Run out of growth ideas? Acquire a payments firm

It has now been a trend for start-ups to carry out payments service.

Editorial

If you run out of ideas for growth, enter payments. This is the modus operandi for most technology firms now. This is a stale business expansion strategy. It has happened to Uber, Grab, and now Didi. The concept is simple. If you capture sufficient consumer footprint, launch into payments. Try your best to capture market share. After all, you have got cash to burn.

Sources: CNBC (1, 2), Tech In Asia, Tech Crunch

Ride-hailing companies follow suit to acquire payments firms

In August 2017, Uber has inked its first payments deal in Southeast Asia after it announced a partnership with Vietnam-based mobile wallet service Momo. Momo will become a payment option in Uber for Vietnam. In November 2017, Grab entered payments competing with Go-Jek for Asean’s payments services. Many of these firms launch into payments without a good understanding of the sector.

Today, Grab is throwing away tons of cash trying to acquire users and merchants. The same is happening for DBS Bank’s DBS Paylah application with their S$35 referral bonus for each merchant acquired. Didi Chuxing is the newest mobility giant to come onboard the payments industry. It is acquiring a much-coveted license to join the red-hot internet financial-services arena. It has agreed to acquire 19Pay for ~US$45 million. The payments scene is heating up. In the same quarter, Meituan-Dianping also acquired Qiandaibao. It was rumoured that Meituan paid RMB1.3 billion (US$199 million) for a stake.

With 19Pay, Didi will now be able to develop its own payment service.  Currently, Didi handles more than 20 million transactions a day. One can be sure that Didi will move into the non-mobility sector. Within 12 months, Didi will be offering food and vouchers purchases.

The growth trajectory is simple. Sell an e-service well, acquire a lot of customers, pivot into payments, pray that the payments business grows, and cross-sell higher-margin financial products. This is the same method adopted by digital banks and fintech firms. Consumers will be spoiled for choice soon.