This article first appeared in The Edge Malaysia Weekly on June 24, 2024 - June 30, 2024

IT has been more than a decade since Axiata Group Bhd (KL:AXIATA) began investing in digital ventures in 2013, with an aspiration to create its own billion-dollar start-up, or what is widely known as a unicorn. While none of those ventures have attained unicorn status yet, Axiata’s current management team is determined to achieve that goal.

In 2018, then managing director and president Tan Sri Jamaludin Ibrahim revealed that the group had made 29 investments in digital ventures, but was refocusing its resources on four verticals (from seven previously), namely fintech or digital financial services, digital advertising, application programming interface platform and Internet of Things.

Today, the first two verticals appear to be the more prominent of the four, with digital advertising unit Axiata Digital & Analytics Sdn Bhd (ADA) valued at US$550 million last November, after Mitsui & Co Ltd invested another US$58 million to raise its stake in holding company Axiata Digital Services Sdn Bhd (ADS) to 20% from 3.29% previously.

“We are still on the path [of building two unicorns]. ADA is more than halfway there,” says Axiata Group Bhd group CEO and managing director Vivek Sood in a recent interview with The Edge.

Axiata owns the remaining 80% in ADS, which holds a 63.47% stake in ADA, with the rest held by SoftBank Corp (23.07%) and Sumitomo Corp (13.46%). This shareholding structure gives Mitsui an effective interest of 12.69% in ADA.

ADA recorded a net profit of RM6.25 million for the financial year ended Dec 31, 2023 (FY2023), down 92% from RM80.48 million in FY2022 amid slower customer spend for marketing solutions. Revenue inched up 0.8% to RM882.16 million from RM874.92 million.

ADS also holds 78.12% in fintech arm Boost Holdings Sdn Bhd, with the remaining 21.88% owned by Great Eastern Digital Pvt Ltd.

Boost Holdings is the entity that formed a 60:40 digital bank joint venture (Boost Bank Bhd) with RHB Bank Bhd (KL:RHBBANK).

According to RHB Bank’s financial report for the first quarter ended March 31, 2024 (1QFY2024) released at end-May, Boost Bank has a paid-up capital of RM234 million. Based on a 60:40 ratio, Axiata-led shareholders would have contributed an investment of RM140.4 million to this digital bank venture, a back-of-the-envelope calculation shows.

During the interview, Vivek says the entire fintech venture was last valued at US$450 million, but acknowledges that the industry’s valuations have come under pressure in recent years.

“I think now the focus on moving to the [digital] bank, away from just the payments wallet into financial products, lending and so on should create much more value because eventually that’s where the margins are,” he adds.

Although Boost Bank was relatively late in launching banking services — following GXBank last December and Aeon Bank (M) Bhd in May — Vivek thinks that the digital bank has the advantage of inheriting loan books from the existing fintech business.

“The good news is that we have actually started the lending business, way ahead of launching the bank. [Boost] just launched the bank [on June 6], they are now part of the business,” he explains.

Vivek says prior to launching Boost Bank, the fintech venture had already disbursed nearly RM4 billion in lending, and was still carrying a loan book worth RM300 million.

According to Axiata’s latest annual report, Boost’s fintech venture served more than 11 million customers in FY2023, up from 10.4 million in FY2022, with merchant numbers growing 14.6% to 630,000 from 550,000 over the same period.

Vivek notes that merchants, which have risen to 650,000 currently, will be Boost Bank’s target customers, particularly those who intend to take up small loans, while bigger-sized lending will be referred to RHB Bank through a referral agreement.

“We are going to focus largely on underbanked and unbanked customers,” he says, adding that Boost Bank’s credit scoring model is capable of limiting its risk in the underbanked market, in which borrowers may have relatively higher rates of default.

“Let’s say someone is seeking a RM10,000 loan. Big banks may not want to approve a loan for that amount. But if that person wants it every month for a period of five to 10 days to manage his working capital requirement, he will come to us,” he explains.

As Boost Bank and ADA continue to grow, Axiata’s decade-long efforts to create a billion-dollar start-up will be keenly watched. 

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