Earnings Call Transcript - GRAB Q3 2023

Operator, Operator

Ladies and gentlemen, thank you for joining us today. My name is Adam and I will be your conference operator for this session. Welcome to Grab's Third Quarter 2023 Earnings Results Call. After the speaker's remarks, there will be a question-and-answer session. I will now turn it over to Douglas Eu to start the call.

Douglas Eu, Head of Asia Investor Relations

Good day, everyone, and welcome to Grab's third quarter 2023 earnings call. I'm Douglas Eu, Head of Asia Investor Relations at Grab, and joining me today are Anthony Tan, Chief Executive Officer; Alex Hungate, Chief Operating Officer; and Peter Oey, Chief Financial Officer. During the call today, Alex will discuss our operational highlights, followed by Peter who will share details of our third quarter 2020 financial results, and Anthony will then discuss our strategic outlook. Following the prepared remarks, we will open the call to questions. As a reminder, today's discussion contains forward-looking statements about the company's future business and financial performance. These statements are based on our beliefs and expectations as of today. Actual events and results could differ materially due to a number of risks and uncertainties, including macroeconomic, industry, business, regulatory and other risks, which is described in our Form 20-F for the year ended December 31, 2022 and our filings with the SEC. We do not undertake any obligation to update any forward-looking statements. The discussion today also contains non-IFRS financial measures, which should be considered together with rather than as substitutes for IFRS financial measures. A reconciliation of non-IFRS to IFRS financial measures is included in this quarter's earnings materials. For more information and additional disclosures on recent business performance, please refer to our earnings press release and supplemental presentation for a detailed third quarter 2023 financial review, which can be found on our IR website. And with that, I will turn the call over to Alex to deliver his remarks.

