Indonesia’s OVO is not content playing in the payments space; its goal is to become the largest non-banking financial institution in the country, its CEO Jason Thompson said.
“Because ultimately the middle economy merchant growth is what stimulates our GDP growth. So it’s really important to focus on that and have a rounded set of services for the merchant, the driver, the online merchant, the consumer. We are very much looking at this audience by audience,” Thompson said.
OVO claims to be the number one player in Indonesia’s payments space but sees fierce competition from Go-Pay, the payments arm of ride-hailing giant GOJEK, which is said to be in the midst of raising a Series F round of over $3 billion.
The industry has also seen the arrival of state-owned enterprises-backed player LinkAja, which recently teamed up with GOJEK to become a new payment option on its “super app”, as the two companies look to work together to boost financial inclusion in Indonesia.
Thompson said that there is every possibility that OVO may follow suit and link up with LinkAja, whose services are now available at over 150,000 merchants across the country and cover more than 400 digital products.
“I think to work together with LinkAja will help us all accelerate financial inclusion faster, and I think that is a positive thing for the industry. I think we should all ensure those dialogues are open and we should ensure that we are withstanding the challenges of our country, not just the challenges of our own platforms,” he said.
A product of Indonesian conglomerate Lippo Group’s venture builder, the company has previously been reported to have received an investment from Southeast Asian ride-hailing giant Grab.
Thompson, a former managing director at Grab Financial, declined to comment on investors but said that the company has started to look at investment opportunities for the future and expects to start to formulate a valuation for prospective investors in early 2020.
Could you share with us some current numbers on OVO such as the number of users and transaction value?
At the moment, we keep all of those confidential. We are very confident that we are number 1 in Indonesia now. I don’t think that’s debatable based on TPV, etc. But where we are now, the last I heard from Bank Indonesia is that e-money transactions are 2.1% of all transactions and that includes things like prepaid, toll roads and e-wallets. So, after all this time we’re still at 2.1% penetration.
So I think it is still very embryonic, so to me, it is still very important to focus on the merchant first and the consumer second and we really anchor on what problem we’re solving for who and how do we get to a relative penetration of e-money because 2.1% isn’t relative – it is embryonic.
What do you foresee as the main challenges for you?
I can see that e-money penetration in Indonesia can grow significantly from where we are today. We are well placed in that growth with our ecosystem and our deployment, so I think we expect as e-money continues to grow across the nation that we will continue to grow rapidly as well. I expect those two behaviours happen hand in hand. I think also the work the Bank Indonesia has done to really create the right regulatory conditions for the growth of e-money – I think that’s helping us greatly. I see that the e-money market and penetration will grow rapidly over the next three years and I expect we will be the frontrunner in that development.
Can you give an idea of how your technology differs from that of your competitors?
It’s very simple, and I think it is relatively unique. With a lot of payments and you go onto a website or online marketplace, you have to first identify yourself and authenticate yourself, and then you have to carry out the payment. The way we do it include two things: number one is embedding the full payment experience into Tokopedia for example. That means you can register for OVO, you can set up an account, you can carry out transactions, you can send P2P on Tokopedia. So the first thing is to really create those APIs and create payment as a service and embed them in the third party applications. All of that still runs on OVO technology. The risks systems, the identification systems, are all the same, but it allows them to link the account to Tokopedia. It really helps with the consumer journey and the merchant journey because the wallet experience is embedded. It also gives us greater control over fraud.
At the moment your technology is embedded in Grab and Tokopedia. Is there a possibility of integrating with another platform?
I think we are in several discussions. We continue to grow our ecosystem. We would look at somebody like Ramayana – which does more traditional payments. We also talk to other organizations to make sure we fully embed the experience, and we also make sure we work closely with the Bank Indonesia on those developments.
Can you disclose who OVO’s majority shareholder is at the moment?
We are an independent business, and I think that is what we must anchor this conversation on.
The decisions are made here independently and so our investment in things are all made by this company and essentially I report to the board of governors. It is really important to me and the company that we are allowed to serve Indonesia.
The way the company is structured is very much around independence and it is to serve Indonesia. If not, we become somewhat distorted, we are very focused on independence. We aren’t trying to be a huge supermarket or a huge app. It is very clear we are a payments company and a financial services company that is focused on financial inclusion and middle economy enablement, and that allows us to be myopic about the problem. That independence is critical otherwise we can’t serve Indonesia.
