From strength to strength

In 2008, when CIMB Group Holdings Bhd decided to take up a stake in Touch ’n Go Sdn Bhd (TNG), the question on many people’s mind was: Why is a banking institution investing in a toll collector? Among the cynics was Effendy Shahul Hamid, who is now CEO of CIMB Digital Assets (CDA) and group CEO of Touch ’n Go.

But today, after more than a decade and the full acquisition of the company, TNG has emerged as the main driver of Malaysia’s cashless agenda, with 25 million active cards, 15 million Touch ’n Go eWallet users and 1.5 million radio-frequency identification (RFID) tags in its ecosystem.

“I remember asking [Datuk Seri] Nazir [Razak, the then group CEO of CIMB Group] why he bought into TNG as it was just a toll collection company, but his response was that it wasn’t just a toll collector but a platform that processes millions of transactions from millions of users and that it would one day be very valuable to CIMB,” recalls Effendy.

All doubts were quelled, however, when the payment landscape began to change rapidly in the years that followed. The digital payment revolution that started in China began influencing global payment systems.

People were able to go about their day without any banknotes or jangling change. The coronavirus pandemic has forced a further surge in demand for contactless payments, accelerating the shift from cash to digital options.

The timely acquisition of TNG — which started out in 1996 as Rangkaian Segar Sdn Bhd — laid the foundation for one of the largest regional banks to build its portfolio of digital assets.

And amid a fast-changing tech-driven world, there was potential for CDA to become a major pillar in the banking group’s revenue base.

Today, CDA’s portfolio includes the Touch ’n Go eWallet — which is owned by TNG Digital Sdn Bhd, itself a joint venture between TNG and Ant Group, the parent company of Alipay, China’s largest digital payment platform — as well digital banks in Vietnam and the Philippines.

Early this year, TNG Digital made its foray into the financial services industry with the rollout of GO+, a financially inclusive investment product that allows Touch ’n Go eWallet users to gain access to low-risk money market investments with a minimum outlay of RM10. Not only do users earn more than their current accounts, their GO+ balances can also be used across all Touch ’n Go eWallet payment use-cases.

Touch ’n Go eWallet is the first e-wallet provider to obtain approval to operate as a Recognised Market Operator by the Securities Commission of Malaysia. This means the company is allowed to directly distribute capital market products, including money market unit trust funds, through the Touch ’n Go eWallet platform, without having to be directed to a third-party application.

GO+ was launched on March 29, and by June, it had surpassed the one million user mark. The reception has prompted TNG Digital to roll out more financial services and investment products.

The funds in GO+ are managed by Principal Asset Management, Malaysia’s largest fund manager. They are invested predominantly in short-term deposits in banks such as Public Islamic Bank, CIMB Islamic, RHB Islamic Bank and Hong Leong Islamic Bank.

In the next few months, GO+ will include shariah-compliant funds and equity funds, and a lending product by the first quarter of 2022.

“The investment pillar is important to us, and we’ll soon be launching a shariah version of GO+ and also move into more complex unit trust offerings as we expand in this space.

“The functionalities of GO+ were designed to mimic current account usage behaviours. And for that matter, GO+ returns are higher than current account rates. However, the key element here is frictionless; it is for the user to participate and use — and that is where we’re winning,” Effendy says.

In July, CarInsure was launched on the Touch ’n Go eWallet platform, making it easier for users to buy car insurance and renew their road tax. Currently, users can choose between Allianz General Insurance and MSIG Insurance, but Effendy says TNG is working on onboarding more insurers.

‍

Synergistic partnerships

“When you think about it, in 1996, when the company started with a card-based electronic toll payment system called Touch ’n Go — as a more efficient alternative to cash to ease toll congestion — it was already Malaysia’s first financial technology (fintech) firm,” says Effendy.

Rangkaian Segar was renamed TNG in 2008, when CIMB Group Holdings took a 20% stake in the company. The banking group then increased its stake to 52.22% in February 2010, while PLUS Malaysia Bhd and MTD Capital Bhd held 20% and 27.78% respectively.

It was only in October 2019 that CIMB bought up the stakes owned by PLUS and MTD’s subsidiary MTD Equity Sdn Bhd to gain a 100% stake in TNG.

Currently, TNG owns 51% of the TNG Digital joint venture, while the remaining 49% is held by Ant. Insurer AIA Bhd announced in July that it was taking up a minority stake in TNG Digital but the details of the agreement were not made public.

Despite entering the e-wallet space much later than its competitors, the Touch ’n Go eWallet that was launched in 2017 has rapidly caught up to become Malaysia’s largest e-wallet since 2019.

“Three and a half years ago, the Touch ’n Go eWallet business was only on paper. Three and a half years on, it’s a business with more than 16 million users and over 12 million of those eKYC-ed, and it is accepted at over one million merchant touch points when you factor in the DuitNow functionality,” says Effendy. eKYC, or electronic know your customer, is a process where user identity and address are verified electronically.

As a result of its partnership with Ant, the Touch ’n Go eWallet can be used in Japan and Singapore, thanks to the addition of the Alipay QR Code. Plans are under way to roll out this service in other countries as well.

Having served as CIMB Group’s director since 2015, when he was CEO of the banking group’s asset management and investments, Effendy witnessed how TNG grew from strength to strength. He was tasked with overseeing CDA last year during key management changes.

“In CDA, we are building a portfolio of separate and highly valuable digital businesses. And if [this happens,] CDA would evolve into a highly valued technology enterprise that could accrete significant value to CIMB Group,” he tells Digital Edge.

Expanding its digital ventures through partnerships was a strategic decision that paid off, he adds.

