Indonesian online stock brokerage platform Ajaib Group, which raised $90 million in possibly the largest-ever Series A round by a Southeast Asian startup, is looking to go “really deep” in its fintech play that has attracted considerable interest from the country’s top unicorns.
With only 1% of Indonesia’s over 260 million population investing in stocks, tech giants like Gojek, Grab, Tokopedia and Bukalapak have rolled out stock investment offerings to tap this enormous opportunity.
Ajaib co-founder and CEO Anderson Sumarli is, however, unfazed. Given their non-fintech core business, the incoming unicorns are unlikely to be able to go deep in their stock investment product – something that is Ajaib’s mainstay.
“Do you want to go broader or do you want to go deep? We’re choosing to go deep into investments, and in particular with stocks. So that’s what we’re going to be investing in in the next few years,” said Sumarli, whose venture is backed by Robinhood investor Ribbit Capital, as well as Horizons Ventures and SoftBank Ventures.
Among the plans for Ajaib going forward is to expand its reach into the country’s tier two and three cities, where he believes the bulk of the opportunity lies. Indian counterparts Zerodha and Groww, Sumarli noted, saw the majority of their growth coming from second and third-tier cities. He expects a similar trend to unfold in Indonesia.
Despite the low retail participation in Indonesia’s stock market, the trajectory in recent years has been encouraging. According to the Indonesia Central Securities Depository (KSEI) data, 1.68 million new investors joined the market, up 53% from 2019.
The reported IPO plans of some of Indonesia’s tech companies are bound to further boost the number, particularly given that 70% of the beginners in the stock market in 2020 were millennials or those aged 18-40. Sumarli says he is a huge proponent of local listings by Indonesia’s tech startups, many of whom have also been weighing the option of going public overseas.
How do you see the emergence of closed ecosystems in Indonesia, led by the big tech players? We have at least three, GoTo, Grab and Sea. How do you think this will affect Ajaib?
As a techie, I’m all for open systems and less closed systems. Let me put it out there. Your questions on ecosystems – invariably it is happening and will happen. It’s the same thing that happens in all their growing markets like in India and China, a bit less so in the US, but certainly in emerging markets. So, we just need to be thoughtful and just go very, very deep in what we’re doing.
At the end of the day, there are going to be players who are going to have broad products, meaning that they’re going to have many offerings. But if you look at each offering, there’s a low depth and that’s the trade-off that they make. It’s a fit for some section of the population who just wants to go and try out certain things. But then, there’s going to be other players who want to go really deep into their products, and there’s going to be another segment of users who really appreciate the additional functionalities and features and flexibilities. At the end of the day: Do you want to go broader or do you want to go deeper? We’re choosing to go deep into investments, and in particular with stocks. So that’s what we’re going to be investing in the next few years.
So you’ll be independent for the foreseeable future?
I think that’s the intention.
Talking about the big tech IPOs, do you see this as a trend that’s just starting to take off in Indonesia?
Absolutely. If you just look at the startups in Indonesia, that’s just been raising tons and tons of money, they need to go IPO to be competitive with their next of kin who has gone public. So I think it’s going to trigger this chain reaction where you have a bunch of startups, certainly, the large unicorns going IPO, but also the near unicorns.
They are going to either do a dual listing but, at least they got to have something in the Indonesian Stock Exchange, because, as the biggest proponent of this, this is something that can be good for these companies. You are creating a brand affiliation and relationship with your customers who might want to use your service and also invest in your stock so that they feel that they have the same economic alignment with your company.
If a certain company decides not to IPO in Indonesia and its competitor makes a local market debut, I think the former company is going to be in a worse off position as customers are going to have a stronger brand affiliation with the firm that lists in Indonesia.
Considering that a significant majority of the population is familiar with all of these tech brands, do you, therefore, see that the interest to invest in these companies will be way higher than the traditional kind of IPOs that Indonesia has seen in the past?
