Inside GrabPay’s Digital Payments Playbook

Muhammed needs six new computers for his internet café in Jakarta. It’s a small café, and six machines are enough, but the ones he has are obsolescing fast and the young entrepreneur knows it’s time to invest in new equipment.

Replacing the computers will cost him approximately $3,500: a big investment, but one that will hopefully one day pay for itself by generating new revenue. However, getting a small business loan through traditional channels will cost more than the new machines can earn back.

An investment without returns — indeed, which loses the merchant more than it gains him — can hardly be called an investment. So what’s a business owner to do? The smartest answer seems to be, “Nothing.”

“The system creates a natural barrier to growth,” observed Jason Thompson, managing director for GrabPay, Southeast Asia. Grab, which started as a two-way marketplace for ride-hailing, is one of many organizations investing in the region to try and break down that barrier.

In a recent interview with Karen Webster, Thompson outlined the reasons Grab is uniquely positioned to give the Southeast Asian economy the shove it needs to move beyond cash and serve all members of the population, not just those who can afford to work with banks.


Southeast Asia’s Middle Economy

Muhammed’s dilemma isn’t unique. In cash-first environments like Jakarta, Indonesia, and the majority of Southeast Asia, middle economy participants like Muhammed are essentially invisible to banks — and, in turn, when they’re short on money, the bank is the last place they’ll go.

Muhammed knew, with even just a $1,000 loan, that he could quadruple his business and incrementally pay it off. He was able to tell Thompson exactly how much he needed to borrow and how much he would be able to pay back each week. The only thing in the way was the system itself.

According to Thompson, the young entrepreneur’s level of business insight was not exceptional. Across the region, other merchants like Muhammed are sharply aware of their cashflow, supply chain and business growth needs. Just because they don’t have a lot of money by American standards doesn’t mean they don’t know how to manage what they do have.

“These people are so smart — they learn quickly and are willing to try anything,” Thompson said. “They already trust us for transport, so they’re willing to sit down with us and learn.”


Market Position

Thompson explained GrabPay’s platform is built around offline retail as more developed economies knew it 50 years ago — around convenience stores and the local people who provide services — and not around mobile infrastructure, as is the case with products like mPesa.

However, he said, Southeast Asia is gearing up to leapfrog the plastic phase in favor of card-not-present (CNP) commerce, just as China began to do 10 years ago. Thompson doesn’t think the Southeast Asia transformation will take nearly as long. In fact, he predicts that the transformation China has seen over the last decade will occur over the next two to three years in the rest of the region.

Thompson sees three factors positioning Grab for the win as that transformation takes place.

First, the company has already learned one of the most important things about success in the region, and that is that no two markets are alike. Each country is unique, and Thompson says it’s critical to grasp the fabric of each one rather than measuring them against one another.

“With each new country, I just go in with no expectations and try to learn about it,” he said. “Even within a country, each island of Indonesia is very unique. Local context and execution is the difference between success and failure.”

That’s why Grab has made local agents a key component of its Southeast Asia strategy. Thompson noted the only way to successfully bring a new type of economy to the region is boots on the ground, and lots of them. The company has 650,000 local agents in Indonesia, living in local communities and helping their neighbors learn about the platform and CNP payments, often for the first time.

That position and scale is factor number two in Grab’s favor.

“We already have scale in a geography where no one else has scale,” Thompson said, citing the company’s 68 million mobile downloads and 2 million drivers, as well as those 650,000 agents.

Plus, while the company is careful to distinguish between Grab, the transport marketplace, and GrabPay, the financial services platform, Thompson said the existing layer of trust for the transport brand will be a critical component in adoption of Grab’s cashless payments platform.

The company has worked hard at safety and security as a transport network, Thompson said, so it has a good record in the region that can only help as it endeavors to branch out into new functions.

The third factor Thompson mentioned is the company’s focus on serving people and solving problems — specifically, the people of Southeast Asia and the problems that they face.

The products and services Grab is offering in the region are designed with them in mind and tailored to serve them, Thompson said. Solutions are not being trickled down to those who need them through a top-down methodology, but rather being shared directly among community members at a hyper-local level.


Cash In, Cash Out — But Mostly, Cash Out

GrabPay credit is the core of the business, said Thompson, designed to help the cash merchant be more efficient and lucrative.

He spoke with one hawker who typically served about 200 lunches per day. By eliminating cash in favor of CNP transactions, the hawker told Thompson he thought he could serve as many as 220 lunches per day: a 10 percent increase that the merchant found very attractive.

Perhaps counterintuitively, Grab’s first step toward convincing Southeast Asia to let go of cash was making it easier for merchants and consumers to access it.

Thompson explained that other credit alternatives charge fees of 20 to 50 percent for injecting cash into the system. A dollar outside the system is worth more than a dollar inside, because it’s not always easy to access the dollar on the inside.

Grab’s goal is to offer a rich network that doesn’t punish companies for putting cash into the system, but rather rewards them. Thompson explained how its cash-in, cash-out network uses reverse psychology to win merchants’ hearts and minds.

“If people have cash in a system and can’t get it out, they want to get it out,” Thompson said. “If they have cash in a system and know they are able to get it out, that makes them relax, and they actually leave more money in the system. Our customers leave a lot in our wallet because they’re confident that they can get it out when they need it.”


Building Up From Cash

From cash processing, GrabPay progressed into a rewards business that today connects consumers with 300+ partners — including Spotify, McDonald’s and Starbucks in Malaysia — where they can redeem points. Points can also be redeemed for rides within the Grab ecosystem.

Next, said Thompson, Grab plans to use driver data to support more effective lending. By bringing that data to banks, he said, Grab can make those invisible middle-economy merchants visible to financial institutions so that they have options to cover expenses like medical issues or their children’s education.

He believes growth in GrabPay financial services will start with Grab’s drivers, and will continue into the consumer space in the long-term as the company gathers more data.

Simplicity is a pillar of Grab’s strategy. Consumers come from a variety of cultural backgrounds, even within the same region. They are all different ages and have different histories. A successful product, according to Thompson, must meet all of them where they are.

“With a payments product, if you don’t win hearts and minds with the merchants, then you’ll never get to the consumer,” he said. “The merchant is absolutely key, and we must learn and serve.”