“We are also building CDA and the businesses within it with an eye to succeeding through good partnerships. It’s no secret that we like to partner, and today we already have a very good joint venture with Ant, where the Touch ’n Go eWallet is concerned. And we will be looking for this kind of opportunities going forward,” he says.

While the TNG Group — which has long enjoyed an unrivalled advantage with its namesake card embedded in every Malaysian’s MyKad for more than a decade, to say nothing of its monopoly on transit payments — has been doing well, the e-wallet business is still operating in a crowded space.

This is evidenced by the shutting down of Digi.com Bhd’s vcash in 2019, as a result of stiff competition. More recently, Razer Pay, which was launched in Malaysia in 2018 as a joint venture with Berjaya Corp Bhd, will be discontinued on Sept 30 in both Malaysia and Singapore, which are the markets it operates in.

The Touch ’n Go eWallet, together with Axiata Group Bhd’s Boost and Grab Holdings Inc’s GrabPay, are the three major e-wallet service providers in Malaysia. With millions of users in their database, these three have been pivotal in the government’s push towards a cashless society.

But as far as profitability is concerned, TNG Digital is on track to turn profitable in three to four years, asserts Effendy.

“Yes, this space is crowded, especially the e-money space, where approximately 50 or so licences have been issued. Of that, most are operating on a sub-scale fashion and only a handful are operating at scale. My take is that at the end of the day, there will be two, or a maximum of three, winners.

“We feel pretty good about our business. And to continue to stay ahead, we are being extremely focused on core deliverables and continue to build products that are of high value to users, and also to disrupt in areas that are ready for it. Another focus is on the entire experience the users have with us, which is critical to their coming back.

“Generally, the profitability curves are within four to five years [for the e-wallet sector]. It depends on various factors, but the profitability matrix is fairly well-documented.”

It might be even quicker as digital payments were already gaining more traction because of the Covid-19 pandemic.

“eTunai and ePenjana [cashless payment initiatives] essentially introduced e-wallets to the masses and we doubled down and managed to garner over 70% of all claimants. As a result, we managed to bring on a large number of users at a relatively attractive customer acquisition cost level.

“Given this, we were able to then focus on converting registered users into monthly transacting users — which directly resulted in quicker product design cycles to ensure take-up, and interest continues to stay strong. Net-net, our payment volumes will double year on year,” Effendy says.

‍

Digital banking

Similarly, noticing that consumers were shifting towards self-serve and digital services, CIMB chose to expand its footprint in the Philippines and Vietnam — where consumers are demanding more digitised services — through digital banks.

Increases in internet penetration and the adoption of technology have consumers in Asia shunning credit cards in favour of e-wallets, with over 50% of transactions carried out through e-wallets for e-commerce payments. This number is staggeringly higher in China, with over 90% of consumers taking it up.

“When we decided to go into the Philippines, we knew we couldn’t operate a traditional brick-and-mortar branch model. We had no brand, so we had to build something from the ground up. When you grow a traditional consumer bank, you build a branch-based model, and then you run lots of advertising and hope you get customers over a period of time.

“But for us, when we decided to build a digital bank, the most important thing we decided was that we would not be obsessed with originating customers ourselves. So, we went after a very strong partnership model,” says Effendy.

CIMB Bank Philippines forged a partnership with GCash — one of the country’s most popular e-wallets — to allow GCash’s customers direct, paperless and seamless access to savings account services. GCash is an e-payment platform owned by Mynt, the fintech start-up of Globe Telecom, Ayala Corp and Ant.

“We built a solid partnership with GCash, allowing its clients to open banking accounts and loans with CIMB from the GCash platform. At the end of the day, it was a win-win situation: We needed customers and GCash needed banking use-cases.

“In three years, we have acquired four million customers and over RM1 billion in deposits. It has worked out well because a digital bank is about being able to acquire at speed and scale, and to provide end-to-end services,” Effendy says.

In Vietnam, however, CIMB has both a digital banking infrastructure as well as two branches in Hanoi and Ho Chi Minh City. “The Philippines and Vietnam were new markets, where we needed to start from scratch because the old way of expanding couldn’t cut it anymore,” says Effendy.

Despite the great strides CIMB has made on the digital banking front and after signalling interest earlier, the group has put off contending for one of the five digital banking licences offered by Bank Negara Malaysia for the time being.

The central bank had received 29 applications from banks, industry conglomerates, technology firms, e-commerce operators, fintech players, cooperatives and state governments.

“We looked at the digital bank opportunity very early on and we quickly came to a set of principles that we have been standing firm on. We said that if we were to ensure this space, we would do it through our wholly-owned subsidiary, TNG.

“Secondly, we said that we would not go it alone; we would look for a suitable consortium to partner with. And in this model, we would not be obsessed with control. But more importantly, if we did not find the right partner, we would not apply.

“Thirdly, we said we would not evolve the Touch ’n Go eWallet company into a bank. We feel very comfortable that payments and intermediation of financial services is a space that is different from banking, and for multiple reasons, we wanted to continue excelling in this space. And we would partner with banks and digital banks to ensure that we have the right products for our ecosystems.

“As such, we did not submit [an application] for a digital bank licence. However, we [will] continue to watch this space for opportunities post-submission as I do think equity or non-equity partnerships might still come up,” Effendy says.

As Malaysia’s second-largest lender by assets, CIMB Bank is already addressing the needs of the local population through the bank’s digital offerings, which have undergone various improvements and iterations over the years.

“It is crucial to remember that [digital banks] are not a slam dunk business case. They are a lot of hard work. Also, the incumbents won’t sit still; we are digitalising very fast.

“Either way, this is such an exciting time for consumers. I do believe that digital banks and payment heavyweights have the ability to change how society consumes financial services, and incumbents who are very strong will not be sitting still. I believe the consumer is going to win big, and that is good for everyone,” he says.

‍