Chocolate Finance is a simple app that launched in Singapore to provide users with a predictable yield above bank deposit rates. It took founder Walter de Oude longer than he expected to launch, but now that the app is live, he’s already looking to enter the Japanese market.
“We’re trying to solve for optimizing cash,” he told DigFin. “We just want to get money to work smarter.”
De Oude is one of the few fintech founders in Singapore to have successfully exited, having launched Singlife and arranged its sale to Aviva.
Precursor: Singlife
Singlife was an insurance business with a digitalized back end, which enabled it to innovate products quickly. One of these was a Visa debit card, blending payments and banking with an insurance business. Users could transfer some of their insurance balances into the card and earn a modest yield, or transfer it to a bank account.
After the Aviva acquisition, the legacy insurer halted the card, which it decided didn’t bring in enough revenues and was expensive to manage (because the money came off the insurer’s balance sheet, as there was no deposit base to use).
De Oude expressed dismay at the decision, and set out to revisit the idea. His new startup, ChocFin, takes some of the learnings from the Singlife debit card and pitches it in a new form.
New asset manager
ChocFin is licensed in Singapore as an asset manager, not an insurer or a bank. Its mission is narrower: make it as easy as possible to convince depositors to earn a yield over their cash holdings. While it’s a one-trick product pony, it has the potential to expand geographically.
“We built the infrastructure to deploy customer money and earn a return,” de Oude said.
To appeal to the mass market, he designed ChocFin to provide two things. One is instant liquidity. The other is a mechanism to smooth returns, so customers know exactly what to expect.
Smooth running
Currently, the company is offering a 4.2 percent daily return for the first S$20,000 invested. For amounts above that, ChocFin doesn’t guarantee a payback but aims for a 3.5 percent return.
The smoothing results from the startup’s treasury desk investing customer money into a portfolio of short-term bonds and bond funds run by third-party asset managers, including Dimensional Fund Advisors, Fullerton Fund Management, Lion Global Investors, and UOB Asset Management.
ChocFin takes the risk of managing fixed income for total returns. It targets a spread after fees of about 100 basis points above Singapore fixed-deposit rates, which today are 3.5 percent for three months. Therefore if ChocFin generates 4.5 percent and promises 4.2 percent, it can keep 30 basis points as its revenue.
This smoothing is why ChocFin was set up as an asset manager, with the client money kept in segregated accounts at a custodian bank. While a bank or an insurer would have to expose their balance sheet to managing treasury operations, an asset manager doesn’t, and therefore faces no capital costs or reserves requirements. It can invest as it sees fit.
Thin margins
The risk is that ChocFin and its backers are now directly exposed to market and liquidity risks.
Running a treasury that can predictably eke out a low margin requires scale, and ChocFin is heavily backed by venture capital, including DST, Peak XV Partners (formerly Sequoia’s India-based team), Prosus, and Saison Capital – along with de Oude’s own money. The company raised $19 million in 2022.
De Oude acknowledges the margins are thin. The nature of the business means ChocFin can’t use leverage to big up its investment returns. But he says it’s sustainable because the underlying technology is so efficient. “The cost of our infrastructure is a fraction of others’,” he said. “As long as more money comes in, it’s sticky.”
He experienced that stickiness at Singlife with the debit card, and says ChocFin is amassing customers more quickly. ChocFin is a standalone business with no banking partners for distribution. It spent money on advertizing and is now relying more on customer referrals.
A pilot version of the app went live in August 2023, but ChocFin only opened for business fully in July this year – about two years later than de Oude had initially thought, but he changed his mind about initially relying on the licenses of third parties to get started. ChocFin eventually secured a Capital Market Services licenses from the Monetary Authority of Singapore. The license will allow ChocFin to provide financial advice, not just an app.
De Oude declined to say how many people were now using ChocFin or the size of its assets under management, other than to say the growth was rapid.
Prospects
Other market participants in Singapore posed some questions about the business’s viability.
“It’s a product, but is it a business?” wondered a founder in the wealthtech space. ChocFin’s single product can be replicated, while fintechs and banks can offer a range of products that span a user’s lifecycle.
De Oude says his cost of operation is so low that it would be difficult for a legacy asset manager to mimic ChocFin. But other digital businesses are already doing so.
Trust Bank, for example, is offering its premium customers a 3.5 percent daily interest. This may be lower than ChocFin’s rate but Trust Bank has powerful distribution, and it guarantees that return for up to SG800,000, 40 times more than ChocFin’s cap.
Moreover, conditions change. Central banks in the US and Europe are now cutting interest rates. De Oude says ChocFin would lower its guarantees in line with macro trends. For example, its 4.2 percent return concludes at the end of the year, and ChocFin can lower its rates next year.
This business strategy seems workable so long as macro changes are gradual. But if rates decline quickly, ChocFin would face two problems. In the short term, it could be forced to pay out customers more than it can earn – but with low caps on guarantees, the company has enough capital to survive.
The longer-term problem is more existential: if rates keep declining, there’s only so much value in offering a money-market-like product. De Oude is then relying on the stickiness of his customer base, but if he convinced them to move money from a bank account to ChocFin, how likely are they to keep it there if other asset classes start to look a lot better than cash?
Pilot in Singapore, scale in Japan
ChocFin’s strategy seems to be to grow in markets where interest rates are still on the rise. That means Japan. Japan has the world’s largest pool of deposit money, ¥171 trillion ($1.2 trillion) as of December 2024, according to S&P Global Markets Intelligence. Decades of deflation have made Japanese a nation of savers, not investors. Brokers and fund managers have tried in vain to lure some of that money into risk-taking vehicles.
But de Oude reckons the time is now ripe to target those savers. The Bank of Japan is the only major central bank that is likely to keep raising rates (it made its first rate hike in 17 years in March, taking Japan out of negative-rates territory). The cheap yen is stoking domestic inflation. And regulators in Tokyo are putting out the welcome mat to fintechs that can bring innovation to the market.
To make a Japan business work, ChocFin will need to raise a lot more VC capital. It won’t be able to go it alone, as it’s done in Singapore – it will need a banking partner that can manage collections, distribution, and some operations.
Even then, ChocFin won’t find it easy: there’s competition in Japan for those deposits, notably from Japan’s four digital banks. Rakuten Bank, SBI Sumishin Net Bank, Daiwa Next Bank and Sony Bank are experiencing rapid deposit growth rates, with deposits up 36 percent year on year, says S&P – outracing both the mega banks and the regional banks. For now, rates are still so low that the digital challengers are winning business based on better service, but they’re likely to also compete with higher deposit rates.
ChocFin can, of course, also get a slice of what should be a giant pie, but it will need a substantial AUM to make its riskier business operation pay off.
Exit 2.0?
De Oude is confident, however, that ChocFin will be able to keep its VC backers happy, and convince them to stump up more.
His benchmark is Revolut, which is now valued at $42 billion off revenues of $1.8 billion, representing a valuation of 23x revenues. If in Singapore, ChocFin makes revenues of 30 basis points, and it can get 1.5 percent of market share (out of nationwide bank deposits of $1 trillion), it can generate $45 million in revenues off an AUM of $15 billion. A 23x multiplier on $45 million is a $1.03 billion valuation. The more deposits, the bigger the valuation.
Of course, that outlook assumes ChocFin deserves a multiple akin to Revolut, and that it can muscle its way into enough AUM. But if it is able to win a sliver of the Japanese market, given its vast size, that could be more than enough to make ChocFin an attractive business – and make de Oude Singapore’s first fintech founder to successfully exit twice.
