Indonesia’s rural economy-focused payment point online bank platform (PPOB) PAYFAZZ is inching towards net profitability next year, according to its co-founder and CEO Hendra Kwik.
The startup claims to be already profitable at the operating level.
While the company is on track to hit profitability, Yinglan Tan, the founding managing partner of PAYFAZZ investor Insignia Ventures, believes it does not necessarily have to happen at the expense of growth.
The well-funded startup has amassed over $74 million across four rounds since it was founded in 2016. PAYFAZZ recently raised a $53-million Series B round, making it the largest-funded PPOB player in Indonesia.
The round, which was led by B Capital Group and Insignia Ventures Partners, saw the participation of existing investors Tiger Global Management, Y Combinator, ACE & Company and Quiet Capital. It also roped in strategic investor BRI Ventures, the VC arm of Indonesia’s largest SME lender Bank BRI, to expand its micro-merchant base.
PAYFAZZ says it is prioritising new product development in areas that will improve its ecosystem and infrastructure to help generate increased revenues.
Forging ahead riding on new products
Targeting the unbanked who constitute about 66 per cent of Indonesia’s population, PAYFAZZ vets offline agents to act as intermediaries between banks and potential customers. Users can deposit cash with these agents and receive a PAYFAZZ balance with which they can buy prepaid phone credit or pay utility bills.
Over the last 12 months, the startup has ventured into loans, point of sales platform (POST) and B2B API business (BillFazz) that allows other companies to embed Payfazz’s PPOB technology into their respective systems.
It has also experimented with new business lines, including an education product and a B2B commerce service.
The bill payment business remains its biggest revenue engine. Last year, the company said it facilitated around 1.2 billion transactions and took a 0.3 to 1 per cent commission per transaction, which had an average ticket size of $4.
PAYFAZZ is looking to cross-sell its new products through its 250,000-strong agent network and users of its PPOB platform to earn additional revenue.
“After we have managed to cross-sell more products, we will try to grow further by increasing the number of agent and customer base. If the number of agent base grows 4x, for example, the transactions and revenue can grow 4x too, without us having to develop more infrastructure,” Kwik said.
The lockdowns that were necessitated to stem the spread of the coronavirus led to most of the small merchants closing shop resulting in a fall in traffic and income. The positive impact, however, is that smaller merchants are now keen to try digital platforms like PAYFAZZ to get additional income, Kwik observed on the effect of the pandemic on user behaviour and business.
The startup continues to stay focused on Indonesia where there are still millions of potential agents to onboard, according to Kwik, who added that there were no concrete plans yet for regional expansion.
The startup had said it would deploy part of the proceeds towards overseas expansion at the time of its Series B round announcement.
More competitors chase Indonesia’s unbanked
The battle for catering to the country’s 66 per cent unbanked population has only turned fiercer with e-commerce giants including Tokopedia, Bukalapak, Shopee and Blibli.com jumping into the fray.
They are also offering services to enable offline agents to make money from facilitating bill payment and phone credit purchases.
While acknowledging that “everyone is now selling phone credits,” Kwik expressed optimism about PAYFAZZ’s unique rural market advantage.
“If someone is offering a mix of different things, it can be confusing, especially for people in the rural areas,” Kwik emphasised.
He argues that e-commerce players have even forayed into the travel by offering flights and hotel bookings. However, customers are still likely to turn to well-established travel-focused companies for their travel needs.
One of the e-commerce players we talked to did not refute the argument by PAYFAZZ but said that the familiarity of the big e-commerce brands would prove to be favourable in their efforts to tap the market.
“Their names also come with advantage as many people in the rural areas already use e-commerce to shop and therefore, trust the brand. These people will be more willing to try the product and can become an early adopter that will open the door to this industry for these companies,” said the person, requesting anonymity.
Insignia Ventures’s Tan bats for the PAYFAZZ founders’ “strong roots in the rural economy.”
Kwik and his two co-founders hail from Jambi, a small province on the east coast of central Sumatera, with limited access to financial services. Kwik says his first exposure to the concept of a bank account was when he moved to Bandung to study at ITB. “It took me three months to get the hang of it,” he recalled.
Such a background has served Kwik well in understanding the market, move faster than competitors, adds Tan.