The future of SEA fintech is peer-to-bank (P2B), says C88’s John Patrick Ellis

John Patrick Ellis, co-founder and CEO of C88 Technologies.

The future of fintech in Southeast Asia (SEA) may not necessarily be in the peer-to-peer (P2P) but peer-to-bank (P2B) space, says John Patrick Ellis, co-founder and CEO of C88 Technologies.

In an interview with DEALSTREETASIA, Ellis said that the currency volatility and low household savings in SEA will push P2P lenders to collaborate with players holding bigger pools of cash. In markets like Indonesia and the Philippines, these will be financial institutions and banks.

“We saw the Indonesian rupiah devalue 10 per cent to the USD year-to-date. Imagine if you had liabilities in USD and assets in Indonesian rupiah. That’s a really scary place to be in,” said Ellis.

He said Indonesia has one of the most progressive fintech sectors globally.

“I believe that if the regulators continue what they’re doing, they’ll have some of the most business-friendly and society friendly outcomes imaginable. This is important because Indonesia has a lot of problems to solve. This involves addressing the issue of financial inequality instead of exacerbating it,” said Ellis.

Ellis is also the co-founder and member of Asosiasi FinTech Indonesia (Fintech Association of Indonesia) which represents about 300 fintech companies in Indonesia.

Last week, Korea Investment Partners closed an extended Series C round for C88 Technologies. The fintech startup previously closed its oversubscribed $28-million Series C round in July led by global credit reporting agency Experian.

Edited excerpts:

Korean Investment Partners is investing in you. Why now and why not in Series D?

We first met Korean Investment Partners through InterVest, a highly established and reputable South Korean investor and one of our key Series C investors. 

The Korea Investment Partners team made a great impression on us. We found that they really understood fintech and what we were doing, so we made an exception for them and opened a modest Series C extension for them. This was fully taken up by Korea Investment Partners and has just closed. 

But what does Korean Investment Partners bring to the table? You did say that you turned away many potential investors in your Series C round.

That’s right. Our Series C round was oversubscribed. As a company, we very much like to be challenged in the boardroom. We like to have meaningful dialogue, meaningful decision-making and clear analysis within our shareholder base. All of our investors, whether it is Korea Investment Partners who just joined us on this journey, or Experian Ventures, DEG, responsAbility, Monk’s Hill Ventures and others, all are very analytical and involved and generally are quite experts at fintech, which is a rather technical subject and requires an encyclopaedic understanding and holistic viewpoint.

We saw that Korea Investment Partners would make a great fit with our team. They are also able to devote a lot of brainpower and resources which we believe will help us create a better company here at C88.

We also generally see a very high degree of sophistication among our South Korean shareholders and have a great deal of respect for them. The South Korean market is very advanced from virtually every perspective, especially from a tech, data and bandwidth perspective. It’s one of the most digitized societies on earth.  

When can we expect Series D then?

We currently have a lot of inbound interest to raise a Series D, but we have our treasury full now, so we want to focus on execution. Execution for us means the delivery of growth in our already profitable business units in Indonesia and the Philippines, such as some of our core lending and insurance units, as well as growing and bringing into profit our more emerging business units and geographies. We will also be launching a new financial marketplace in Thailand in the next six months, and have brought onboard Thai shareholders and a very capable Thai launch team in Bangkok.

How different will your strategy for Thailand be compared to Philippines and Indonesia? 

I would say Thailand has a lot of very interesting things that are different in some respects, but also very similar compared to other SEA markets.

Thailand has a higher percentage of population that is already banked. It also has roughly double per capita income compared to Indonesia and the Philippines. The market has a more coherent underlying infrastructure, with banking sector consolidation already having taken place and a national credit bureau. This means we can launch more developed products in the market, and leapfrog a few steps in terms of product and service sophistication.

We’re very excited about Thailand, our Thai team and Thai shareholders, and we think this will complement our existing strategies in Indonesia and the Philippines. 

Credit scoring, decision making and data analytics – all of these can be leveraged across your three markets as well. 

Yes – currently every Indonesian and Filipino customer that comes to our marketplace brands ( in Indonesia and in the Philippines) is scored and analysed around a robust model. This credit model represents the intellectual property we’ve co-developed with our Series C lead investor, Experian, and we’re very excited about it. There’s going to be a lot more happening, both on the customer-facing and enterprise-facing sides. We expect more digital outcomes in terms of credit scoring and automated positioning straight through processing. We believe we are in the forefront of that in the region. 

One of the greatest resources you can have in SEA today is data, simply because there’s so little that’s known about customers in this region. How do you plan to capture and monetise this?

We agree. A traditional paucity of data is actually one of the core problems in financial inclusion. The reason why there is a lot of financial inequality in these countries is that statistical trust doesn’t exist. And trust doesn’t exist because traditionally there has been data scarcity.

