Grab a seat at the embedded finance table

Grab a seat at the embedded finance table

by Tilman Ehrbeck

We’re excited to announce Flourish’s participation in Grab Financial Group’s (GFG) $300 million Series A funding round which was covered in the Financial Times earlier today. Through this investment, Flourish has yet another opportunity to learn, participate in, and help advance one the most important trends occurring in fintech – embedded finance.

Embedded finance integrates retail financial services such as payments, short-term credit or insurance into digital platforms that people use daily, including ridesharing, shopping and e-delivery apps. In Southeast Asia, a region of more than 650 million people, only half of the adult population has a bank account. The penetration of other financial services such as credit, insurance, investments is even lower.

While the digital economy of South East Asia has grown multifold on the back of increasing mobile and internet penetration, traditional banking services continue to elude the mass population across the region. GFG has an unique opportunity to reach a traditionally un-served and underserved population by bringing financial services to customers where they are and when they need them — embedding relevant products within everyday mobile app use.

The Rise of Embedded Finance in Asia

Asia, in particular, is at the cutting edge of this structural trend in financial services first pioneered by Alibaba’s Ant Financial in China. And South and Southeast Asia are poised to catch up with China in terms of adoption of mobile apps. According to a recent industry study, consumer usage rates of fintech-powered services have doubled and even tripled across key regional markets over the previous two years in Asia– a trend that was accelerated by the Covid-19 pandemic.

Today, GFG’s parent Grab has more than 200 million registered users in eight countries and has expanded way beyond its original ride-hailing function. It offers food delivery, on-demand video, grocery shopping, hotel booking and more. By embedding financial services in a trusted platform that already is a natural owner of customer relationships, there’s the potential to reach more people with more relevant services at lower costs than the traditional retail banking system.

We’ve been working with GFG led by Reuben Lai and his executives for some time. With the company’s Series A, we saw an exceptional opportunity to work with a team that has the opportunity to shape the market across an entire region, consistent with our Fair Finance Principles that frame what we believe makes for a fair and efficient retail financial system for all.

The Grab Advantage

Leveraging the scale and support of Grab, GFG has exciting prospects. Traditional financial service providers have struggled to reach the long tail of small-value customers and are unable to assess the large number of customers without formal income sources. GFG has the advantage of tapping into a highly engaged customer base from the Grab ecosystem comprising drivers, riders and merchants. Using the rich insights on their customers behavior and spend patterns, customized credit and insurance products are offered through simple user interfaces that do not inhibit first time consumers of financial products. GFG leverages the extensive ecosystem of offline merchants and delivery network to help offline to online transformation for digital payments.

Contextual products like vehicle insurance, with a daily reduction of premium from earnings or short-term advances, allow drivers to manage their cashflow gaps and bear sudden expense shocks. Customers with no previous borrowing experience or credit bureau score are able to use credit based on their transaction history and digital trails. Small merchants can get access to much needed working capital and grow their sales. While these customers get access to more tools to manage their finances, embedded finance also results in lower attrition and higher engagement, thus creating a virtuous cycle of a win-win proposition for GFG and its partners.

Economic empowerment through financial inclusion

Grab and GFG have a strong track record in serving a customer base that is often operating in the semi-formal economy, and consequently, neglected by traditional banks. GFG has articulated a goal to improve “access to financial services across payments, rewards, lending and insurance to enrich the lives of 100 million across Southeast Asia.”

The Flourish team is encouraged by this goal, and by GFG’s long-term commitment to serving this population and helping build a more inclusive financial system in the region. We are also very excited to have a front-row seat in their journey, and to apply our expertise and network of government, business, institutional partners to help GFG succeed.