GXS offers flexible loans to the 'thinly-served' while nearing MAS deposit cap

Targeted at gig workers, entrepreneurs and those new to the workforce, FlexiLoan’s interest rates start from 3.8% per annum (p.a.), depending on credit risk assessments.

Loan amounts start from $200, with loan tenures ranging from two months to five years. Customers can also set custom monthly repayment dates.

Unlike GXS’s deposit accounts, which are by invitation only, FlexiLoan is available to all eligible individuals aged 21 to 65 who meet the regulatory requirements in Singapore, including having a minimum annual income of $20,000.

FlexiLoan lets customers pay off their loans partially or in full without any early repayment fees. Customers can also make multiple loan drawdowns from their credit line.

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Jenn Ong, head of credit products at GXS, says cash-strapped individuals who are underserved may turn to loans with high interest rates or hidden fees. “Taking on a loan may also not be feasible for those who may have irregular income and are looking for flexibility in repayments. The GXS FlexiLoan considers all these factors to account for the different needs of our customers and circumstances.”

FlexiLoan was soft-launched on the GXS app a fortnight before the digital bank’s official announcement on April 25. In that time, GXS received applications in the “couple of thousands”, GXS CEO Charles Wong tells The Edge Singapore.

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The case for another loan product

Wong says 70% of GXS’s customers are Gen Z and millennials, while 10% of their customers are self-employed. Wong anticipates that these individuals would most commonly require loans for home renovations and emergencies.

The target market is wider than just delivery riders, says Wong. “Gig workers actually cover a much wider segment of customers … They may or may not have regular income and I do think that from a bank’s standpoint, we are addressing a much wider pool of customers out there that have loan needs.”

Also, by allowing early loan repayments without additional fees, GXS could be reducing its potential interest income, putting pressure on the fledgling digital bank’s interest margin.

However, the bank’s leaders say this is a short-term loss that they were willing to give up in pursuit of a longer-term relationship with its customers. “What we’re saying is the relationship is not one-off; the relationship that we are after with our customers will extend [to] other products,” says Ong, who was formerly at Mastercard, HSBC and DBS Bank.

See also: Digital does not mean different: Can Singapore’s digital banks bring the fight to the three incumbents?

FlexiLoan’s rates may start from 3.8% p.a., but the effective interest rate (EIR) of 7.15% is not much lower than that of the incumbent banks.

OCBC Bank, for example, charges interest from 3.8% p.a. for its cash-on-instalments loans, with EIR at 7.49% p.a. while DBS Bank charges interest from 3.88% p.a. with a 1% processing fee for its personal loans, bringing EIR to 7.56% p.a. UOB, meanwhile, charges interest of 3.77% p.a for personal loans, with EIR from 6.89% p.a.

Ong maintains that FlexiLoan’s interest rates are competitive with the current market, and offering lower interest rates is “not a play we want”. “Instead, a good, fit-for-purpose product is something that we want to go into.”

Pricing matters, says Wong, but it is “not the most important or the only factor”. “What is also very important is how much I need to pay including the interest. How fast can I get the loan? Do I need to jump through hoops to make a loan repayment? There are many factors that come into play.”

FlexiLoan’s target market is a “thinly-served” demographic, says Ong. Banks decide whether or not to loan, or approve new credit card applications, by drawing on data from credit bureaus.

GXS’s target demographic tends to have irregular income, which translates to a lower credit score. “Incumbent [banks] don’t really recognise that because traditionally, they would never underwrite these loans.”

That said, GXS is prudent, says Ong. “When a customer comes, it doesn’t mean I’m going to offer the highest limit. We always start slow with them; as long as they make regular payments, that’s how they start building their credibility. We’ll start small and help them build the credit bureau data that is missing today.”

Customers will also be assessed with insights from the Grab-Singtel ecosystem. Ong says GXS explicitly seeks consent from customers before such data is retrieved.

Ong cites an example of observing whether an individual has paid their phone bill with a credit card on time to SingTel. The telco’s “loyal customers” of 25 years, for example, could also be assessed more favourably, according to Ong, as they are likely to have displayed healthy credit practices throughout that period.

With different means of understanding the financial behaviour of customers, GXS hopes to build customer profile models to expedite loans in the future, says Wong.

MAS regulations

Competition for digital bank licences was stiff when applications opened back in early 2020, with more than 20 parties throwing their hats into the ring. While five licences were initially up for grabs, only four were eventually awarded.

Besides GXS and Maribank as the two DFB licence winners, the wholesale digital bank licences went to Ant Group and a consortium led by Greenland Financial Holdings.

Within what MAS calls a “restricted” stage, DFBs will not be able to widely solicit deposits from the public. However, they will be able to solicit deposits from its shareholders, employees, related entities and “any other persons who are familiar with the DFB’s parent or major shareholders’ businesses”, such as existing customers of the parent entity.

Thus, GXS and MariBank have rolled out their initial products only to invited users.

In addition, DFBs in this “restricted” stage can offer unsecured credit, such as FlexiLoan, only up to two times a customer’s monthly income.

Under MAS regulations, DFBs have to adhere to a set of restrictions in their initial years, such as capping deposits at $50 million in aggregate and at $75,000 per individual customer, along with an initial paid-up capital of $15 million.

MAS says it will “progressively increase” the deposit cap and the minimum paid-up capital requirement, but not on a pre-determined timeline.

GXS is “very near” this deposit cap and has stopped accepting new customers for its “oversubscribed” savings accounts, says Wong, a former Citi banker of two decades.

GXS customers can deposit up to $5,000 into their accounts, which will earn 0.08% p.a. Customers can also divide these funds into up to eight savings pockets, which will each earn 3.48% p.a. in interest.

A quarter of GXS’s deposit account holders are “very close” to the $5,000 cap, says Wong. “We do have regular calls from customers asking us when we’re lifting the cap so that they can top up [their accounts].”

MAS’s rulebook mentions an “annual review” of DFBs. Wong says GXS has been in regular contact with the MAS on looking to increase the deposit cap, but there is no visibility on this timeline. “The process is in place for us to do reviews, and subject to completion of those reviews, they will then progressively look at revising the cap as we go … Technically, we soft-launched [GXS] to our employees in April [2022].”

Wong attributes the strong demand for GXS so far to the “powerhouse ecosystem of Grab and Singtel”, which has also allowed the digital bank to attract new customers at “almost zero” acquisition cost.

“Together with that, we are able to reach out to millions of customers within the ecosystem on a daily basis,” he adds. “When you order food, when you book a ride, when you order groceries, when you look at entertainment; that’s where we have the opportunity to reach out to our customers.”

Photos: GXS, Albert Chua/The Edge Singapore