Data by itself doesn’t create any outcomes. But when compiled and shared securely in line with global standards, data can create an outcome that will establish identity and create the underpinnings of trust. This will then allow lenders and financial institutions to price risk and create the conditions necessary to reverse financial inequity. It allows customers to be scored, and potentially borrow, say 50-60 per cent now, and if that performs well, drop that down to 40 per cent, 30 per cent, 20 per cent and so on. That’s the kind of process that has a level of trust in the system, and that exists in developed credit markets but is still emerging here. We think this part of it, the inclusive longtail of trust, we believe this is changing fast and moving fast; risk-based pricing is now a thing, digital onboarding is now a thing, and this was not true even six months ago. Imagine in another twelve months.

Traditionally, there has been a lot of, what we call, judgemental lending in SEA. I will draw an illustration using the example of post-WWII America. There was a lot of financial inequity then, and the whole joke was that if you wanted to get a mortgage, you should get your kids to play sports with the children of bankers. That’s judgemental lending. And the result is it can be very exclusive and creates a lot of false negatives.

Every single central bank and regulator in the region whether it’s OJK or BI in Indonesia, BSP in Manila, or the BOT in Thailand has more or less the same mandate. It’s about driving financial inclusion, financial transparency and reducing financial inequity. That’s another way of saying how do we take an emerging consumer, build them a profile and give them the tools to manage that and walk down their interest rates as they increasingly build their trust quotient.

In essence, when data is securely shared, it allows market participants to make better and more informed decisions. At C88, this means working closely with Experian, with telcos, e-commerce firms and alternative data firms to help price risk more dynamically and assess an individual to determine what they can borrow and help them improve their score and walk down the cost of interest over time.

SEA has seen a surge in P2P lending in recent years. How do you see this progressing in the region?

We believe that the limitation lies in the liability rather than the asset side of the balance sheet. The demand for credit is extremely robust and will continue to grow for decades. There is absolutely no problem in originating assets.

The question on the liability side is – where do you find the investors? Household savings in SEA emerging markets is far lower than other markets where P2P has been successful like Europe, the US and China. 

We think that the future of P2P is going to be more collaborative with financial institutions and banks because these players have a very high capital adequacy ratio. They also have currency-matched denominations. We saw the Indonesian rupiah devalue 10 per cent to the USD year-to-date. Imagine if you had liabilities in USD and assets in Indonesian rupiah. That’s a really scary place to be in. 

So the logical process of deduction will lead you to ask – where are the big pools of Indonesian rupiah? Where are the big pools of Philippine pesos? Those are in the Indonesian and Filipino banks. The future of fintech will need more collaboration between different players, and I expect more of such “peer-to-bank” (P2B) partnerships taking place.

Do you think Indonesia’s OKJ is still playing catch-up when it comes to regulating fintech?

On the contrary, I think Indonesian regulators have been pretty engaged since the early days of fintech in Indonesia and that has helped a lot. It’s probably not an exaggeration to state that Indonesia now has some of the most progressive fintech sectors globally.

I believe that if regulators continue what they’re doing, they’ll have some of the most business-friendly and society-friendly outcomes imaginable. This is important because Indonesia has a lot of problems to solve. This involves addressing the issue of financial inequality instead of exacerbating it.

Some critics say that Indonesian regulators may be taking a blunt approach to the fin-tech industry, especially when there are foreign players involved. 

To be fair, in many respects you are chasing a moving target. A lot of things are evolving and changing every day as we all have a greater understanding of what’s happening and innovation unfolds. But there has been a huge amount of engagement between the industry and regulators, and that’s a good thing.

There is a new OJK law in place called OJK 12/2018 which creates a path for banks to become digital banks. This law, also for the first time, explicitly allows non-F2F electronic KYC (Know Your Customer) engagements which we believe is a very big enabler for the industry. This law also enshrines the role of financial marketplaces like C88 brands as distribution partners and vehicles for financial access. This is a tangible example that came out three weeks ago and creates key enablers for the industry. There’s a lot that’s happening and the industry is moving very, very fast. 

Go-Jek announced partnerships with three P2P firms recently. Do you see the Go-Jeks and Chinese strategics playing a more significant role in the lending space?

I think I’d still distil it to first principles. The reason why financial inequality exists is because of the lack of trust and scarcity of data.

I believe it’s about building that trust which will come from the data and looking at individuals statistically rather than judgmentally. The industry will welcome any participation of any actor who wishes to be involved. That doesn’t just involve the big unicorns. Many other actors also need to be at the table, like the telcos or national tax records for instance. There a lot of elements that need to come together. So I wouldn’t really focus particularly on the point of view of one actor or unicorns per se. I would see it as a data question. We have really fundamental problems to solve in our societies here, and financial access is not a zero-sum game.