Citigroup is working on a partnership with Grab, the Singapore-based ride-hailing app that has become one of southeast Asia's most successful start-ups, that would allow credit card holders to use points to pay for rides.
The initiative, the first time anywhere in the world that Citi has integrated its credit cards with a transportation app, is part of a broader move by the US bank to tap the vast networks of customers built up by ride-hailing and messaging apps in southeast Asia.
One of the bank’s goals is to cut customer acquisition costs at a time when credit card providers are shifting from traditional direct selling – often done through street sales at shopping malls in Asia – to digital channels.
The partnership also marks the growing importance in the region of ride-hailing apps, which are moving beyond transport to offer a broader range of services from mobile wallets to food delivery.
Grab, which operates in six countries in southeast Asia, has raised $700 million (€618 million) since it launched in 2012, making it one of the best-funded start-ups in the region.
Boosting profitability
Citi regards winning ride-hailing customers as crucial to boosting profitability, as these recurrent purchases are more lucrative for card providers than one-off retail purchases. Harpreet Grewal, Asia-Pacific product director for Citi, said: “For us to embed our products into this ecosystem on an ongoing basis is strategically important as [Asia] converts from cash to cards”.
The partnership is due to be launched in the region from September. Citi is also planning to embed a payments service into the Line messaging app, which is popular in Thailand. Mr Grewal said: “We are talking to others. It’s a rapidly evolving space. The model that we establish with Grab is something we think is scalable across markets”.
Citi, which says it is the world’s biggest card issuer, generated $1.3 billion in credit card revenues in Asia in the first half of this year.
Grab claims market leadership in the region, but faces intense competition from Uber, which is shifting resources from China after its alliance with Didi Chuxing, and Indonesia’s Go-Jek.
All three apps already have partnerships with payment service providers. Uber has a deal with American Express in the US, allowing points to be redeemed for rides, while Go-Jek has partnered with Indonesian banks to create a mobile wallet, Go-Pay, which can be used to pay for services including shopping.
Funding round
Investors who put $550 million into Go-Jek in a funding round agreed this month regard the app as a useful conduit for bringing unbanked Indonesians into the banking sector. Cash remains the dominant mode of payment for consumers across southeast Asia, and is widely used even in Singapore, where cash in circulation amounts to almost 9 per cent of gross domestic product, compared with 2 per cent in Sweden, according to a KPMG report last week.
Derrick Heng, Singapore-based analyst at Maybank, suggested the market for banking services is likely to become fragmented in southeast Asia, with new entrants jostling for space with traditional banks.
Mr Heng said: “Emerging markets are often mobile-first, but the ones who will have the power will not be apps like Grab but the telcos and technology companies. They already have the customer relationships – you have to have a mobile phone before Grab or Uber can grow. This is a lucrative slice and the telcos won’t want to give it up.”
– Copyright The Financial Times Limited 2016