Absolutely. We’re seeing Indonesians showing interest in investing in stocks abroad like Google and Tesla and things like this. They don’t necessarily interact with all these foreign brands on a daily basis. So just imagine what their relationship will be like with these brands that they do interact with on a daily basis in Indonesia, and there’s a sense of national pride as well attached to that. They have also seen the development of these brands since the beginning. This needs to be celebrated, and the opportunity to invest in them needs to be available to everybody in the country, especially if you’re saying that 200 million of the population have contributed to your company’s success.
You mentioned the likes of Zerodha in India, but they are countries where the markets are really booming and therefore, these millennials are the ordinary users that see a lot of benefits and gains of being associated with the markets. In that context, where is Indonesia placed today?
If you think about it, when did Zerodha start in India? When did XP (Investimentos) start in Brazil? They started at a point in time when the respective countries are not too far away from where Indonesia is today in terms of stock investor penetration. I believe that even XP started way early on when the stock investor penetration in Brazil was way lower than where we are right now in Indonesia. But that’s the exciting thing – we believe that Indonesia is one of the largest stock markets in the world with over half a trillion-dollar market cap that has such a low stock investing penetration of only 1% of the country and that to us shows that this market is going to be as gigantic as the Indian stock market and the Brazilian stock market going forward. Just take a look at our GDP per capita. We are double that of India at over $4,000, so people obviously do have money. The question is why are they just not thinking about investing that money into capital markets and that’s where we come in.
You were largely offering mutual funds before you went on to acquire a stock brokerage firm in May last year to give the users broader access. Was that a planned acquisition and expansion for you?
Yes. Since day one, we’ve seen ourselves as a stock brokerage. But it was difficult to get there because of the licensing and that it was a much more complex product for us to build and for first-time investors to be able to take on. Our introductory product was with mutual funds, as that was a way for us to get our name out there, create our brand and educate the market. It was always our intention to then bring them on to stock products, which is a bit more complex in nature.
Now, what’s next for Ajaib? Do you see yourself going beyond the current asset classes you offer?
Well, I think, in general, it’s a natural progression for financial services to start listening to the customers and as the customers start maturing they start looking for additional products to fit their needs. Having said that, we don’t have immediate plans to do so. The capital market in Indonesia is still heavily under-penetrated, there is still a huge segment of first-time investors that we believe we can unlock in the next few years.
You have previously spoken about wanting to focus on educating users. Where exactly are you on that journey right now?
We want the Ajaib brand to be synonymous with financial education. The reason why my co-founder and I started this company is that we wanted to improve financial deepening beyond just financial inclusion in the country. We felt that there were so many initiatives to help the unbanked population open bank accounts, but there should be some effort to educate people on what they can use their money for, how they should plan for their lives and the power of compound returns and investing. And so that was always a part of the DNA of our company.
We’re still in the early stages. A lot of our educational efforts – online resources, outreach and product design – are still very much focused on Java, and there’s still such a big population of Indonesians that have never heard about investing before as proven by our stock investor penetration. Those are the people that we want to touch in the years to come.
The latest funding round takes your Series A to a total of about $90 million. How do you plan to utilise it? Are you open to replicating the model in other Southeast Asian markets?
The majority of the money will be used to build our product and engineering capabilities, and then the second part is on our educational resources. In the next few months, we’re going to roll out a pretty extensive plan around our education outreach to areas of Indonesia that are still untouched.
Right now, our focus is still in Indonesia and I have to say that even in Indonesia right now we’re just discovering the tip of the iceberg in Java. After Java, we are going to the second and third-tier cities. If we look at the development of other online stock brokers around the world – let’s take the example of Zerodha or Groww in India, you see that majority of their growth is coming from second and third-tier cities.
There are a couple of other platforms that do a similar thing you do. What are the main differentiators for you compared to competitors in the space?
We call them peers because when people come to our platform, the majority of them have never invested before in their lives, and our job is not to convince them to use our platform, as opposed to the next. Literally, our job is to convince them to be invested, period. And so, the majority of our time in our company is spent on building products that can help people take that leap from “I’ve never invested before” to “I think that this is a valuable part of my future financial planning”. We don’t really spend time thinking about the differentiation between each product.
In that case, why is it that your investors like Horizons and Ribbit Capital choose you over some of the others?
