Indonesia’s fintech investments set to touch record high in 2017

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Investments into Indonesian fintech startups are set to hit a record high in 2017 at the current run rate, according to an analysis by venture intelligence platform CB Insights. It is estimated that there will be a total of about 50 deals this year alone.

Indonesian startups operating in the fintech space began announcing investment rounds in 2014, which saw a total of three deals. Deals in the space rose to 11 in the following year, increasing to 21 in 2016.

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Indonesia has pinned hopes on fintech to become one of the key drivers in helping realise its ambition of becoming a $130-billion digital economy by 2020. It is also seen ushering in greater financial inclusion, a challenge that Indonesian banks have been struggling to resolve.

A recent study revealed that 80 per cent of the Indonesian population does not have a formal bank account, with 203 million Indonesians earning less than $4.50 a day.

“Bolstered by a young, more confident, and growing middle class, and rising smartphone penetration, a burgeoning crop of tech startups are now attacking both consumer and small business financial services in Indonesia,” noted the CB Insights report.

Realising the opportunity in this area, traditional banks in Indonesia have been mulling either setting up their own venture capital arms to invest in fintech startups or planning to acquire VC firms. State-owned Bank Negara Indonesia (BNI) is the latest to evince interest in setting up a venture capital arm, its director recently told this portal.

In January this year, private lender Bank Central Asia (BCA) launched its VC arm, Central Capital Ventura, committing Rp 200 billion ($15 million) in investments so far. Another state-owned lender Bank Rakyat Indonesia (BRI) recently announced that it was in the process of acquiring a VC firm.

In this area, Bank Mandiri has a significant headstart over its peers; it launched its own VC unit in 2015. The VC arm, Mandiri Capital Indonesia (MCI), has been one of the most active investors in fintech since then, committing $15-20 million in investments per year.

In Indonesia, fintech categories such as P2P lending, merchant payments, e-commerce installment lending, and financial comparison are seeing maximum traction, CB Insights noted in its report.

In P2P lending, notable deals include Amartha raising $30 million in a round led by MCI in March this year. More recently, UangTeman announced a $12 million Series A round led by K2 Venture Capital with participation from Hong Kong-based STI Financial Group and American firm Draper Associates.

In merchant payments, startups that provide point-of-sale software and hardware are flourishing as many of the 60 million SMEs in Indonesia still manually use pen and paper. These startups also help solve the pain-points in cash flow management, and provide apps to monitor business transactions.

Moka is one of the best funded merchant payment startups in Indonesia, counting Convergence Ventures, East Ventures, Fenox VC, and Wavemaker Partners among its investors. Other active firms in this area are Pawoon, backed by Ideabox and Kejora Ventures, and Cashlez, backed by MCI and Gan Capital.

In November 2016, East Ventures invested in Cicil, a financing platform targeted at college students to provide installment loans for items such as smartphones and laptops. Cicil competes with installment shopping mall platform Akulaku and Kredivo, FinAccel-owned credit for online shopping provider.

As more Indonesians enter the middle class, investors have backed various financial comparison startups to help consumers become customers of financial institutions. Venture-backed companies in this category include Cermati, a online portal for financial products including auto and personal loans and credit cards, which raised a Series A extension from Orange Growth Capital in February 2017, and C88 Group, which operates financial comparison site CekAja in Indonesia and is backed by investors including Monk’s Hill Ventures.

Earlier this year, the Indonesian government released regulations for the fintech sector, especially P2P lending, in a bid to attract more investments. In addition to offering clarifications for potential investors eyeing the space, the regulations were also seen as providing flexibility and room for startups to grow.

Also Read:

Mandiri Capital Indonesia invests $2m in payments startup Cashlez

Indonesia state-owned lender BRI to acquire VC firm

Indonesian lender BNI mulls setting up VC arm, investing in fintech

Indonesia comes out with regulations for P2P lending platforms