GXS-Validus deal could spur more fintech-bank partnerships

This story was originally published in The Business Times. It was substantially modified to reflect Tech in Asia’s editorial direction and standards.

In a sector where bank and fintech partnerships remain rare, GXS Bank’s recent acquisition of digital lender Validus’ Singapore unit marks a step in a different direction.

As part of the deal completed on April 15, GXS took over Validus’ customer base in Singapore, along with its partnerships, tech stack, and employees. The bank will soon begin offering trade financing and working capital loans to SMEs in the city-state.

GXS offers business loans in Singapore, though before the deal, they were limited to sole proprietorships.

For the digital bank, acquiring an SME lender could be a way to scale up its loans business fast as it eyes profitability by 2027. The bank says it plans to double its loan book every six months.

Validus, meanwhile, gains access to funds at a lower cost, allowing it to scale more sustainably.

A “win-win”

In an interview with Tech in Asia, Funding Societies co-founder and CEO Kelvin Teo describes collaborations between fintech lenders and digital banks as “win-win.”

That’s because digital banks have developed a deposit base and are looking to grow their on-balance loan base fast. Meanwhile, fintech lenders, which have built a loan base, are seeking lower-cost bank funding and channeling off-balance sheet loans.

Such partnerships could be particularly beneficial when they involve a fintech lender that targets niche customer segments like startups with a good runway seeking short-term financing – something a digital bank might find less lucrative and harder to serve, according to Teo.

SME fintech lenders face constraints in the city-state.

Funding Societies, for instance, had more success raising debt from international banks and funds than from local banks, says Teo.

He tells Tech in Asia that capital from local banks only accounts for a “relatively small part” of its loan book, which is funded by a mix of international banks, impact funds, credit funds, family offices, and accredited and retail investors.

Compared to other Southeast Asian markets, Funding Societies has faced “greater difficulty” with local financial institutions in the city-state despite being part of a risk-sharing program where the Singapore government shares the loan default risk, Teo shares.

A Singapore-specific problem?

Goel tells Tech in Asia that the digital lender has seen “strong participation” from both local and international banks in channelling loans in every market it’s in outside Singapore.

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