When Indonesian unicorn Traveloka launched its PayLater Card in the second half of 2019, it would never have anticipated the impact the fintech product would have on its business.
In 2020, as the company’s core travel business was severely reeling from the effects of the COVID-19 pandemic, the credit card emerged as a much-needed source of growth for the unicorn.
To date, Traveloka has issued PayLater Cards to tens of thousands of approved applicants, who have been using the product for their online and offline transactions.
As Traveloka braces itself for a public listing at a time when the travel industry has yet to show meaningful signs of recovery, the Jakarta-based company is ramping up its fintech play in pursuit of growth.
In the first quarter of this year, the company started to offer financing service for its vast array of merchant partners, ranging from accommodation providers to children’s playground operators, a senior Traveloka executive told DealStreetAsia.
Traveloka provides working capital and short-term loans to its merchant partners to help them expand their business, and improve their service offering to the end customers – which in turn would strengthen its ecosystem.
“We are currently piloting this service and working together with our merchants to ensure that the services are on-point, aligned with the partners’ needs,” Traveloka president Caesar Indra said. “We’ve already signed several loans with merchants, including hotel partners who want to grow their business and enhance their property.”
By going into merchant financing, Traveloka is joining a space already occupied by a majority of Indonesia’s over 100 P2P lending startups – all vying for a share in a market that has around 47 million underbanked population. Among the notable players in this segment are Investree, Koinworks and Modalku – all of whom provide working capital to the country’s SMEs.
The merchant financing initiative appears to be a way for Traveloka to double down and diversify its existing lending business, which has been a rare ray of light for the company amid an awfully gloomy 12 months, during which it has cut over 100 jobs and also saw its affiliate budget hotel startup, Airy Rooms, close operations.
Traveloka, however, insists that its position as Southeast Asia’s leading travel brand gives it a unique edge over others. “Ultimately, we don’t see the fintech space as a winner-takes-all category – players with a large captive user base and ownership of relevant, contextual use cases will be able to use technology to address market inefficiencies and deliver good products, which in turn will drive growth. There are and will be many players in this space, but we are focused on the long term here and are building towards it,” Indra said.
Currently, Traveloka says it works with multiple credit providers to extend the loans. However, going forward, a digital bank play may be a more interesting proposition for the company, particularly after a number of its peers have led the way including Sea Ltd (which has acquired Indonesia’s Bank Kesejahteraan Ekonomi), lending startups Akulaku (which acquired Yudha Bhakti) and Alami (which is said to have picked up Sharia rural bank PT BPRS Cempaka Al-Amin), and Gojek – now GoTo (which owns 21.4% of Bank Jago).
When asked about the possibility of Traveloka jumping into the digital bank bandwagon, Indra said the company was “open to various options in bringing the right financial products and services to our consumers.”
Fintech pulls global interest
While Traveloka’s fintech play in Indonesia has been building up for the past few years, 2021 is a landmark year with regard to its regional fintech ambitions. In March, the company announced a joint venture with SCB 10X, the venture arm of Thai lender Siam Commercial Bank Group.
The JV, TREX Ventures, seeks to leverage the Thai bank’s platform and Traveloka’s digital capabilities to offer financial products to customers in Thailand – Traveloka’s second-largest market.
“Introducing financial services in Indonesia and Thailand is only the beginning, and we intend to follow up with similar initiatives in other markets,” said Indra, whose company serves approximately 40 million users across seven countries in the region.
As Traveloka looks to expand its fintech capabilities in and outside of Indonesia, more partnerships with – and even strategic investment in – financial services players are expected.
Herston Elton Powers, a partner at seed stage fintech VC fund 1982 Ventures, says that startups with large customer bases like Traveloka boasts a distribution advantage, but would not usually have the financial services culture to navigate through regulatory risk that is needed to play the fintech game. To avoid this risk, he said, companies will partner with fintech startups to embed financial services on their platform.
This is something Traveloka has done on numerous occasions both openly and discreetly. In one such strategic move, Traveloka acquired local digital payment company Dimo Pay in 2018 for $20 million, per company filings seen by DealStreetAsia. The deal led to an exclusive partnership with Uangku, a sister company of Dimo Pay, as Traveloka’s e-wallet option.
Powers, whose firm has invested in Bangladesh-based OTA startup GoZayaan, believes that having a substantial fintech business is expected to serve as a pull for international investors as companies seek larger and more strategic capital to grow their business.
For Traveloka, which counts Expedia and GIC as backers, building a larger global appeal will be vital with the company understood to be preparing for an imminent public listing after its co-founder and CEO Ferry Unardi told Bloomberg in February that his company is planning to list in the US this year to raise funds through a special purpose acquisition company (SPAC).
In its successful SPAC merger deal, it is known that Southeast Asian ride-hailing super app Grab’s staggering valuation of $40 billion was much helped by its financial services play and potential. For Traveloka, its fintech prowess could prove to be similarly significant in its pursuit for a lucrative SPAC deal and an eventual public listing.
“Globally, fintech is the sector with the most valuable VC-backed companies. This is not the case in Southeast Asia yet. Global institutional investors want to invest in fintech and the upcoming listings from Southeast Asia will definitely be selling a fintech story,” Powers said.
Speaking during a recent DealStreetAsia webinar, economist and former Indonesian finance minister Dr Chatib Basri highlighted the fact that a “strong financial services offering” emerged as a common thread among many firms in the region seeking an IPO including Grab, which inked a $40-billion SPAC deal with Altimeter Growth Corp in April. This trend, Dr Basri reasoned, is because financial services provided avenues for monetisation.
Financial services play
The company’s expansion into lifestyle and fintech is a natural progression and a “low hanging fruit” for Traveloka given its captive market, according to Willson Cuaca, whose VC firm East Ventures has backed Traveloka through multiple rounds. “They have stayed low-key, but the progress has been significant,” he added.
For instance, the PayLater Card is an extension of Traveloka’s longer-standing Buy Now Pay Later (BNPL) play, called Traveloka PayLater, which it claims to have pioneered in Indonesia in 2018.
The payment option, which enables users to pay for various products on the Traveloka app through installments, has shown significant growth since its launch. The interest fee is in the range of 2.14%-5% per month, with the average pegged at 2.9%. Its user number, Indra says, has increased 10 times, while the loans the company processed stands at over 7 million in volume.
The Traveloka PayLater Card, a product borne out of a three-way partnership between the startup, Indonesia’s largest state-owned bank BRI, and payment giant Visa, allows customers to transact at over 53 million merchants worldwide.
The card is only available for selected Traveloka users who are assessed as creditworthy based on a scoring system leveraging its proprietary risk model. The company would then earn revenue by charging interest of around 2% of the carried-over bill per month.
“Only 4.5% have access to credit cards which is due to the lack of information about the creditworthiness of the Indonesian consumers. This is why I think building on top of strong leadership in travel, we are able to take the opportunity and offer the customers credit cards, while it is probably a challenge for the conventional bank to do so,” said Traveloka president Caesar Indra.
Apart from lending, Traveloka’s other fintech offerings comprise insurance, payments and rewards. In the insurance space, it has partnered with Chubb, MSIG and Simas Insurtech, Adira for car and motorcycle insurance, as well as life insurance firms FWD and AstraLife to offer services in SE Asia. In the payment vertical, TravelokaPay functions as an e-wallet that allows users to participate in its lifestyle loyalty programme to gain Traveloka Points.