Sea Limited (SE 4.34%), the leading technology company in Southeast Asia, delivered a strong performance in the third quarter of 2021 thanks to the growth of Garena (gaming) and Shopee (e-commerce). Yet there are signs Garena's growth is slowing thanks to its already massive base of nearly 730 million active users.
In light of this development, investors are looking for Sea's next growth engine. Luckily, they need not look too far since Sea's fintech business is poised to take up the mantle in the coming years.
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A quick introduction to Sea's fintech business
Sea's fintech business operates under SeaMoney, the third business segment after Garena and Shopee. Established in 2014, SeaMoney provides financial services such as mobile wallets, payment processing, and credit products to customers in seven markets across Southeast Asia and Taiwan under various brands, including ShopeePay, AirPay, and SPayLater, among others.
With SeaMoney, the company aims to replicate the success of Ant Group -- Alibaba's fintech arm -- in its market by leveraging existing Garena and Shopee users. Sea set up AirPay early on to facilitate payment processing for Garena's customers, but it has since expanded into other offerings and introduced new use cases to cater to customers beyond its gaming ecosystem.
While it's too early to declare victory, SeaMoney has delivered some strong performance in the last few quarters. Payment volume has increased at a triple-digit pace in each of the last three quarters, while quarterly paying users (QPU) reached 39.3 million in the latest period, up about 120% year over year.
A sea of opportunity
While SeaMoney is growing nicely, it has merely scratched the surface of its opportunity. E-wallets accounted for just 3% of all payments in Southeast Asia in 2020, according to the e-Conomy SEA 2020 report from Google, Temasek, and Bain & Company. The report also predicted e-wallet's gross transaction value (GTV) will almost double to $1.2 trillion from 2020 to 2025. Even then, e-wallet payments will account for merely 6% of total GTV in the region.
SeaMoney reported total payment volume of $4.6 billion in the latest quarter. Annualized to $18.4 billion, that's good for a market share of about 3%. In the coming years, not only can SeaMoney grow its payment volume by riding the broad growth of the industry, but it can also expand its market share within the space.
Besides, payments are just one part of this huge opportunity. SeaMoney can further provide additional services like credit, investment, insurance, and others. For example, ShopeePay has already introduced SPayLater, a buy now pay later (BNPL) service to qualified ShopeePay customers. SeaMoney also recently acquired a digital banking license in Singapore, which is a first step toward becoming a full-fledged digital financial service provider. Early this year, Sea also acquired a bank in Indonesia to expand its presence in that market.
What to expect in the coming quarters
It's now clear SeaMoney has a lot going for it, but what should investors be tracking near term? Here are a few things that could happen in the next year or two.
As a start, SeaMoney will likely invest heavily to grow its e-wallet users and payment volume. Here, investors can take hints from Shopee. Founded in 2015, the e-commerce segment has grown to become a leading player in most of the markets where it operates. Shopee took Lazada by storm in Southeast Asia and is even challenging Mercadolibre's dominance in Latin America. And with Shopee CEO Chris Feng taking charge of SeaMoney since early this year, investors should expect to hear more updates from the fintech company in the coming quarters. In fact, SeaMoney can scale even faster than Shopee had, considering that it can easily leverage the existing users of its sister companies.
Moreover, SeaMoney will likely introduce more financial services in the more mature markets. To this end, the fintech might start rolling out new products in Singapore, especially since it has already received the digital banking license. It's also trying to acquire more banking licenses in other regions, which we'll likely hear more about in the coming quarters.
