Maybank Investment Bank said Monday that it expects core e-commerce/on-demand services growth of internet companies in Singapore to be sustained over the medium term owing to under-penetration.

The research house said in a note that it thinks fintech growth could lead, piggybacking on core services as well as from the low base effect.

“As an ecosystem play, fintech cash burn could be lower while monetization could be faster,” said Maybank.

According to the research house, ASEAN internet companies made a strong comeback in 2024 with the sector up 100 percent year to date.

“While it was an across-the-board turnaround, we think strong fintech momentum (9M24 revenues up 90 percent year to date) has been relatively overlooked given the smaller contribution to the SoTPs,” it said.

It is noted that fintech revenue contribution for the ASEAN internet companies (Sea Ltd and Grab) stands at 9 percent to 14 percent of group revenues.

Both Sea Ltd and Grab (as well as their Indonesian peer GoTo) fintech services were introduced at a later stage and thus comes from a low base.

Moreover, within fintech, the initial focus of all these companies was payment services (also to facilitate payment for their own services) which was low merchant discount rate (MDR) and highly commoditized limiting its significance in the overall business value chain.

With decent core business scale and relative operational stability, Maybank sees companies are now penetrating deeper into more fintech adjacencies such as buy now, pay later
(BNPL), cash loans, digibanks, insuretech etc.

As a result, fintech revenue growth has been trending ahead of core services in 9M24.

However, Maybank noted it was relatively overlooked as the limelight was hogged by a sharp turnaround in other and bigger businesses such as Garena bookings reversal, multiple take rate increases within ecommerce business etc.

As per e-Conomy SEA 2024 report, Maybank highlighted that core internet services like e-commerce and on-demand gross transaction value (GTV) is expected to grow at a compound annual growth rate (CAGR) of 10 percent to 15 percent over 2024 to 2030.

On the other hand, fintech or digital financial services are expected to grow at a CAGR of 12 percent to 35 percent over 2024 to 2030.

Within fintech services, highly commoditized digital payments is expected to grow at 12 percent CAGR, but Maybank noted that companies are increasingly pivoting to the higher end and better monetizable services such as lending, wealth, insurtech etc.

These latter services are expected to grow at a CAGR of 21 percent to 35 percent over 2024 to 2030, it added.

According to Maybank, ASEAN’s high unbanked/underbanked population creates a significant untapped opportunity, and the pieces are finally in place, which in turn could pave way for fintech to emerge as a prominent force ahead.

It noted that Grab’s digibank operations in Indonesia and Malaysia have rolled out lending services in the fourth quarter of 2024.

Given relatively high unbanked/underbanked populations in these markets, Maybank sees a faster pick-up in its loan book.

Maybank also highlighted that Sea Ltd’s digital financial services business is well poised for growth as its BNPL/lending services are fed by a larger ecommerce funnel.

As e-commerce scales and competition stabilizes, it noted that Sea is focusing on expanding complementary services like BNPL while maintaining low margins within e-commerce to stay competitive.

“Greater monetization is expected through deeper integration of digital financial services with its e-commerce platform,” it said.

Sea Ltd is also Maybank top pick within the e-commerce space.

Multiple tailwinds such as under-penetration and potential take-rate increases, own logistics and live streaming competitive moats, growing fintech presence are in place for the firm’s sustained growth, said the research house.

According to Maybank, ecommerce penetration in ASEAN is at low teens which creates a long runway for growth.

E-conomy report expects ASEAN GMV to grow at 15 percent per year over 2024 to 2030.

Besides, take-rates in ASEAN are also on the lower side versus global average which creates room for sustained upside potential.

Maybank also noted that SEA subsidiary Shopee’s investments in own logistics allows for cheaper cost of delivery and differentiated experience.

“It has also become the largest live streaming platform in ASEAN. This helps it to effectively compete versus likes of TikTok and Temu,” said the research house.

With e-commerce attaining significant scale and, more importantly with competition stabilizing, Maybank see the company increasing its focus on growing tangential services like BNPL.

“We think Sea Ltd’s management aims to keep its ecommerce business extremely competitive by keeping margins low (so as to thwart new/existing competition),

“Bigger monetization can indirectly be achieved by deeper penetration/integration of digital financial services with e-commerce, where the majority of its competitors don’t have a presence and capacity to roll out,” it added.

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