Grab, a South East Asian ride-sharing app active in eight countries, has rapidly added financial services such as digital payments, rewards, lending and insurance, on-demand services like food delivery, grocery delivery and package delivery as well as hotel bookings, on-demand video, a ticketing platform and health services to the list of its offerings. Now it is preparing its next move: obtaining a full banking license in Singapore in partnership with telecom operator Singtel.
“With over 70 % of the region unbanked or underbanked there is tremendous opportunity for us to grow our presence in payments and financial services in order to improve financial inclusion in Southeast Asia,” says Hooi Ling, co-founder of Grab, which operates in 339 cities, has a $14 billion valuation and boasts that it has added $5.8 billion to Southeast Asia’s economy. Since Grab’s founding in Malaysia in 2012 it has helped over 1.7 million micro-entrepreneurs open their first bank accounts, she says, noting that “our financial services business is now the only platform to have access to e-money licenses across all six major markets.”
Super apps like Grab, along with WeChat, Alipay, Go-Jek, Paytm, Kakao, Line in Japan, or Rappi in South America, are examples of the platform business model on steroids and are especially applicable for mobile-first markets. Facebook, Amazon, Google, Microsoft, Apple incorporated the platform business model years ago and, along with Tencent and Alibaba are the most valuable companies in the world, having taken over this position from the banks, oil companies and industrial conglomerates.
Grab is just one example of how challenges to established companies are increasingly coming from unexpected places. Along with Grab and Ant Financial, an Alibaba spin-off, applicants for full banking licenses in Singapore include a platform play led by gaming hardware company Razr, which has teamed up with a local supermarket operator, an insurance business, an Internet company and a regional wholesale marketplace for cars with the aim of creating a bank for millennials.
Boundaries between industries have been blurring for some time. But few would have guessed just a short time ago that a ride-sharing firm or a gaming company could become a bank. The providers of super apps can come from anywhere as long as they do a good job identifying pain points, provide great customer service, add on adjacent offers within the same app, and do it seamlessly across geographies and industries. “Today if you smartly combine established and emerging technologies with a data-driven and customer-centric approach organizations have a major opportunity for exponential growth,” says Cristian Citu, the World Economic Forum’s Digital Transformation Lead.
More than 80 organizations are participating in the Forum’s Digital Platforms and Ecosystems executive working group, part of the Forum’s Digital Economy and New Value Creation platform, to learn about super apps and emerging business models in geographies as diverse as South America, Africa and Southeast Asia. Grab was one of the star attractions at the Forum’s Digital Platforms executive workshop in Singapore last July and Grab CEO Anthony Tan and co-founder Ling are both invited to the Forum’s annual meeting in Davos this year.
Thriving in the digital economy is top on executives’ minds and some are making bold moves to fight back. Examples include Sberbank in Russia, which is investing heavily in an ambitious integrated ecosystem of platform ventures across multiple adjacent verticals (see the separate story), Reliance Industries in India (see the separate story), China Merchant Bank (see the separate story) and retailer Magalu in Brazil, which is turning into an open platform business and growing its valuation like crazy, notes Simon Torrance, a member of the Forum’s Digital Platforms & Ecosystems Executive Working Group.
Some established companies are considering breaking away from platforms controlled by tech giants. Ikea just announced that it will no longer work with Amazon and is rumored to be building its own platform.
Others are partnering with challenger platforms. Berkshire Hathaway and JP Morgan have formed a joint venture in healthcare with Amazon while ICBC — the world’s largest bank in terms of assets — has partnered with China’s Alibaba and its spin-off Ant Financial.
In Europe, companies ranging from Klockner, a distributor of steel and metal products, to energy company Vattenfall are trying to build marketplaces of their own. Henkel, a 144-year-old German conglomerate, has launched HenkelX, an open innovation platform that seeks to help European companies be competitive in the platform economy. Europe is also home to Fightback, a new movement that aims to enable business leaders to leverage platform business models, digital ventures and the special skills of tech entrepreneurs and use the power of platforms and ventures to build new business mod.
