Authored By Louis Stevens
Following Sea Ltd.'s most recent report, I shared a thread in which I detailed the exceptionally long runway that lies ahead of Sea's FinTech business, as well as, notably, Grab's FinTech business.
As the chart above illustrates, Grab's loan book (portfolio) grew 71% year over year, which is meteoric growth, and is similar in growth rate to what Sea Ltd. experienced in Q2'24.
Sea's FinTech business, SeaMoney, experienced significant growth in Q2'24, specifically growing borrowers 58% yoy to 21M.
While this is fantastic growth that represents a giant business at multi-billion dollar revenue scale, we're still very early on this growth curve.
Let's now walk through a host of data that underpins and buttresses this assertion.
Sea Ltd.'s Borrowers Grew To 21M In Q2'24, Up 58% Year Over Year
As a general overview, the United Nations published a report in 2023 in which it revealed that hundreds of millions of SE Asians were still unbanked.
"Despite many customers reporting increased access to credit through financial service providers, there remains a large, untapped market in Southeast Asia. About 225 million Southeast Asians lack bank account access and 350 million do not have access to formal credit. Additionally, 39 million micro, small, and medium enterprises face a funding gap of up to US$300 billion."
So, over the coming decades, the FinTech businesses of Sea and Grab will sell into an untapped TAM of 350M SE Asian citizens whose GDP per capita is currently soaring. This trend should continue as the region digitally industrializes in the years and decades ahead.
GDP Per Capita Of Five Of SE Asia's Most Important & Largest Economies
With this data in mind, the incredible growth of Sea's and Grab's FinTech businesses, and specifically their lending products, makes sense, and this growth is set to continue.
Let's now turn to some data provided by Google, Bain, and Temasek that further illustrates this large and growing financial services TAM that lies in front of SE.
The chart below illustrates that from 2019 to 2023, digital financial services app usage grew at 50%+ CAGR, and and have been primary beneficiaries of this growth, having built giant FinTech businesses during this period. Notably, this growth has occurred during a period of rapidly rising rates, and rapidly rising rates serve to slow lending activity.
- Higher rates = higher monthly payments = smaller pool of worthy credit borrowers who can service those larger monthly payments.
Digital Financial Services Adoption In SE Asia
On Q2'24 call, it noted that there was opportunity to expand the set of financial products it offers its SeaMoney user base.
"Looking forward, we will continue to invest in growing our user base efficiently and effectively as our markets are still under-penetrated and present sizable opportunities. A large user base will be a cornerstone of future growth for SeaMoney, especially as we introduce more product offerings."
-Forrest Li, Q2'24 SE Earnings Call
These aren't just words. We have the concrete data underpinning Mr. Li's assertions as to the growth runway that lies in front of Sea and Grab.
Below, we can see the historic and projected growth rates of the broad set of financial products SeaMoney can and will offer over time.
Payments, Lending, Insurance, and Wealth Management Product Growth Projections In SE Asia
As I noted earlier, lending product has been growing gangbusters because it's being sold into a multi-hundred million person TAM that's largely untapped.The charts below illustrate the rapid growth of credit usage in SE Asia as more and more citizens get closer to the middle cla
Note the GDP per capita chart from ealier.
This is something that can't be measured in quarters. It's set to play out of decades. Think about it: MercadoLibre just grew its FinTech monthly active users at 37% 25 years after it was founded.
Equity analysts should not be penciling in terminal growth rates in the decade ahead. This is a far longer growth story.
The Growth Of Lending In SE Asia
The Growth Of Lending In SE Asia
Lastly, like China, SE Asia citizens will likely skip traditional banks that offer digital financial services and transition directly to FinTech platforms, like SeaMoney, GrabPay, and OVO (90% owned by ), as these companies possess unique distribution advantages (Grab Mobility, Shopee ecommerce platform) through which they can sell FinTech offerings seamlessly with low CAC and low customer adoption friction.There's still a huge runway here as digital payments only account for about 50% of total payments volume in the region.
Digital Payments Penetration SE Asia Still Has A Long Runway Ahead
To close, while growth will invariably be non-linear, as the last few years have demonstrated, still have giant runways for growth within an evolving and growing SE Asian marketWith the data above in mind, we can better understand what the long term growth rates for SE and GRAB will be, and I believe they will be high for many years, and likely decades, to come.
SE's Already Huge FinTech Business Still Has A Long Runway Ahead Of It
SE's Already Huge FinTech Business Still Has A Long Runway Ahead Of It
Disclosures:
L.A. Stevens has rated Sea Ltd. and Grab a "buy."
