


Chart: Transportation Giants' Fintech Business Model - Positive Feedback Loop

Self-driving vehicles will be truly transformative WHEN it finally happens but Fintech is NOW

The ride-hailing unicorns of Asia; Didi Chuxing, Grab, GO-JEK, Ola would not exist without technological advances in big data, cloud computing mobile data service and smartphones. Tech lies at the heart of these companies so it is no surprise that they have sought to monetize their user data from the beginning.

Many see autonomous/self-driving technology as the ‘El Dorado’ for these ride-hailing companies in view of their huge amount of ride trip data. Self-driving technology while transformative when it finally happens, still faces massive regulatory, insurance, manufacturing, technological, public acceptance obstacles and it may even be decades before fruition.

Furthermore, transformative technology cuts both ways; even if self-driving technology were to miraculously work perfectly, what would happen to those unemployed drivers? Didi Chuxing alone works with up to an estimated 4 million drivers in China. In China, where the government’s social contract with its citizenry is contingent on stability and continued economic prosperity, one can easily imagine perfectly functioning self-driving cars being buried under a mountain of red tape until the Chinese government can figure out how to placate the millions of unemployed drivers.

The private investors behind these ride-hailing unicorns have been remarkably patient despite cash burn in the billions that is still ongoing. However these ride-hailing unicorns have never been through a severe economic downturn and investor sentiments can be fickle especially in the face of liquidity crunches.

It only makes sense to seek an alternative lucrative revenue stream and Fintech is the low hanging fruit that is ripe for picking. It is no wonder that e-wallets and the accompanying financial services are being rolled out as we speak: GO-PAY, Grab Pay, Ola Money, 19Pay (bought by Didi Chuxing in 2017).

Once the bane of transportation, Last Mile Delivery is proving to be a goldmine for data mining 

Last mile delivery has long been the most problematic part of any supply chain. For Business-to-Consumer (B2C), that difficulty increases exponentially and unpleasant surprises are the norm. However B2C Last Mile delivery is proving to be a goldmine of user data particularly for those who have focused on food delivery:

  • GO-FOOD (This GO-JEK entity is Indonesia’s dominant food delivery business and may prove to be its trump card in GO-JEK’s ongoing market share war with Grab )
  • Meituan Dianping (China’s O2O giant, valued at an estimated US$30 billion, entered the digital wallet space with its purchase of Qiandaibao in 2016 and has recently acquired an insurance license)
  • Ele.me (China’s other food delivery giant and likely to soon be wholly-owned by Alibaba, Ele.me will be a critical part of the Alipay/Alibaba ecosystem)

Airlines are laggards in data mining but potential dark horses await

Unlike their ride-hailing and last mile counterparts, no airline in the world currently sees itself as a tech company that monetizes user data although AirAsia (AIRA:MK) and Singapore Airlines (SIA:SP) are clearly moving toward that direction. Neither can airlines’ flight frequencies match the trip frequencies of their counterparts.

However, airlines have access to different and potentially more valuable types of user data due to their international operations and extended Preflight and Inflight customer interactions. Airlines also enjoy greater customer loyalty by virtue of differing service standards, e.g. SIA’s premier branding. Control of air routes and airport landing slots also create oligopolistic market conditions, e.g. American and Chinese carriers.

By contrast, consumers see little difference in their ride-hailing and last mile delivery service providers which goes a long way in explaining mutually damaging, cash-burning subsidy wars, e.g. GO-JEK vs Grab, Ola vs Uber, Ele.me vs Meituan.

As AirAsia has demonstrated, airlines can pursue Fintech profits in a similar fashion to the ride-hailing and last mile delivery companies. The airlines’ access to different and potentially more valuable types of user data make them natural partners for the ride-hailing and last mile delivery companies.

Alternatively, the airlines can head in a different direction through a blockchain-based airline loyalty digital wallet like Singapore Airlines which we believe, will move towards more partnerships involving e-commerce, retail and hospitality.

It is interesting to note that Grab and SIA announced an extensive partnership last October. Conventional wisdom would have predicted an AirAsia and Grab partnership instead. AirAsia and Grab have identified South East Asia as their Fintech target market and both have more similar corporate cultures having been founded by overseas-educated Malaysian entrepreneurs (AirAsia’s Tony Fernandes, Grab’s Anthony Tan and Tan Hooi Ling) who still run their companies, unafraid of aggressive expansion even at the expense of making mistakes. Grab Inc’s partnership with Singapore Airlines indicates that its ambitions may extend far beyond its newly formed Grab Financial Services.

Related Reports: 

Airlines are sitting on US$100 Billion Inflight Big Data goldmine 

Are airlines finally getting serious about Tech or is it just ‘Hot Air’?

Singapore Airlines Embraces Passenger Data Monetization to Escape Value Trap Label

More upside as AirAsia (AIRA:MK) pursues Big Data monetization

 

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