But it is still early days. most companies have still not figured out how to turn themselves into platforms or figure out how to work with existing ones.
At the Platform Economy Summit in September, an annual conference in Frankfurt on business model transformation for incumbents, successive panels of leaders from Europe’s chemicals, industrial manufacturing, financial services and automotive sectors, bemoaned the lack of true commitment to and breakthrough impact from digital investments and the fundamental human challenges they faced in turning around their supertankers, says Torrance, the organizer of the conference and a senior advisor on business model transformation. Many said they felt like they were running fast just to stay still, but not making any major progress.
“They increasingly recognize that they lack key capabilities that the ‘new, digital incumbents’, who have taken over their crowns as the world’s most powerful organizations with the most effective business models, have developed, says Torrance. “Their leaders have found it difficult to apply the habits of high performance to their position in a fast digitizing world: clarity of vision, ambition, energy, productivity, influence, necessity, courage. They are trapped by out of date organizational structures, IT, product development methods, metrics, and find it harder and harder to attract the best talent.”
Too often, he says, incumbents are resorting to keeping investors happy with share buy-backs and dividends, rather than investing in business model innovation and growth.“The good news is that incumbents have assets that are extremely valuable, if only they can be leveraged in new ways: customer bases, supplier relationships, trusted brands, cashflow,” he says. “My experience is that there are plenty of opportunities for incumbents to generate new growth and value, especially in complex industries where their domain knowledge and relationships are so deeply embedded…But they must be willing to fightback against old ways of thinking and acting.”
In many major industries such as consumer electronics, transport, advertising, entertainment and retail ‘challenger’ tech companies such as Apple, Uber, Google, Netflix and Alibaba have become the dominant incumbent But not in finance…yet. Tech companies, entrepreneurs and VCs are eyeing up this $22 trillion global market right now, and fintech innovation is rife.
According to a recent study by Google, Temasek and Bain & Company, almost 40% of Singaporeans are underserved by their banks, notes Grab. “Similar to our work in transport, we have taken it as our mission to make financial and banking services just as accessible to them as transport — all from the palm of their hand,” says a spokesperson.
Grab says it believes the value proposition of digital banks is clear: Southeast Asia is significantly underbanked, but mobile penetration is high. Digital banks offer an opportunity to build a mobile-only platform offering deposits, loans, asset management and insurance that is well regulated for consumer protection, without being constrained by the need to establish a large physical branch network. “Today our focus is on the Singapore license application, but we always remain open to opportunities in other markets as they become available,” says a company spokeswoman.
The risk for traditional banks and insurance companies is that, unless they start to make bolder moves right now, they become unprofitable legacy utilities with slowly eroding impact on the role and function of money, says Torrance.
Research by the London Business School and University of Oxford supports that thesis. “Our study of the rise of super app platforms has revealed that its success hinges on a new source of firm value that is increasingly valuable in the age of the Fourth Industrial Revolution: payments data,” says Nina Teng, a Doctoral Researcher. “It’s important for incumbents to consider who will own and control this payments data when deciding whether to create their own platform or to partner with an existing one; in addition to being mindful of the great responsibility that comes with data ownership with respect to safeguarding consumer data privacy and protection.”
All these developments create even stronger imperatives for traditional banks and financial institutions to create bolder platform strategies, says Torrance.
“If you look at Return on Equity (RoE) scenarios for incumbent banks, it’s not looking rosy,” says Torrance. “If digitization continues to bite, and more new entrants like challenger banks, fintechs, hyperscale platforms and super apps nibble away at the most profitable parts of their business, then you could see a slide into very unsustainable commercial positions. Even if interest rates rise, the global economy warms up and the banks get super efficient — and that’s a lot to ask — we’re looking at tiny RoE growth. “
The only way forward to new growth and value is for banks to think beyond traditional banking with a three-part platform and ecosystem strategy, he says. The first step is to embed their financial services within other platforms — essentially a new approach to distribution. Then, banks need to create much more vibrant marketplaces for banking and non-banking services, to help retain customers by adding more value. The third step to create new platform-based ventures in ‘white space’ areas beyond banking. “This is about accessing new customers in new ways,” says Torrance. “If you can connect the dots between all three parts, then you can leverage much more data, play a stronger role in the digital economy, and create a path to RoE growth and shareholder value. “
Sberbank is one of a relatively few banks that have decided to invest wholeheartedly in a dynamic platform and ecosystem approach (see the story) “It’s a good exemplar of integrating a bold platform thinking into an overall growth strategy,” says Torrance. “Sberbank is already one of the best RoE performers in the world, but they are not complacent. They have anticipated the threats of disintermediation and are now executing at pace a platform-inspired business model renewal.”