Alex Hungate, COO

Thanks Doug, and thanks for joining us today everybody. I'm pleased to share that we reported a strong set of results this quarter. Grab has reported positive group adjusted EBITDA for the first time. And while this is an important milestone, it represents just one step in our journey as a public company. At the same time, our top line continues to grow from strength to strength. Revenues are up 61% year-on-year and 8% quarter-on-quarter, while group MTUs hit another all-time high. Over the next few minutes, I will share the operational highlights across each of our segments and the underlying drivers of these results. So starting with deliveries. Last quarter we reached an all-time high for deliveries GMV and mentioned that we expected to achieve sequential growth this quarter. In the third quarter, we not only continued to drive sequential GMV growth to another all-time quarterly high, but at the same time we continued to improve profitability with deliveries adjusted EBITDA margins improving to 3.4%, all the while maintaining our leading category position across the region. Our ability to drive both top line and bottom line improvements while deepening the market penetration is the result of the following key initiatives. First, we've made progress on reducing our cost to serve to improve the affordability of our products and services for users while enhancing partner earnings. We've built a strong competitive moat by leveraging our scale, category leadership position and tech advantage to create the best-in-class experiences for our users and partners. For example, batched orders which now account for over one-third of deliveries orders provided average delivery fees for users that were 8% lower than unbatched orders and resulted in 5% higher driver earnings per transit hour compared to unbatched orders. Improved allocation and navigation efficiencies among other factors also resulted in a corresponding reduction in driver wait times by 72% year-on-year and 47% quarter-on-quarter. Second, we continue to deepen user engagement through Grab Unlimited our subscription program. Grab Unlimited subscribers continue to account for one-third of Deliveries GMV during the quarter and spent 4.2 times more on food deliveries than non-subscribers. We also saw frequency and retention uplifts among subscribers, with six months retention of subscribers on the program continuing to be around two times higher than non-subscribers. We will continue to expand our suite of affordability features at different price points, to appeal to more consumer segments all without compromising on our service quality and reliability. Saver delivery is now available in all six of our core markets and in over 130 cities. In Malaysia and Singapore where the services were first launched, the penetration of Saver has reached over a third of Deliveries MTUs. We've shown that more affordable features not only benefit consumers, but also expand revenue streams for our merchant and driver partners who benefit from an increased demand for our services. Looking ahead to the fourth quarter, we expect to drive another quarter of sequential Deliveries GMV growth, to achieve another quarterly record high. As we continue to strike a balance between growth and profitability, we expect segment margins in the fourth quarter to be consistent with those in the third quarter. Now moving on to Mobility. Mobility GMV and revenue in the third quarter grew strongly year-on-year, while we maintained margins at over 12%. Demand continues to be robust as we see quarter-on-quarter and year-on-year growth in Mobility's MTUs. We are also encouraged by mobility transactions growing 37% year-on-year and 12% quarter-on-quarter, which gives us confidence that our affordability-led strategies are paying off. Domestic demand continues to pick up across our markets, while International travel demand also continues to recover. Airport rides grew 9% year-on-year to reach 84% of pre-COVID levels. Our efforts to capture the rebound in tourism through traveler features that we launched earlier this year has started to bear fruit with a number of rides booked growing significantly quarter-on-quarter. Overall Mobility GMV is now at 91% of pre-COVID levels. When we compare Mobility MTUs between the third quarter of 2023 and the same period in 2019, the majority of our core markets have surpassed those levels already. Our efforts to improve driver supply to meet the growing demand continue to gain traction. During the third quarter monthly active driver supply grew 9% year-on-year, with supply levels now at 87% of pre-COVID. Following our agreement to acquire 100% of the shares in an undisclosed company in July, the acquisition remains under review in Singapore. We believe that the proposed acquisition is a win-win situation for consumers and drivers in Singapore. For taxi drivers, Grab will continue to preserve their flexibility to earn through Grab or other ride-hailing platforms as well as to conduct street hail, while investing in tech solutions to serve them better. And for our passengers, by boosting the number of drivers on our platform and helping them to operate more efficiently, we can also improve how quickly and reliably we find a ride for our passengers, whenever they need one. Additionally, we continue to enhance the affordability of our services through greater efficiencies, while improving driver earnings on our platform. The re-launch of our two-wheel mobility offering in the Philippines has gained meaningful traction, driving Mobility MTUs and transactions growth in that market by 18% and 28% quarter-on-quarter respectively. Our efforts to enhance driver efficiency by leveraging our technology continue to bear fruit. Mobility rides further reduced by 243 basis points year-on-year and 111 basis points quarter-on-quarter. Driver earnings per transit hour continue to increase by 8% year-on-year and quarterly retention rates of our active driver partners remain healthy at 90%. We expect sequential growth for Mobility heading into the year-end as we drive demand from travelers and local commuters. We maintain our expectations for Mobility to exit 2023 around pre-COVID GMV levels, while we maintain segment adjusted EBITDA margins at a similar level as the third quarter. Next on to Financial Services. Revenues more than doubled year-on-year and grew 24% quarter-on-quarter as we scaled up our ecosystem payments and lending business. Total loan disbursements year-to-date grew 52% year-on-year to around $1 billion and we ended the quarter with $275 million of loans outstanding supported by a continued pickup in ecosystem lending from GrabFin and new Flexi loan volumes from GXS Bank in Singapore, while NPL ratios continue to be stable at low single digits. Customer deposits in GXS our Singapore digibank continue to track upwards quarter-on-quarter, reaching $362 million following the increase of the maximum deposit amount per account from SGD 5000 to SGD 75000 in July. Segment adjusted EBITDA losses narrowed year-on-year and quarter-on-quarter on the back of cost savings in GrabFin. We continue to see strong ecosystem uplifts from our payments and lending business, with users from GrabPay spending 4 times more and having 1.5 times higher retention rates than cash users. Our driver partners who take on a loan with us also recorded 1.5 times higher retention compared to drivers without a loan. I also want to provide some operational updates on our upcoming Digibank launches which remain on track for this year. In September, our Malaysian Digibank received approvals by the regulators in Malaysia to commence operations. And last month, a leading digital bank also announced that it invested in a 10% stake in our Indonesian bank affiliate. We're excited about this strategic partnership. We look forward to leveraging its domestically proven competitiveness in digital finance and platform expertise to drive digital banking innovation in Indonesia. Finally, on our Enterprise and New Initiatives segment, year-on-year revenues nearly doubled, while segment adjusted EBITDA almost tripled as we continue to drive adoption of our advertising self-service platform amongst our merchant partners, while improving monetization. During the quarter, we saw the total number of active advertisers joining our self-service platform grow by 83% year-on-year, which highlights the value that our ads platform brings to our merchant partners. We also saw average advertising spend from merchants on our self-service platform increased 44% year-on-year, while return on ad spend has also stabilized at healthy levels. Looking ahead, we remain focused on deepening merchant engagement with our advertising services and driving value uplift for our merchant partners and other top brands. We are also confident that we will be able to push advertising revenues above 1% of deliveries GMV in the medium-term. Now as we look to the remainder of 2023 and into 2024, we remain optimistic that we can sustain the growth trajectory of our Mobility and Deliveries businesses as we drive affordability by leveraging the scale of our leading category position. We also see ample opportunities to drive ecosystem uplifts through our advertising and financial services offerings to better serve our users and partners. And with that, let me turn the call over to Peter.

