It was in the news yesterday that Grab is looking to roll out wealth management solutions in 2020.
This strategy makes a lot of sense. Our view is that this is not so much a product play, as it is distribution play – a radical change on the distribution of wealth products in the region.
If executed well, this could outpace all of the current wealth management startups combined very quickly. Because in distribution, Grab already has an upper hand.
Why wealth is hard for upstarts
In our Southeast Asia predictions for 2019, we mentioned that many robo advisory startups in Singapore would fail. An obvious challenge in more sophisticated markets like Singapore and Malaysia is the customer acquisition cost.
Banks and established platforms spend hundreds and sometimes thousands of dollars to acquire each customer – that is why they are typically chasing customers with larger ticket sizes or selling products that have good revenue contribution to justify the costs. There are some attempts to go into more retail side of wealth market, but it is usually not the core.
It is hard to imagine independent startups burning too much money in a sustained way to fight for customers, especially in the current investment environment. We already see that in different markets B2C wealth management/robo advisory startups pivoting into B2B or B2B2C to avoid the rising customer acquisition costs.
Do note that a key difference between robo advisory/wealth management startups and the likes of Revolut and TransferWise is that the latter have a much more immediate appeal to a much wider audience. Based on growth metrics, it is much easier for investors to back the latter.
Besides, another problem some of our robo friends are saying is it is quite costly to educate retail customers who do not yet have exposure to or understand ETF and other wealth management products. Education costs will eventually go down – the question is who bears the heavyweight of initial education.
Key advantages of Grab
Grab’s key advantage is that it is already transacting with tens of millions of customers on a daily basis, through mobile. And it has a payment solution.
So it does not need to acquire customers, it just needs to convert. That reduces costs significantly – and also allows it to educate customers in a more gradual, and less costly way. It is unlikely to bear the high cost of customer churn as well because customers still need to transact with Grab for rides, food and other use cases.
Besides, with its own ecosystem including payment, the cost structure is even further reduced, allowing it to offer more flexible products on a more frequent basis.
How to be successful
The success is not guaranteed, of course. However, precisely as described above, Grab will be able to test the market in a multi-prong approach and, if executed well, quickly find the sweet spot to scale.
Yu’ebao, a wealth management solution offered by Alipay, not only gets customers to put their balance within the Ant Financial ecosystem, but also strengthens the whole ecosystem and adds additional possibilities – data, credit scoring etc. It is now the biggest money market fund in China. Here it is a distribution play too, which in turn allows one to innovate faster on products.
So it can be done.