Fintechs feel the heat as Indonesian lenders lead country’s digital banking transformation

A gojek driver in front of Bank Jago's logo

Indonesia’s banks, backed by the region’s tech-savvy startups and major investors, are gearing up to transform the financial landscape of the severely underbanked nation, as they combine reach and financial heft. In the process, many of the country’s young fintechs may be forced to take the new competition head-on.

In February, Singapore’s sovereign wealth fund GIC said it will join Indonesian lender Bank Jago’s roster of investors, pumping in Rp3.15 trillion ($222 million) for a 9.67-10.23% stake. Bank Jago’s roughly $2 billion valuation in the deal can be seen as an endorsement of its ongoing evolution into a full-fledged digital lender.

Indonesian homegrown decacorn Gojek had increased its stake in Bank Jago by around five-fold to over 22% in December last year, paving the way for the bank to embed its services on the ride-hailing and payments giant’s platform this year.

In a similar vein, Sea Group-owned PT Bank Seabank Indonesia (formerly Bank BKE) and PT Bank Neo Commerce Tbk, backed by P2P lender Akulaku, are also taking the lead from fintechs in transforming the way Indonesians bank.

Singapore-based internet major Sea Ltd had acquired Seabank Indonesia in January this year with the objective of ultimately transforming the local lender into a digital bank.

Akulaku, meanwhile, had first invested in Bank Neo Commerce in 2019 and currently holds a 24.98% stake in the lender.

The digital play

Following the tie-up with Gojek, Bank Jago plans to launch some of its services on a mobile app this month. Eventually, this will be embedded on Gojek’s platform, offering loans and other full-fledged banking services. Bank Jago also plans to embed its services on other e-commerce, travel, and fintech platforms.

Moreover, a potential merger between Gojek and Indonesian e-commerce giant Tokopedia, which is widely reported to be in the works, will benefit Bank Jago.

“Gojek and Tokopedia are two loved brands in Indonesia and they’ll be able to leverage their customers quickly, especially if they use discounts or promotions for users. Yet, the question is whether they [Gojek, Tokopedia, and Bank Jago] can do it seamlessly and retain those customers,” said Nanette Litya, project manager at the venture builder and investment consultant Momentum Works.

Bank Jago is also planning a rights issue this week to raise Rp7.05 trillion ($500 million), including from GIC. The bank’s CEO Kharim Siregar said the GIC financing will not direct the lender’s strategy and business this year. “The investors came to Bank Jago because they were interested in what we will do, not what the investor wants to do through us,” Siregar told reporters in February.

The funds will give the lender flexibility in expanding its ‘omni-channel’ strategy and acquiring more users, especially retail consumers, and SMEs. 

Bank Jago plans to implement an omnichannel approach, wherein a consumer can access the bank easily through many app platforms. (Source: Bank Jago)

Bank Jago has partnered with digital platforms including fintech platforms Akulaku, Kredit Pintar, Akseleran, and the logistics platform Logisly. It is targeting more partnerships with travel sites, and e-commerce platforms and plans to offer financial products, such as payments, insurance, loans, and wealth management.

Meanwhile, Seabank, as part of its digital transformation, plans to integrate with Sea Group’s services including e-commerce platform Shopee, by targeting its buyers and merchants, and digital entertainment business Garena.

Both Bank Jago and Sea Group can offer full-fledged banking services on Gojek’s payments app Gopay and Sea’s ShopeePay respectively.

“We see this as an integral part of our SeaMoney segment where we continue to build out the infrastructure for digital payments as well as digital financial services,” Yanjun Wang, group chief corporate officer at Sea Group, said in the company’s Q4 earnings calls last week.

Sea has also amassed capital for acquisitions. It is injecting $1 billion into a new unit, Sea Capital, that will bet on technology companies. The investment unit will be headed by former Hillhouse Capital partner David Ma.