Peter Oey, CFO

Thanks, Alex. We delivered on our commitment to achieve adjusted EBITDA breakeven this quarter, driven by improved profitability across all our segments even as we continue to grow our top line. Let me start by providing some color on our revenue growth. Group revenues in the third quarter grew 61% year-on-year and 8% quarter-on-quarter to reach $615 million. On a constant currency basis, revenues grew 62% year-on-year and 10% quarter-on-quarter. The strong revenue growth was driven by all segments of our business. Mobility revenues were up 31% year-on-year and 11% quarter-on-quarter to hit $231 million. Our efforts to deepen user penetration via more economical service offerings have enabled us to capture the growth in demand. Deliveries revenues grew 79% year-on-year and 5% quarter-on-quarter to reach $306 million as we continue to grow GMV and reduce incentives. Financial Services revenue grew by 156% year-on-year and 24% quarter-on-quarter to $15 million underpinned by improved monetization of our payments business increased contribution from lending and lower incentive spend. And Enterprise and New Initiatives revenues grew 83% year-on-year and 4% quarter-on-quarter to reach $28 million. This was supported by increased monetization of our advertising business. Turning now to group GMV. We recorded year-on-year growth of 5% to reach $5.3 billion in the third quarter. This was supported by a 7% year-on-year increase in group MTUs and a 5% increase in average order frequency of our services. Our on-demand segments of Mobility and Deliveries recorded GMV growth of 14% year-on-year and 3% quarter-on-quarter. Mobility GMV grew strongly by 30% year-on-year and 7% quarter-on-quarter and we remain on track to exit 2023 around pre-COVID GMV levels. Deliveries GMV continued to expand further as we rolled out more affordable offerings increasing 7% year-on-year and 1% quarter-on-quarter to $2.6 billion. Moving on to segment adjusted EBITDA. Our total segment adjusted EBITDA was $221 million in the third quarter, improving by $47 million in the same period last year. Our segment margins expanded 320 basis points year-on-year and 86 basis points quarter-on-quarter. We continue to optimize total incentives as a percentage of GMV, which improved to 7.1% in the third quarter from 9.4% in the same period last year. Deliveries segment adjusted EBITDA grew to $88 million, achieving a 3.4% EBITDA margin. This is an expansion of 302 basis points year-on-year and 71 basis points quarter-on-quarter. In Mobility, segment adjusted EBITDA grew 33% year-on-year to $180 million. EBITDA margins for Mobility were 12.8% for the quarter, up from 12.4% in the prior quarter. For Financial Services, segment adjusted EBITDA improved to negative $68 million, representing a 35% year-on-year and a 10% quarter-on-quarter improvement. The reduction in losses was primarily driven by lower overhead expenses in our GrabFin business, as we improve operational efficiencies that more than offset higher cost of funds to support the increased transaction volumes on our payment platform and increases in our Digibank related costs. Now cost of funds which is a variable expense within GrabFin that supports our payments platform comprises roughly about 30% of our Financial Services cost structure. Digibank-related costs grew by 11% quarter-on-quarter as we prepared to launch in our remaining markets. Finally for Enterprise and New Initiatives, segment adjusted EBITDA more than doubled year-on-year with margins increasing to 41% in the third quarter from 16.5% in the same period last year. The profitability expansion is mainly attributed to improve advertising monetization and deepen advertising penetration within our active merchant base. On regional corporate costs, this was lower by $16 million at $192 million as compared to the prior year period of $208 million and was flat from the prior quarter. The current regional corporate cost run rate reflects cost savings from the restructuring exercise we conducted in June. Centralized support regional costs, such as direct marketing and cloud costs comprising approximately half of our regional corporate costs and it continues to improve as a percentage of group revenues on a year-on-year basis. We also drove further cost optimizations across our regional fixed cost base in the third quarter. Our staff costs continued to decline 6% year-on-year and this was attributed to lower headcount levels across various functions. Other overhead expenses also declined 14% year-on-year, as we continue to drive greater operating leverage. As a result of the strong top line growth and greater focus on profitability, we recorded our first quarter of positive adjusted EBITDA at $29 million, representing a year-on-year improvement of $190 million and $48 million improvement quarter-on-quarter. On IFRS losses, we reported a third quarter loss of $99 million, representing a 71% improvement from a loss of $342 million in the same period last year due to improving profitability on a group adjusted EBITDA basis, lower share-based compensation expenses and lower fair value losses and investments. Turning now to our balance sheet and liquidity position. We continue to maintain a strong liquidity position, ending the quarter with $5.9 billion of gross cash liquidity, an increase from $5.6 billion in the prior quarter, which was driven by an increase in GXS Bank customer deposits. Notably customer deposits from GXS Bank in the third quarter was $362 million while our total loan book outstanding stood at $275 million. Our net cash liquidity was $5.2 billion at the end of the third quarter compared to $4.9 billion in the prior quarter. Now as we look to the remainder of 2023, we remain committed to growing our business in a sustainable and profitable manner. In deliveries, we are confident of sequential GMV growth into the fourth quarter. Demand continues to display positive momentum, with GMV growth carrying into October. We expect deliveries segment adjusted EBITDA margins in the fourth quarter to be consistent with that of the third quarter. Similarly, with Mobility GMV recording another strong quarter, we aim to capitalize on these growth tailwinds and are confident of sequential growth heading into the fourth quarter. We continue to see robust demand trends in October, and we remain on track for Mobility GMV to exit 2023 around pre-COVID levels while maintaining segment adjusted EBITDA margins of between 12% to 13%. With all segments performing strongly in the third quarter, we are raising our full year group revenue target to between $2.31 billion to $2.33 billion. This is above the top end of our previous guidance of $2.2 billion to $2.3 billion. At the same time, we are also revising up our group adjusted EBITDA target to a loss of $20 million to $25 million. This is an improvement from our previous guidance of negative $30 million to negative $40 million. With Grab now achieving positive adjusted EBITDA, we will manage the business with three key financial guardrails: first, by continuing to generate sustainable adjusted EBITDA; second, achieving our next milestone of positive free cash flow; and third, continue to drive operating leverage in the business. I will now pass the time to Anthony, to share more on this, as well as to provide his thoughts on our long-term outlook to close our earnings call.

