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Grab Chief Operating Officer Alex Hungate on the future of finance

Grab Editorial

. February 29, 2024 . Regional

Original article first published on NIKKEI Financial on 5 January 2024. Translated and republished on Inside Grab with editor’s permission.

Grab is now focusing on its financial services business. Just as they revolutionised the taxi industry with their dispatch of vehicles, they have obtained banking licences in Singapore and Malaysia to bring new life to the financial services industry.

In an interview with Nikkei Financial, Grab Chief Operating Officer and former HSBC executive Alex Hungate shares his predictions about the future of finance.

Editor: You were an executive in HSBC’s personal financial services division and CEO of its Singapore operations before you became Grab’s COO in January 2022. How has the financial industry changed since you worked at HSBC?

Hungate: When I joined HSBC in the 2000s, most of the services were still delivered through branches.

While subsequent technological innovations have enabled traditional banks such as HSBC to offer services via PCs and smartphones, fintechs have emerged at the same time. Now there are more providers of banking services and customers can choose the best service from many options.”

The main characteristic of fintech is that financial products and services can be ‘fractionalized’ and offered cost-effectively and quickly. For example, travel insurance offered by Grab can be purchased via smartphone for as little as a few dollars per day. Traditional financial companies are dependent on heavy infrastructure and invest a lot of money there, making it difficult for them to offer small-scale financial products.

Fintech leads the way in personal finance

Editor: While there are an increasing number of fintechs growing into unicorns (privately owned startup companies worth more than $1 billion), it appears that traditional financial institutions still hold the upper hand in the global financial industry.

Hungate: The size of the balance sheet of the traditional banks is a big advantage for them, so I’m not expecting that traditional banks will go away anytime soon. This is especially true in the area of corporate banking services, where the strength of the balance sheet is critical. However, as for innovations in the personal finance services, fintechs will soon lead the way. Fintechs will gradually take market share from existing financial services and grow to become core players in their respective fields. For example, the number of accounts at KakaoBank, a South Korean bank specialising in online banking, has already grown to a scale surpassing that of traditional banks.

In Southeast Asia, nearly 65 per cent of the population remains unbanked or underserved.

It means traditional banks are only serving 35 per cent of the population, and there is a huge opportunity for startups like Grab to use technology to fill this void. We have transformed mobility with our ride-hailing service and the food service industry with our food delivery service, and now it’s financial services’ turn.

Alex Hungate joined Grab in January 2022 after serving as an executive for Reuters Asia Pacific, CEO of HSBC Singapore, and the President and CEO of SATS, a leading airport services company. With his extensive experience in the financial industry, he leads the launch of Grab’s digibanks in Singapore and Malaysia as Chief Operating Officer (COO). At Grab, which has many young employees in their 20s and 30s, he plays a pivotal role in the organization. He commutes to work every day by bicycle, which takes about 30 minutes, and his favorite menu item to order from GrabFood is "Barachirashi. He holds an MBA from Harvard Business School.

Editor: Grab opened an online-only bank in Singapore in September 2022 and in Malaysia in November 2023. In January 2022, Grab invested in a small and medium-sized Indonesian bank and switched its business model to an internet-based model. What was the experience of starting a bank like for Mr. Hungate, who was previously an executive at a large bank?

Hungate: I joke with my colleagues that I think that nobody else has launched three banks (effectively) in a single year since the Rothschilds in the 18th century. It has been a rare and exciting experience.

At HSBC, even if I wanted to start something, there were already strict categories of financial products and services, so I couldn’t make much of a difference. This time, because we started the digital bank from scratch, we were able to think thoroughly about what kind of services our customers wanted us to provide and how. The sheer speed in which the banks were launched simultaneously in three countries is also characteristic of a startup whose strength lies in tech.

No conventional banks would be able to do it.

The advantage of almost zero customer acquisition costs

Editor: Grab has long been involved in the e-money and lending business as a non-bank. Why did you need to enter the highly regulated banking industry?

Hungate: Obtaining a banking licence gives us the privilege of collecting deposits. We can collect deposits from customers and small businesses at relatively low cost and use those deposits to lend out larger amounts of money than we could before. We can offer loans with longer terms than non-banks, and we can also sell asset management products other than deposits.

Major banks in Singapore such as DBS Group Holdings, are also increasing their investments in digital. It seems that Grab can’t make that big of a difference to the traditional banks.

There are three magical things about the Grab banks. First, Grab already has 36 million customers throughout Southeast Asia who use its ride-hailing services and food delivery services daily, so we can acquire customers with little or no cost. Since traditional big banks don’t have this ecosystem, acquiring new customers can be costly.

Next, we can use the vast amount of data we have from our users for credit underwriting, so we can keep the percentage of bad debts low. The important point here is that by looking at the data from a different angle, it is possible to lend to customers who have been turned down for loans by other banks. For example, a Grab driver who is on temporary leave due to illness would have difficulty borrowing money from banks because she has no regular income.

But we know that she worked diligently before her leave of absence and how much money she was making each day, so we can lend her money. This is our company’s reason for being that traditional banks cannot provide.

