Singapore-based internet major Sea Ltd has acquired Indonesia’s Bank Kesejahteraan Ekonomi (Bank BKE), with the objective of ultimately transforming the local lender into a digital bank, said three sources familiar with the matter.
According to the latest corporate filings in Indonesia and Singapore accessed by DealStreetAsia, Turbo Cash Hong Kong Ltd, a Sea Group entity, has acquired majority stakes in Bank BKE’s two major owners.
Turbo Cash acquired an 82.19% stake in PT Danadipa Artha Indonesia (DAI) and a 66.67% stake in PT Koin Investama Nusantara (KIN) to gain control of the bank. After the transaction, DAI owns 94.95% of Bank BKE, while KIN owns the rest.
DAI is an Indonesian management consultancy. In 2018, it bought a 21% stake in Bank BKE from Induk Koperasi Pegawai Republik Indonesia (IKPRI). At the time, the bank’s other major shareholders included PT Reliance Sekuritas Indonesia (20.55%), and PT Recapital Advisors Sebesar (19.68%).
Prior to Turbo Cash’s acquisition, KIN owned a 2.16% stake in Bank BKE.
When contacted by DealStreetAsia, a Sea spokesperson declined to comment, while a spokesperson for Indonesia’s Financial Services Authority (OJK), the banking regulator, did not respond to a text message.
The deal can be seen as part of NYSE-listed Sea Group’s ongoing plan to increase customer retention on its e-commerce platform Shopee by doubling down on its payments app ShopeePay. The group will likely try to unlock synergies between ShopeePay and Bank BKE.
“Finance or banking services is one of the channels to increase consumer retention in startups, gain insights and data, and hence it can further be monetized,” said William Gozali, chief investment officer at BRI Ventures, the investment arm of state lender PT Bank BRI.
Bank BKE, set up in 1991, is a small-sized lender with assets totalling 3.7 trillion rupiah ($261 million) as of November 2020. It posted a net loss of 418 billion rupiah ($29 million) in January-November 2020.
SeaMoney, the Sea group’s digital payments and financial services provider, entered Indonesia after it gained a licence from the central bank Bank Indonesia in 2018. It runs ShopeePay, which is built within Shopee’s platform, and offers payment solutions alongside bank transfers, credit card services, and a virtual bank account. The e-commerce platform saw a 130% year-on-year increase in transactions in the second quarter of 2020 to 260 million, company data show.
A MarkPlus survey carried out in June-August 2020 covering 502 respondents showed that ShopeePay accounted for 26% of all payment transactions in Indonesia, more than competitors OVO (24%), GoPay (23%), DANA (19%), and LinkAja (8%). “ShopeePay has the highest number of transactions because it is able to offer more attractive promotions (38%) compared with other e-wallets,” MarkPlus said.
In December, Sea Ltd was among the companies that received the permit to run a digital bank in Singapore.
Tech meets banking
Indonesia’s banking sector has seen a spate of M&A activity lately driven by tech startups that are seeking a bigger play in the financial services space.
Ant Group-backed Akulaku acquired a 5.2% stake in PT Bank Yudha Bhakti Tbk in 2019 and it subsequently increased its ownership to almost 25% in 2020 through a rights issue. Bank Yudha Bhakti was rebranded as PT Bank Neo Commerce Tbk in July 2020.
Similarly, ride-hailing decacorn Gojek increased its ownership in Bank Jago from 4.14% earlier to 22.16% in December 2020 to double down on GoPay.
With a digital bank in Indonesia, tech companies are hoping to enhance and prop up their existing revenue streams.
With mobile phone penetration at 70-80%, Indonesia is at the cusp of a digital banking revolution.
Digital banks are expected to serve the underbanked and unbanked segment of Indonesia, home to the world’s fourth-largest unbanked population, where 52% of adults, or about 95 million people, do not own a bank account, according to data from a Google, Temasek, Bain & Co study in 2019.
A further 47 million adults are underbanked or do not access the full suite of financial products, such as credit, investments, and insurance.
Yet, BRI Ventures’s Gozali added that digital banks have to contend with certain challenges — gaining the trust of customers, increasing their service levels compared to conventional banks, and managing cybersecurity — before they can advance their digital play.