Anthony Tan, CEO

Thank you very much, Peter. We are proud to have achieved adjusted EBITDA breakeven this quarter. That said, we are clear that it represents just one milestone of many in our journey as a company. As such, even as we adapt our business to the evolving market environment, we will remain laser-focused on driving both growth and profitability, and stay true to our mission which is to drive Southeast Asia forward by creating economic empowerment for everyone. Despite operating in this region for over a decade, we still see abundant opportunities to untangle complex societal problems in the region. We still have a long way to go in achieving our mission. There is so much more we can do to serve beyond one in 20 Southeast Asians that use our platform every month and empower the millions of everyday entrepreneurs currently on our platform. Now, in order to achieve this we have to provide our consumers with more affordable services while enabling our driver merchant partners to earn more. Hence we need relentless innovation and that's something we will continue to strive for to build a sustainable and thriving marketplace that balances the interests of our users and partners for the long term. We will continue to focus on investing to develop hyper-local innovations and leveraging our scale advantage to solve problems for Southeast Asia. Three main factors will guide us on how we decide where to focus our investment efforts. Firstly, these investments have to improve the health of the marketplace and solve an actual problem. This will ensure that we never compromise on being the number one choice for our users and partners. And examples of these will be the rollout of Saver deliveries and improvements to batching rate which reflect how we are offering more affordable delivery fees to users while at the same time increasing earnings potential for our driver partners. Additionally, ecosystem lending is another example of how we deepen partner engagement and loyalty, while driving financial inclusion, which is very close to our hearts as many of our partners are underserved by traditional banking institutions. Secondly, we need to have confidence that we can execute and scale these investments. We continue to be very selective in our key investments and are constantly raising the bar higher with people and technology to maximize success. We have a strong and robust balance sheet today. And while this provides us with financial flexibility, we must maintain discipline and a high hurdle rate when deploying our capital across both organic and inorganic opportunities. Third, these initiatives must be able to generate sustainable unit economics for us in the long term. We have demonstrated this with Mobility and Deliveries improving profitability on a segment adjusted EBITDA basis for seven consecutive quarters and we remain committed to continue improving on our profitability levels as we strive to provide the best selection to users while maintaining a healthy and thriving marketplace. For Financial Services, we are confident that it remains on track to replicate the successful transition to profitability that both our Mobility and Deliveries segments have achieved. While our new initiatives and innovations to serve the region may not result in immediate returns, we will continue to operate the business with discipline and with a long-term view in mind to achieve three outcomes; first, drive towards a steady pace of adjusted EBITDA growth and generate free cash flows; secondly, establish strong competitive advantages that can reinforce our reliability and service quality to our users and partners; and finally, stay true to our commitment to deliver a triple bottom line, which is to simultaneously deliver financial performance for our shareholders and create a positive social and environmental impact for our home, Southeast Asia. Only by building a financially profitable business will we be able to deliver an impact not just for this current generation but for the generations to come. In closing, Grab delivered a strong set of results where we grew on our top line and achieved positive adjusted EBITDA for the first time. Alex, Peter and I would like to thank fellow Grabbers, our users and partners for all their contributions and support. Without it, these results would not have been possible. As Grab continues to take steps towards its mission, I am very excited about what lies ahead. I look forward to sharing many more milestones and successes with all of you in the future. Thank you very much for your time and we will now open up the call for questions.