Finally, the cost of recovering the funds is low because the drivers and merchants with whom we do business repay the loan from the cash flow generated by their daily sales within the Grab ecosystem. This also cannot be imitated by traditional banks.

Editor: What kind of data do traditional banks not have but Grab has?

Hungate: Our artificial intelligence (AI)-based credit underwriting model uses more than 100 data variables. Of course, there are variables that traditional banks also use, such as bankruptcy records from credit bureaus, but besides that, we utilise a lot of data obtained through our mobility and food delivery businesses.Data about drivers, for example, include daily hours worked, income, customer reviews, and driving accident history.

If a driver is highly rated by customers, does the AI consider that driver to be highly creditworthy, and does this increase the likelihood that the driver will be approved for a loan?

The customer rating is only one of more than a hundred variables, but it does.

We find that customer ratings are significantly correlated with the ability to repay.

If the driver is deemed capable of repaying the loan, he or she can borrow money at a lower interest rate.

To be a pioneer in the use of generative AI

Editor: How do you see the potential for the development of generative AI as represented by chatGPT?

Hungate: I think what sets generative AI apart from traditional AI is the exponential improvement it brings.

We believe that the next wave of transformation will be brought about by generative AI, and if we don’t make good use of it, we will be left behind by other startups that have successfully introduced it. As a tech company, it’s our intent to be one of the leading users of generative AI in Southeast Asia.

We are already using it in our actual operations. For example, using generative AI to make call centre automated responses more human-like and closer to meaningful conversations.

The languages spoken in Southeast Asia include many different dialects, and we use AI to automatically identify the dialects spoken by our customers and convert them into usable data.

Editor: Even globally, traditional bank lending remains predominantly secured. If AI can be used to analyse diverse data and lower the rate of loan defaults, will loans that do not rely on collateral become mainstream in the future?

Hungate: There are many types of financing. For example, mortgages can be lent at lower credit interest rates because they are secured by collateral. Given that, it seems unlikely that mortgages will switch to unsecured financing anytime soon.

But with its wealth of data, fintechs should be able to revolutionise the secured lending space (not just unsecured lending, which is already transforming). To become a ride-hailing service driver, one must first own a vehicle, and this purchase could be funded through a secured lending scheme.

Editor: A number of Japanese companies have invested in Grab, including Toyota Motor Corporation, and Mitsubishi UFJ Financial Group (MUFG) is one of them. What advantages does the capital and business alliance with MUFG have for Grab?

Hungate: MUFG was an early investor to pay attention to fintech in Southeast Asia, and is a leader among financial institutions in identifying and supporting promising fintechs in the region.

The knowledge that MUFG has on fintech can be effectively utilized in developing our future strategies. We are also collaborating with Ayutthaya Bank in Thailand, which was acquired by MUFG, and VietinBank, in which MUFG has an equity stake, in the financing business.

Not intending to be a universal bank

Editor: What do you expect banks to look like in 10 years?

Hungate: Let me dare to put it in a controversial way. From the consumer’s perspective, there will be no banks in 10 years. What I mean by that, is that consumers will no longer be aware that they are using a bank’s services because financial services would be integrated into a variety of other lifestyle-related services.

On the other hand, from a regulatory and risk management perspective, the banking license framework will remain unwavering. The bank’s privilege of collecting deposits naturally comes with responsibility. Proper risk management and compliance with laws and regulations will remain essential. It will be a world ‘behind the scenes’ of consumers’ lives, and they will not need to be aware of the presence of banks in their daily lives in 10 years.

Editor: Will there be no more bank branches or ATMs as digitisation progresses further?

Hungate: The answer is self-evident. If all financial services are embedded and seamlessly offered within a variety of everyday services, there is no need to bother stopping by a branch or ATM.

What consumers would want a branch or ATM to remain then?

Editor: Will Grab be a financial conglomerate in 10 years, like DBS is today?

Hungate: No, not at all. We’re not intending to be a huge universal bank. What we aim for is to be a bank that provides value to our customers. We will continue to use our financial capabilities for the ecosystem that Grab has in place to create value for our customers and shareholders.

Reporter’s Perspective: Bankless, a mainstay of the competition

"Live more, Bank less” (Live hassle-free with invisible banking)—this is the motto of DBS Group Holdings, Singapore's largest bank. Although Mr. Hungate's words may seem radical at first glance, "In 10 years, there will be no more banks", but his vision for the bank is not so different from that of DBS. The competition between traditional major financial institutions and fintechs to embed financial functions into customers' daily lives should intensify in the future. More than a decade after its launch in 2012, Grab, with a market capitalization of about $12.5 billion, is now in a position to take on challenges from startups. When Mr. Hungate said that if they did not make good use of generative AI (artificial intelligence), "we will be left behind by other startups," he seemed to mean it. If the world is moving at such a speed, Japan, too, needs to expand its financial possibilities through vigorous competition among old and new financial players to keep up with the competition.

NIKKEI Financial Deputy Editor Takashi Nakano

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