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Indonesia only scratching the surface in fintech, market remains fragmented

Fintech in Indonesia, a market that UOB predicted will contribute around $48 billion to the overall economy by 2022, remains highly fragmented. In the long term, however, it will create opportunities for consolidation as well as the growth of new niches, investors and founders shared during DEALSTREETASIA’s Indonesia PE-VC Summit 2019 recently. “We are just starting to scratch the surface,” said Jefrey Joe, co-founder and managing partner of Indonesia-focused venture capital firm Alpha JWC Ventures, adding that only people in big cities have adopted fintech products, and the digital ecosystem is still very small compared to the offline system.

In his view, opportunities are present for building ecosystems, even as some unicorns have set up their own. Also due to the current fragmentation, investors believe that opportunities are equally large for all players. “The right to win is getting smaller day by day, but I don’t think everything is already set,” Joe commented. Digital payments have taken up only 1 per cent of the financial landscape, while there is some $60-80 billion financing gap in the SME sector. “There are a lot of improvements that need to be done in Indonesia,” added Sebastian Togelang, founding partner of Kejora Ventures.

A set of various issues can be solved by fintech rather than just payment and lending, industry players said. “Payments, things like QR, are fintech 1.0. Meanwhile, fintech 2.0 is (comprised of) scoring and areas that require more research, more data science, and more AI,” said Agung Nugroho, co-founder and CEO of Kudo, the payment platform that was acquired by Grab. While some may opine that the fintech play is already in the hand of the unicorns and those who have an ecosystem, the fintech panel at Indonesia PE-VC Summit held that there are many opportunities in niche markets such as the use of fintech in agriculture, insurtech and wealth management. Fintech is “an ultra-fragmented informal sector being pulled into a formalised one, and in this, there’s no single winner or loser.

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It’s not a zero-sum game,” said JP Ellis, CEO of C88. On the consolidation side, Alpha JWC Ventures’ Joe projected that there could be more e-money in the market but also only two to three dominant payment players in the next five years. Consolidation is not about a short-term capital advantage, according to Akshay Garg, co-founder and CEO of online credit card firm Kredivo. “The only thing that matters is, do you have a really deep customer obsession or not? Capital does not determine your long-term success,” he said. Adding to Garg’s take, Kudo’s Nugroho shared that when Grab acquired his company in 2017, Kudo did not intend to raise funding.

“I wanted to scale beyond Indonesia, and the best vehicle to do that was through an entity that has regional coverage,” he elaborated. The transaction set a precedent and has been followed by Go-Jek’s investments in a spate of payment firms and TNG Fintech acquiring WalletKu. It also created synergies for the Grab business. “After the acquisition, our agents have become the recruitment points for Grab drivers, which increased income for our agents by 30-40 per cent.

From Grab’s perspective, we hired more than 700 drivers in Indonesia within only one year,” Nugruho said. The fintech opportunities in Indonesia are explained by its demographic advantage — the median age of its 260 million people is only 30 years old — and about 66 per cent unbanked population. “It’s a gigantic unbanked opportunity now,” C88’s Ellis concluded.


Jung Min-seo


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