Operator, Operator

The first question today comes from Navin Killa from UBS. Navin, your line is open. Please go ahead.

Navin Killa, Analyst

Hi, thank you for the opportunity. I guess two questions from me. First of all, I guess I wanted to touch on the elephant in the room which is the Food Panda proposed sale in Southeast Asia. What can you comment on this? And I guess in particular, how do you think about it between acquiring it versus not acquiring it and competing potentially with a more aggressive competitor? Can you also help us understand how you're thinking about this with regards to your overall capital allocation principles? And I guess the second question, I know you briefly touched upon this a little bit. But with the business now achieving positive EBITDA, how are you thinking about balancing growth and profitability going forward? And how should we think about your adjusted EBITDA margin going forward? Thank you.

Alex Hungate, COO

Thanks, Navin. Alex here. I'll start on the question about Food Panda Southeast Asia. As you know, we won't comment on rumors, but I will say that we don't operate for M&A. We operate to provide the best experience and the best services for our customers, merchants, and drivers while trying to be profitable as a platform as you can see from our strategy. So I think some of the outstanding numbers this quarter if you ask me what are the operational numbers, batch order is now accounting for over one-third of Deliveries orders, reduction in driver wait times improving by 72% year-on-year and 47% quarter-on-quarter with the proprietary mapping that we have. And then that's all translating to higher earnings per hour for our drivers, which means that we get much better loyalty and much better supply than smaller competitors. So that translates into affordability and quality of selection. So, I would say that our main focus is on continuing to double down on that scale advantage so that we increase value for consumers, drivers, and merchants on our platform.

Peter Oey, CFO

Navin, on your question around just capital allocation. Look, I think Anthony summed it up well during his remarks where he said, while we have a very strong balance sheet today we're going to continue to maintain very disciplined. We have a high hurdle rate when deploying our capital both organic and inorganic opportunities. So no change in terms of how we view our capital deployment principles. It will continue to be prudent. We'll continue to have a very high hurdle rate when it comes to deploying that capital. And we're very focused on making sure that we have a healthy cash balance and adopt that discipline that we've been executing taking a balanced approach towards that capital allocation.

Anthony Tan, CEO

Yes. On growth and profitability or balancing them, we'll constantly be pushing for both growth and profitability while staying on track with our mission of driving economic empowerment for everyone. As you now see we have achieved positive group adjusted EBITDA for the first time this quarter. While this is just one achievement there are many more that we are shooting for. So looking ahead, we are focused on driving the steady pace of adjusted EBITDA growth and generating resilient free cash flows. And we will continue to focus on investing and developing hyper-local solutions that solve real problems in this region. But how we think about investments we will do; one, criteria does it improve the health of our marketplace; two, are we able to successfully scale up in a very capital-efficient manner; and three, it must be able to generate sustainable unit economics for the long run. So, in short, we are actually very excited about this journey, and especially what lies ahead. We still see plenty of headroom to grow in the region. So we will do this in a sustainable and profitable manner and we will do so generating a steady pace of adjusted EBITDA growth.

Peter Oey, CFO

You asked about the adjusted EBITDA margin. Currently, we are not providing guidance on long-term group EBITDA margins. However, I can share that our focus is on driving operating leverage within the business while ensuring our top line continues to grow. We will find a balance while managing for long-term EBITDA growth and generating free cash flow. This approach will help us align growth with profitability.

Navin Killa, Analyst

Thank you.

Operator, Operator

Next question comes from Alicia Yap from Citigroup. Alicia, your line is open. Please go ahead.