These are like some of the most prolific fintech investors around the world and they’ve seen companies like us help enrich the financial ecosystems of other countries and fill in that gap, where it’s under-penetrated. So what I really love about our investors like Ribbit and Horizons is that they put a deep focus on product and education.
In financial services, trust and brand building are really important. That’s why whenever we have time and resources, we always invest in building a product that is transparent, easy to use, with the lowest barrier to entry. We try to create a lot of positive experiences for the customers who will be able to share them with their friends and get them on board as well.
What is your monetisation model like? How competitive are your rates compared to others in the market?
We make the majority of our money from brokerage fees. We charge a small brokerage fee when people want to buy and sell stock. Our rates are pretty competitive and our intention is to lower the barriers to entry for first-time investors across everything that they do. So it’s not just about the rates, it’s also the fact that we allow customers to open up an account with zero minimum or zero deposits. We also have zero account fees on everything: there’s no closing fee, doorman fee, recurring fee, service fee – nothing.
With the thin margins and given you’re not charging for having a minimum balance and so on, what sort of transaction volume do you need to hit to start seeing your revenues grow?
Every region has different monetisation models for online brokerages and a lot of it is driven by the regulatory landscape and customer demand. Case in point, Robinhood monetises on order flows and that’s why they’ve gone to zero commissions, but in a lot of places around the world, you can’t do that. If you look at China, the second-largest stock market in the world, monetisation still mostly comes from transaction and brokerage fees. In India, which is in the top five stock markets, it mostly comes from intraday trades. Indonesia is still in the nascent stages, so we’ll see what that turns out to become.
You say you are investing a lot into financial literacy and I assume you are subsidising to be able to acquire a lot of customers. How do you kind of balance that with investors’ demand on positive unit economics and sustainable business model?
We have positive unit economics since day one of our stock brokerage product. And by the way, our [customer] acquisition is mostly organic, so we don’t really spend a lot on paid ads as much as other industries and fintech do. When I say education, it’s very different from ads and it doesn’t cost us that much. For example, we would partner with the Indonesian Stock Exchange branches in some areas, and we’ll provide them with the financial literacy materials and will show up and host a webinar.
Recently we have started investing in branding because it is important, especially when we want to reach the segments that have traditionally shied away from investing.
Regulation-wise, onboarding someone who invests in mutual funds is different from a stock trader. What has been your experience on this and what are the challenges?
At Ajaib, we take compliance very seriously. I was very impressed by how the Indonesian Stock Exchange is actually very forward-thinking not just in terms of account opening but also other initiatives such as introducing electronic IPOs.
We’ve had a very positive experience working with them on some of these new innovations. We also feel very supported by OJK as well, where the Indonesian financial authorities have taken a pro-retail investor stance. Last year was the first time when the contribution of retail investors outweighed those of corporate or institutional investors.
What about your technology? Do you develop your own technology?
We build our technology in-house. You know that’s part of our commitment to investing in our product engineering team. Investing in a product is like the best investment that we can make for the company.
How do you handle security?
We think about security in a couple of layers. First from a data protection perspective. Whenever you’re handling customers’ money it is really important to be able to handle their data properly so that’s something we put a lot of our minds to. Second, we have robust multiple-layer protection when it comes to cybersecurity.
Third, internal controls, which is pretty general for growing financial services companies. As there are more people in the company, you want to make sure that everybody has limited access to certain things.
According to the last Google, Temasek and Bain report, the lack of tech talent is among the challenges for startups in the region. Have you also found this to be a challenge for your company?
Getting the right people and the right product is the sure way to win this market.
We lucked out a bit here because with the recent IPO listings or rumored IPOs of the unicorns, they have released a lot of engineering talent into the ecosystem. And we’re gladly accepting a lot of that into our company. This is an interesting time because COVID has unlocked a lot of new opportunities in the market. At the same time, you have all these engineers that are just leaving the big traditional big tech companies looking for new opportunities.
This will create the next generation of entrepreneurs in the country and that will inspire the next generation of students to take on engineering courses, and therefore becoming the talent and workforce of the future.