Stepping Up The Pace
But all too often incumbents from banking, transport and retail sectors have been too slow to act. Some have even allowed new entrants to take the driver seat, with their support. “Incumbents were well aware of disruptive innovations introduced by startups early on when these upstarts were just emerging in the industry and had a low market valuation,” says Teng, referring to her research at the London Business School and University of Oxford. “By the time the incumbents decided to invest in these innovative startups several years later, they had to pay a steep premium for partnering with startups that had become unicorns. The lesson here is that incumbents should be prepared to have the right organizational structure and support from top management in place to enable them to adapt quickly to disruptive innovations — whether it means to collaborate or compete with, or even undermine, new entrants.”
Established companies in theory have the resources, the might and access to the customers but what keeps them back is their culture and lack of customer orientation, says Michael Jacobides, the Sir Donald Gordon Chair of Entrepreneurship & Innovation at London Business School, where he is Professor of Strategy. “They are more focused on functioning product lines which makes them less well suited to seize opportunities that are based on real customer needs. There is nothing in terms of business calculus that keeps them back. It is their inability to see the opportunities and even more so their inability to mount an effective response and to put into place the right organizational structure to make sure that it happens. “
The more successful ecosystems are orchestrated by an established market share leader, says Jacobides. These leaders are best positioned to attract partners with the right skills and funding. The idea of starting a digital ecosystem might seem strange to some large incumbent players, who are used to going it alone but it’s better for them to try and shape the new digital landscape, he says, especially if they have advantages that rivals just can’t match, most notably a strong user base. Research Jacobides conducted with consultancy Boston Consulting Group (BCG) shows that 83% of digital ecosystems involve partners from more than three industries and 53% from more than five. The research showed that the more partners an ecosystem has, and the more industries they come from, the better that ecosystem will fare. While the average ecosystem has 27 partners, the most successful digital ecosystems have about 40, according to their research. The most successful also cut across a great number of industries and have advanced in a lot of different countries. Their analysis shows that 90% of ecosystems involve participants from more than five countries, and 77% of ecosystems span developed and emerging markets. The orchestrator of a winning ecosystem must successfully manage dozens of partners, across multiple industries and countries, and different types of relationships, says Jacobides.
Grab is doing just that. It has partnered with Toyota, Hyundai, Booking Holdings, Microsoft, Mastercard and national champions and industry leaders such as Singtel, Thailand’s Central Group and Malaysia’s Maybank, and the Philippines’ SM Group. Some, like Toyota, opted to invest. The Japanese automaker bought a $1 billion stake in Grab in June 2018. Grab says each partnership has its own unique benefits. “The interest of our partners demonstrates the great opportunity they see in Southeast Asia, as well as Grab’s ability to capture it,” says a company spokesperson.
The super app’s ability to forge such partnerships allows it to scale at speed and bring a broader set of services and an even better user experience to its platform, strengthening its network effect.
Incumbents need to decide what is in it for them and be clear about whether it makes sense to partner with super apps like Grab or start their own platform. “Ask yourself what value do you think you can add? Where do we play? What is the role we want to undertake? Who do we want to combine with? Is it likely that our organization is decentralized enough to take the right decision? ,” advises Jacobides. “Delegation of authority is an important issue. What is the organizational structure that will allow — not as a PR exercise — real value to be added? The challenge is to develop a strategy, understand what the key questions are and build in the right way for the organization.”