As for Bank Neo Commerce’s digital play, the lender is targeting millennials. It stated that it would target 63.5 million millennial segments in Indonesia. The lender cooperates with Chinese banking infrastructure players, such as Huawei, Sunline, and Tencent Cloud, to build digital infrastructure.

“We will offer a seamless transaction process and anticipate the explosive growth of users, but will still prioritise the security and users’ data privacy,” Tjandra Gunawan, CEO of Bank Neo Commerce, said in a statement. 

A game-changer

Many analysts believe the digital banks will have substantial potential to tap the world’s fourth-largest unbanked population, where 51% percent of adults, or about 92 million people, do not have a bank account. 

Gojek and Tokopedia and Sea group’s Shopee touch the lives of most Indonesians. For instance, half of the Indonesian population, or over $150 million people, has downloaded the Gojek app, and a third of the country (over 100 million people) has Tokopedia installed on their phones.

According to a survey conducted by Indonesian research firm, Ipsos in October 2020, ShopeePay’s user penetration was 48%, higher than OVO (46%), GoPay (35%), DANA (26%), and LinkAja (16%). In terms of total transaction value, ShopeePay was the highest in Q3 2020.

Source : Ipsos

In terms of collecting cheap funds and providing loans, digital banks will have more flexibility than traditional banks, Alfin Tolib, managing director at Panasean Investama, said. 

“In the past, if a bank wanted to increase the funding, the easiest way was to increase the time deposit. However, it tends to be more expensive and has a maturity date. Hence, it would not be easy to compete with large and existing banks like Bank Central Asia (Bank BCA) and Bank Rakyat Indonesia (Bank BRI). Now, the digital banks create a structure in which the customers can access the financial products easily through the platforms,” Tolib told DealStreetAsia. 

He illustrates that Bank Jago can quickly gain current accounts and savings accounts (CASA) from Gopay’s customers along the way, which tends to lower costs. The lender can also provide loans to Gojek’s drivers and food merchant partners.

Seabank will have a similar relationship with Shopee’s e-commerce platform. 

Momentum Works’s Litya added that the digital banks will push the traditional lenders, especially the big and reputable ones, to innovate faster.  “They [digital banks] will collectively push the growth and adoption of digital banking services in Indonesia. This will soon be a very competitive space with players like Jenius of Bank BTPN, Digibank of DBS, TMRW of UOB, and Nyala of OCBC,” Litya said.

Will Grab, and the fintechs be sidelined?

Bank Jago’s integration with the Gojek platform, and potentially with the Tokopedia ecosystem, and Seabank’s synergy with the Shopee ecosystem poses a threat to their Singapore-based archrival Grab. 

An analyst at Singapore-based consulting firm M2insights said that Grab, too, will potentially follow other big tech players’ footprints and start a digital banking presence in Indonesia by acquiring small banks rather than applying for a new banking licence from the Indonesian authorities.

Sea group and Grab had to apply for new banking licences from the Monetary Authority of Singapore (MAS), which turned out to be a lengthy process as many competitors submitted bids.

“Grab will struggle to match the footprint that other players have started across payments, banking, and e-commerce. It will certainly try for other digital bank licences across the region building on its successful bid in Singapore, but it will certainly be costly and may be too little, too late,” said Zennon Kapron, Kapronasia, Fintech research and consulting.

In recent years, Indonesia has also seen the rise of many fintech players such as FinAccel group’s Kredivo, Funding Societies’ Modalku, and Investree. The fintech firms offer services from consumer loans to productive loans for SMEs through partnerships with e-commerce platforms and offline merchants.

If the digital lenders come up with similar financing products, it will potentially be a head-to-head competition.  “Independent fintech lending startups which are not affiliated to a large use case will have a difficult time to survive in the long run, with or without Gojek-Tokopedia or Sea group entering the banking market,” Litya said. 

Panasean Investama’s Tolib says a consolidation between digital banks and fintech players will be necessary if the fintech products can give additional value for digital banks’ products and services.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.