orm. Sea, for example, provides an integrated suite of e-commerce (through Shopee), digital entertainment and financial services.  Other super apps in the region also wind financial services into a single platform with other offerings. Grab, like Sea headquartered in Singapore, attaches financial services to online food delivery and ride-hailing. In Indonesia, GoTo operates e-commerce, online food delivery, ride-hailing and financial services businesses. And in Korea, Coupang operates in the e-commerce and food delivery spaces and has a proprietary easy payment gateway. These companies are all dynamic in their own way, but there are minefields to be negotiated as they expand their user bases as quickly as possible to achieve the necessary scale to outmuscle competitors. Unfortunately for Sea, it appears to have stepped right on one.  Company revenue in the first quarter was US$3.0 billion, split up among the e-commerce, digital entertainment and financial services businesses. Financial services accounted for $412.8 million, an increase of 75 per cent on a year ago, so this is an increasingly important segment for Sea, particularly considering that the e-commerce component grew by only half as much and its digital entertainment business actually shrank by 52 per cent. However, it is the financial services part that is also now the focus of the class action against the company.  SeaMoney and risk Branded SeaMoney, the finance offering encompasses offline and online mobile wallet services, payment processing and other services across credit, insurance and digital banking. Among other things, the company offers credit to Shopee buyers, marketplace sellers and other borrowers, which means it is exposed to increasing risk as its pool of loans expands and/or the credit quality of borrowers deteriorates. Its ability to manage that risk, and what the company did or didn’t reveal about the effect of that risk on its ability to turn a profit, are what has drawn the ire of investors. Tucked away in its first-quarter income statement was a loan loss provision of $177.4 million, compared with $80.5 million in the first quarter of last year. The company explained, somewhat laconically, that the greatly expanded provision was “primarily driven by expansion to a broader user base and the growth of our loan book”. Enter the class-action suit. The plaintiffs accuse Sea of making a series of overoptimistic statements during a 13-month period that misled investors into believing that the company could manage the financial and profitability risk associated with a growing loan book as its user base expanded. The suit alleges that company executives knew full well that it was vulnerable to elevated credit risk and that this would affect its earnings, but didn’t spell it out. The suit covers the period from 23 April 2022 (the day after Sea Ltd filed its annual report for 2021) to 15 May 2023 and applies to anyone who acquired Sea Ltd securities during that period. In essence, the company’s annual report for 2021 (released in April 2022) and other company pronouncements throughout the class-action period spruiked the large and growing user base and the synergies among the company’s three businesses, which it claimed was a virtuous circle, with each business pulling new customers into the others. The other super app players in Asia would be taking note, not only because they have financial service offerings but also because they are listed on various public stock exchanges. Grab, which is listed on another US exchange, the Nasdaq, provides digital payments, lending, receivables factoring, and ‘pay later’ services. The ‘pay later’ service allows merchant partners to give consumers the option to delay payment or make payment in instalments. Grab claims that it has been able to develop credit profiles of its drivers and merchants that enable it to extend a responsible level of credit that is commensurate with the means of recipients to pay back. Grab’s financial services segment grew by 262 per cent in 2022, to reach $71 million, while revenues in its core businesses of online food delivery and ride-hailing about doubled. Meanwhile, in Indonesia, GoTo boasts a financial technology segment that includes a digital wallet (GoPay) that is enjoying a steady increase in payment volume. Lately, the company has introduced two new lending products, one called GoPayLater Cicil, a ‘buy now, pay later’ scheme that enables e-commerce customers to break up payments into monthly instalments. It is also trialling a cash loan product.  So far, the company claims that, due to the effectiveness of its credit scoring systems, the average loan disbursed under its pay later scheme was profitable, making GoTo confident that it could continue to grow the lending business. Revenue from financial services grew by 42 per cent in 2022 and accounts for more than 7 per cent of company revenue. The markets take a dim view The markets are regarding the super apps generally with abundant caution, and Sea is now under particular scrutiny. On Monday, 15 May, the day before Sea announced its first-quarter earnings that included the increased credit loss provision, the company’s stock price stood at $88.07. After the earnings announcement the following day, it sank almost 18 per cent, to $72.45, and has continued to bottom-feed ever since. When the market closed on 28 July, the price was $63.72.  After a year of touting a shift in focus from growth to profitability, the company leadership now has an unwelcome credibility gap to close with its investors, and burned investors have long memories.