Alicia Yap, Analyst

Hi and thank you. Good evening, Anthony, Alex and Peter. Thanks for taking my questions. Congratulations on the strong set of results. Two questions. First, can management share your view on how you see the overall competitive landscape for the delivery business? Do you think there is still room for new players to enter by building their presence gradually and then taking share from some of the players who might scale back their focus in the region? And then second question is given your New Initiative Enterprise business is doing very well. So if you can share your aspiration for the online ad business. What is your specific KPI or milestone that you have set for yourself in the near term and medium term? How fast, how big you hope to achieve in the ad revenue? Thank you.

Alex Hungate, COO

Thank you, Alicia, for your questions. Let me address them. First, the Deliveries market has always been competitive. We believe our multi-segment approach to on-demand services gives us an edge, along with our focus on scaling the ecosystem. Our reduction of Deliveries total incentives to 9.8% year-on-year demonstrates that we are not reliant on incentives for growth. Instead, we are successfully driving down the cost to serve to create affordable services, which can foster growth. In this quarter's financials, our Deliveries margins have reached 3.4%, with a revenue increase of 79% year-on-year and 5% quarter-on-quarter, showing both growth and margin improvement. This is about enhancing affordability. If there are shifts in the market, we are optimistic that it will be our company, Grab, rather than new entrants, that will benefit. Regarding your second question about the ads business, the year-on-year improvement in ads is significant this quarter and last quarter. We are confident in our endemic ads offering, as we provide a unique closed-loop performance marketing that endemic advertisers seek. We utilize first-party data linked to transactions, making it somewhat resilient during downturns, as performance marketing often performs better in challenging times. This focus seems to be the right direction. In the quarter, our self-serve merchant advertisers increased by 83% year-on-year, reflecting the strategy we have shared in past quarters to concentrate on self-serve advertising.

Alicia Yap, Analyst

Thank you.

Operator, Operator

The next question comes from Pang Vitt from Goldman Sachs. Pang, your line is open. Please go ahead.

Pang Vitt, Analyst

Hi. Thank you very much for the opportunity and congratulations for a good set of results. So question for me please. Number one, on the on-demand market share trends. We noticed it's very strong this quarter especially in Indonesia. Would you continue to deliver in mid-teens in terms of year-on-year trend versus your peers that seem to contract on mid-teens as well. What have you done differently there that led to this strong growth trends? And more importantly, can you also comment on how management sees the current competitive landscape into fourth quarters over there with your competitors signaling that they are moving to protect their market share now? That's question number one. Question number two is related to the Financial Services segment. Growth materially picked up in the quarter. Can you share with us more on the trend going forward? How much of this growth come from payment and how much of this is now coming in from lending? With your loans outstanding amounted to around $175 million in the quarter. How should we see this trend going forward as well?

Alex Hungate, COO

Thank you, Pang, for the questions. I'll address the question about Indonesia first. We've experienced significant growth in both mobility and deliveries in Indonesia. Our effective strategy involves a tiered pricing approach. This includes an economy saver service that attracts new users, supported by ads that enhance our margins. We also offer premium services for the business sector, which generate higher margins. Our pricing structure, which includes economy, standard, and premium tiers, is continuously optimized using machine learning on a city-by-city and time-slot basis. This approach is contributing to our healthy growth while allowing us to maintain our margins in line with our long-term goals. Additionally, our geographical diversification in Indonesia is an advantage. Being the top consumer choice in various markets gives us scale. The technology we implement, such as mapping and payment solutions, is designed for multiple markets, allowing us to spread costs over the Indonesian market. This has helped us reduce consumer incentives, demonstrating our ability to offer affordable services without relying on incentives. Our strategy will continue to focus on this model in Indonesia. Regarding the outlook for the fourth quarter, we expect to maintain our current strategy, emphasizing cost reductions that benefit drivers, improve supply, and support merchants, as we remain the preferred choice for consumers, driving income growth for them. As for Financial Services growth, we are pleased with the progress in lending through GFin and the flexi-loan product of GXS in Singapore. Our success in this area relies heavily on data science, as we leverage both conventional and unconventional lending data for underwriting. This enables us to provide loans to a broad range of users, including those who have not previously borrowed, while keeping our non-performing loan rates stable and low. The majority of our revenue growth is now coming from lending. Our payment strategy focuses on our ecosystem. Since our Investor Day in September 2022, we have been moving away from off-platform payments, which were not profitable. This shift has led to a decline in off-platform transactions and improved our margin mix. Consequently, our payments business is growing in tandem with our GMV, as it relies on ecosystem transactions. The impressive growth figures shared earlier are primarily driven by lending.

Operator, Operator

The next question comes from Divya Kothiyal from Morgan Stanley. Divya, your line is open. Please go ahead.