What about valuation? There have been rumors that OVO has become Indonesia’s newest unicorn.
We really aren’t focused on it. It is not something that will change our strategy. When we come to something like external fundraising which might come next year, then at that point we will go through the correct processes of making sure we have an independent valuation and information for prospective investors, but I expect that to happen early in 2020. Right now the valuation of OVO won’t serve any purpose other than to answer the question: Is there another unicorn? It won’t change our strategy and I think it is better to have the humility to focus on the people we are serving.
So far, you have not disclosed any external funding.
We are currently funded through our shareholder community, but we are looking at how the company is organized for the future. We are looking at and thinking about investments for the future. You would expect those things from us as we grow and mature, but we are still a very young company. I can’t stress enough how young we are and we are only serving a proportion of 2.1% of transactions, so we need to keep reality in check.
There is a newcomer in Indonesia’s payment race – LinkAja. What’s your take on that?
First of all, for the state-owned enterprises to come together, I could see how that is a strong proposition. We are actively in discussions saying that if this is important to Indonesia, how do we make sure we work together?
So I think that to work together with LinkAja will help us all accelerate financial inclusion faster, and I think that is a positive thing for the industry. I think we should all ensure those dialogues are open and we should ensure that we are withstanding the challenges of our country, not just the challenges of our own platforms. So I’m very positive about that. Generally speaking, I’m very positive about how things are coming together and how everybody is trying to serve the customer better.
People are saying the payments space in Indonesia is a two-horse race between Go-Pay and OVO. What is your take on this? Do you think there is room for more than just these two players?
I’m not sure it is a matter of more players, I think it is about being more focused. I think anything where the customer has store value in 7 different places, makes it very difficult for the customer, especially in a low income economy. So I think you will see a relative level of polarization and I think we are clearly number one today, and we expect to maintain and sustain that position, so that will really allow us to grow the business quite significantly over the next 3-5 years.
If you’re asking about the of 2.1% and what will the penetration get to, I think that is a better question to focus on as an industry. What do we think the penetration of e-money can get to? At the moment, cash is huge here – its 90% plus. So can we convert 20% of that cash to e-money to have a more sustainable economy, I think we should focus more on that and what enables us to drive that kind of penetration. I think sustainability is a problem for everyone. We have seen in other markets where wallets have grown significantly and then depleted, so the wallets have to be sustainable and that’s what we are focused on.
Every month we look at our path to profitability and how we can sustain the market. It has to be sustainable. From an investor perspective, it has to be, otherwise, the value creation isn’t correct.
Do you have a rough target on profitability in the coming years?
We have a path to profitability and I think it’s something we enhance every month, every quarter. So we’re looking at how we improve our unit economics every month. It is a very strong focus for me and my team. The exact date for profitability, I think we can get to a relative position within 2 years, but that also depends on the market and market growth as well.
So your payments have branched out to lending the mutual funds, what other sub-sectors are of interest to you at the moment?
It really is about what problems are we solving. First of all, we are solving a payments problem, secondarily we’ve been solving cash in-cash out problems, making sure there’s ubiquity. Now we’re solving for lending specifically: merchant lending and, to a lesser degree, consumer lending.
Insurance is critical because we have got to offer protection. We need to teach people about protection. The actual MMF is about teaching people how they can monetize savings and the benefits of it. At the moment we are getting to a saturation where we’re really focused on the products and services for a given time. We’ve done a lot in a very short time, so its really important now that we focus on the quality of our userbase, the saturation of our products and services, and that we really optimize them. I think FY18 and halfway to FY19, we’ve been really focused on velocity. As we move into the second half of this year we must get the balance of quality and velocity right to make sure our products and services are optimized and make sure the products launched are successful. We can’t just keep adding new products.
I think at this stage our biggest challenge is the lack of penetrated services – payments, insurance, savings. And if we really focus on these things and change the way the customer thinks about them then we are successful.
What is your vision for OVO? Do you want it to be still known as a payments service or do you want to be known as a more all-round financial services company?
My vision is simple for OVO: that we would be the largest non-bank financial institution in Indonesia; that we are serving the middle economy, we’re helping educate and grow that middle economy and really stimulate the growth of the merchants there. Because ultimately the middle economy merchant growth is what stimulates our GDP growth. So it’s really important to focus on that and have a rounded set of services for the merchant, the driver, the online merchant and the consumer. We are very much looking at this audience by audience.