18-05-2025
GXS' acquisition of Validus' Singapore business a sign of market validation
[SINGAPORE] The recent acquisition of small and medium enterprise (SME) lender Validus' Singapore business is a sign of market consolidation and validation in South-east Asia.
To recap, GXS Bank acquired Validus' Singapore business on Apr 14 for an undisclosed amount. This expands the digital bank's SME offerings to include Validus' trade financing and working capital loan expertise and customer base in Singapore.
Competitor Funding Societies sees Validus' acquisition as a positive, with market consolidation having reduced the pie to a few notable players. This is also a sign of market validation as well, said Kelvin Teo, co-founder and CEO of Funding Societies.
'I think it's actually a very positive development in the market, and it also shows openness of banks, as well as validation towards fintechs and fintech players' existence,' he told The Business Times.
The sale of the Singapore business is partly a reflection of the constraints that SME fintech lenders face in the island republic. Despite Validus and Funding Societies having access to the government's Enterprise Financing Scheme, in which Enterprise Singapore shares 50 per cent of the risk, both could not get local traditional banks to fund the loans on their platforms.
Instead, Funding Societies and Validus had to rely on international banks to fund the SME loans of Singapore companies. There was more success in raising debt from international banks and funds than local banks, noted Teo.
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'We got the big chunk of the supply from Citi Hong Kong, keeping that in mind we realised we would never be able to grow the business in Singapore to be as large and attractive as we wanted it to be,' said Nikhilesh Goel, co-founder and CEO of Validus.
Even though Validus started out from Singapore, the other markets – Indonesia, Thailand and Vietnam – grew much faster. Singapore would only account for a minority of the overall loan book, with about 10 per cent of the monthly loan disbursals for the SME lender.
Selling the Singapore business to a bank, where the cost of capital is lower due to the availability of deposits from customers made sense. But rather than sell it to a traditional bank, Validus had to wait for digital challenger banks to emerge.
'This business we felt would do more justice in the hands of a bank who had access to cheaper forms of capital, and could build on our partnerships, teams and models we had created…the big three had shown no inclination to partner or do anything,' said Goel.
In any case, the acquisition has helped to bring SME lending platforms such as Funding Societies into the mainstream, said Teo. With digital banks entering the fray, market awareness for SME working capital or trade financing loans can only grow.
Tariffs everywhere
The impact from tariffs imposed by the US will vary across SMEs in the region, but both Validus and Funding Societies say that customers are still taking up loans from them. For Funding Societies, it has few customers with a direct business relationship with the US, with most having a domestic or regional focus.
Other segments of customers would have already pre-planned shorter capital loans to operate and would not be as impacted. The customers looking to take loans for growth are the ones hesitating now amid the uncertain macroeconomic environment, leading to more of a delay than a stop in borrowing.
'The decision-making time becomes longer, they want to wait and see how things play out …the growth opportunity may change and therefore the financing needs change,' said Teo.
For Validus, there is no direct impact, as the lender focuses on domestic businesses and their supply chains. These could be local conglomerates or regional companies and their suppliers and distributors, and has nothing to do with the export economy.
There will be an indirect impact if tariffs stay, inducing a dampening effect on broader spending in the economy. Validus is exposed to what the middle class is consuming, for instance in Indonesia, the focus sectors are food and beverage, fast moving consumer goods and pharmaceuticals.
'We believe that if we stick to sectors that are consumer staples and non-discretionaries, these kinds of headwinds will always come and pass, if you think about it, this is not the first challenge, there was Covid, the market crash in 2022, then interest rate hikes,' said Goel.
Both Funding Societies and Validus will be putting their heads down and working hard on their businesses for the coming year. Funding Societies is planning to steadily grow their loan book across all their markets, as well as the new payments arm into new markets such as Malaysia and Indonesia.
The SME lending platform is also looking to diversify funding to be more resilient.
'Really diversifying our funding sources by working with digital banks and other fund partners…the one positive effect of the tariffs is that central banks are looking to cut interest rates, how can we take advantage of that to diversify and lower our cost of funding,' said Teo.
Validus on the other hand is working to turn profitable in these turbulent times, after turning operationally profitable in 2024.
'We want to deliver our first year of profits, because if we can do that we would be among the very few tech companies in the region that are actually delivering cash flow…and it would deliver a statement,' said Goel.