Divya Kothiyal, Analyst

Thank you. I had two questions. The first one was continuing with the Financial Services segment. Just wondering the narrowing of losses that we've seen in this quarter despite higher Digibank related costs, can we just explain the drivers of this? And what would your outlook for the fourth quarter and beyond be? Do we expect these losses to continue tapering now? Or should we expect it to be bumpy as you launch into new markets? My second question is around corporate costs. We noticed this was flat quarter-on-quarter. Once again, I would be keen to know your comments on how you see this trending whether we are depending more on operating leverage now? Or do we have more levers to pull to reduce this? Thanks.

Peter Oey, CFO

Hi Divya, it's Peter. Let me address both of your questions. Regarding Financial Services, we have indeed seen a reduction in losses quarter-over-quarter. In our GFin business, we are actively optimizing the cost structure and experiencing positive momentum similar to last quarter. Looking at the variable costs, which account for about a third of our fintech business, they are supporting our payments platform. As transaction volumes increase, we will see a rise in payment costs associated with funding our expanding Mobility and Deliveries business. Apart from that, the cost structure of GFin is still being optimized. On the Digibank front, we are preparing for several significant launches in additional countries this quarter, which we are very enthusiastic about. While some costs have increased, this is mainly in anticipation of those launches. Overall, I would say that our cost structure for the fintech business is slightly elevated this quarter due to these key market entries. Yes, go ahead.

Alex Hungate, COO

Yes. I'll just add some numbers to illustrate Peter's comments. Cost of funds represents about 30% of our financial services costs. And that obviously increases in line with the GMV growth. So that's what Peter referred to as variable. The other segment costs, if you do the sums from the numbers we shared this quarter, the other segment costs actually reduced by about 5% year-on-year, and that's despite the increase in the build cost for the Digibank, which is up 11% quarter-on-quarter. So we've managed to absorb that build cost for the Digibanks and at the same time reduce total costs by 5%. Thanks. Peter?

Peter Oey, CFO

We're going to continue looking for operating leverage in the business regarding regional corporate costs. In the third quarter, these costs remained flat from the previous quarter but decreased by 8% compared to last year. When we break that down, we observed that headcount costs dropped by 6% year-on-year and also on a quarter-to-quarter basis. Additionally, our non-headcount fixed overhead was down 14% year-on-year and 9% quarter-on-quarter. We will keep searching for ways to optimize costs, while also balancing the necessity to grow and manage the business. We will be disciplined in our hiring and in the costs we assume. It is crucial that we maintain operating leverage in the business, which we are seeing, and we will ensure that this leverage continues to contribute to both business growth and overall margin improvements.

Operator, Operator

The next question comes from Piyush Choudhary from HSBC. Piyush, your line is open. Please go ahead.

Piyush Choudhary, Analyst

Yeah. Thanks a lot. Congrats Anthony, and the entire team on a good set of results and turning it just EBITDA positive. Two questions. Firstly, you've talked a lot about affordable solution in both Mobility and Delivery. Can you give some color on what percentage of incremental users are coming, because of such solutions and what percentage of incremental GMV growth is driven by that? And is the margin profile of these new product solutions similar? That's the first one. Secondly, in the Delivery segment you have already reached a 3.4% segment margin. So, any revisions to your midterm margin expectation? Can the segment reach a 5% segment margin by 2025? Thank you.

Alex Hungate, COO

So, Piyush, thanks for your questions. Yeah, the Saver solution now is responsible for about one-third of the GMV. That equates to about one-third of the MTUs. On the margin impact, what we are able to do, because of the ladder pricing approach that I described earlier is, we optimize the pricing between the Saver offering, the standard offering, and the premium offering. We're able to manage the margin to the same stable end result that you saw. So, over 12% for Mobility and the 3.4% for Deliveries. It's the same optimization we use as I mentioned using machine learning. The products are distinctly differentiated. So, for example on the Saver product, you'll see more ads layered in as an example, and then on the premium product, you'll get better vehicles. So the physical product is different and then also you get a more reliable faster pickup for airport rides for example which is something we've been growing very, very rapidly. So net-net the margin is stable across that despite the fact we're now able to target the affordable segment.

Peter Oey, CFO

If you show on your Deliveries margin of 3.4%, we've always said from a steady state perspective our Deliveries margin will be 3% plus, and we've achieved that. If you look at our ads business also last Q3 from a margin perspective it's roughly about 40%, 41%. So we're going to continue to balance. In terms of growing the Deliveries business, we still see a lot of opportunities in our Deliveries business as Alex mentioned, a third of our Deliveries users are tapping into our affordable options which is great. A third of our Deliveries GMV comes from subscribers which is critical also. So we're going to drive frequency. We're going to drive growth also at the same time. But also we're going to be very disciplined in making sure that the margin for Deliveries continues to be that 3% plus that we've said in prior quarters.

Operator, Operator

The next question comes from Reena Bhasin from Deutsche Bank. Reena, your line is open. Please go ahead.

Reena Bhasin, Analyst

Hello. Can you hear me please?

Operator, Operator

Ma'am, please go ahead.

Anthony Tan, CEO

Yeah. Go ahead.

Reena Bhasin, Analyst

Yeah. Thank you for the call and also thank you for the improved disclosure on your Financial Services business. I have a few questions. Firstly on the Digibank side. Can you please help us understand what metrics we should use to evaluate the effectiveness of your Digibank strategy? I know you've given numbers on the Singapore deposit base where you've completed a year. But could we know how much of the loan book is coming from the Digibank or at least in terms of origination transactions? If you could share some color on that front please? My second question is actually with regard to Anthony's comments about the aspects that look that are key to long-term growth, I found it kind of just easy to accept that any M&A will more or less improve the health of marketplace and help to scale up the business in an efficient way. And with the treasury which is earning some 5% income, I think the hurdle rate to deploying more money into businesses doesn't seem that high. So I'm just trying to think why would you ever say no to any M&A. Could you just please share some clarity on what kind of metrics you're using besides improving health of the marketplace? I guess my third question is just if you could share any light on what kind of commitment could you make to the regulator in Singapore to kind of ensure that the Trans-cab transaction does go through smoothly. Is that something you're considering making commitments to the regulator? Thank you.

Alex Hungate, COO

Thanks, Reena. Let me address your first and third questions. Regarding Digibank, the total loans outstanding between GFin and Digibank is currently $275 million, with year-to-date loan disbursement reaching $1 billion. We don't specify the Digibank figures yet, as it has only recently begun lending with the Flexi-Loan product. However, as the portfolio grows, we expect to differentiate between GFin and the Digibank Flexi-Loan portfolio by next year. The primary indicator of Digibank's success right now is consumer adoption. We're encouraged by the strong uptake in both deposits and the Flexi loan product. We're closely monitoring the credit models to ensure the Flexi loan is performing well and will collaborate with regulators to transition from our current phased approach to a fully operational digital bank, allowing us to expand both sides of our balance sheet more rapidly. Now, addressing your third question, we are actively cooperating with CCS and have provided them with plenty of information. We remain committed to transparency and ensuring that drivers can choose any platform they wish, with no restrictions to the Grab platform. We believe this transaction benefits drivers by enhancing their earnings and efficiency while also benefiting consumers by increasing supply availability in Singapore through improved technology.

Peter Oey, CFO

In response to your question about mergers and acquisitions, we consider several factors when evaluating inorganic opportunities. We have established hurdle rates and financial guardrails, but we also focus on other aspects. A key consideration is how a potential acquisition affects our current ecosystem or marketplace. It is essential that any opportunity we pursue benefits the marketplace. A prime example of this is our acquisition of Jaya Grocer, which has significantly enhanced their online delivery service, benefiting consumers in Malaysia and our driver partners. Additionally, we examine what opportunities the targets can bring to our merchant base or how they can generate more demand for our drivers. While financial gains are important, we also take all these dynamics into account when assessing an M&A opportunity as a whole. I hope this provides some insight into our approach.

Reena Bhasin, Analyst

Yes. Thank you. May I just quickly follow up on your last point about the financial accretion part. Can you please comment on the treasury strategy as you kind of surface in the news more often than before with regard to a potential large outgo towards M&A. How is the treasury strategy changing? And is 4%, 5% kind of income going to just kind of vanish from the balance sheet if you were to indulge in big-ticket M&A?

Peter Oey, CFO

The cash in the balance sheet that we have, we're going to be very good stewards of our capital. And whatever the treasury yield is today we'll make sure we'll maximize it. But also at the same time, we're going to make sure that every dollar that stays on our balance sheet is off to good use whether it's investing in whatever we can in treasuries or any other investment products. But I think what's really important is we've been very prudent in terms of how we deploy our capital at the end of the day. And that's really what's critical to the shareholders so that we are being very careful in terms of how we deploy it.

Operator, Operator

This concludes Grab's third quarter 2023 earnings conference call. Thank you for your participation. You may now disconnect.