“I don’t think we’re going to see any competitor until two credit cycles away,” quips Geoff Prentice, co-founder of Southeast Asian microlender Oriente.
Prentice is talking about microloans – an industry that’s seemingly clogged with competitors across e-commerce, financial and ride-hailing sectors. He quickly brushes aside players like Go-Pay, GrabPay and other micro, peer-to-peer and traditional lenders. Nobody, he says, is building the same full-stack infrastructure that he is.
Loans are approved within eight minutes and not three days, he’s undercutting competitor rates, and the business is not bogged down by side verticals like ride-hailing or food delivery, Prentice adds.
Investors are convinced, for now, at least. In November, the Hong Kong-headquartered firm secured a sizeable $105-million Series A round from Sinar Mas Group, Berjaya and JG Summit Holdings.
“I realised that the companies that were the best to invest in were the simple ones, solving really simple problems. Uber was really simple – transport. We realised that the (loan) rates in this region were so high and no one was solving this so we decided to start this,” said Prentice.
Oriente is offering rates at 4-5%, a fraction of what Southeast Asian microlenders offer, which can go as high as 20%.
Microlending in Southeast Asia is a far cry from Silicon Valley, where Prentice spent five years co-founding and building video chat app Skype. After a successful exit to eBay followed by a brief period dabbling in venture investing, Prentice finds himself today in less snazzy cities across Indonesia, the Philippines and Vietnam.
But it’s these very markets where opportunities are shining the brightest.
Prentice asserts that Oriente is turning out to be bigger than anything he has worked on in Silicon Valley or China. Its ventures in the Philippines (Cashalo) and Indonesia (Finmas) are already growing faster than Skype during its initial months of launch.
In six months, Oriente went from dispersing 1,000 to 85,000 credit lines per month. It currently boasts over 85 merchant and retail partners including names like Robinsons Retail, Robinsons Appliances, Handyman, Memoexpress, Cherry Mobile, Samsung, Oppo, Home Along, Ramayana and Loote Grosir.
Beyond the e-commerce fanfare across SEA, a huge majority of retail transactions still takes place offline. According to McKinsey, e-commerce sales in Indonesia account for only 5% of all retail sales in the country. In the Philippines, it’s even lower – national stats point at between 1 per cent and 2 per cent.
“97 per cent of sales is still offline in SEA – that’s where people are. 67 per cent of people in SEA have no bank account. That’s how we figured out to go where the people are, which is offline,” Prentice said.
That’s why Oriente offers loans for purchases made offline – department stores, in particular.
“It costs less to acquire customers offline than it does on Facebook. The risk goes down because you physically see the person, and you make these merchants happy and you can grow your merchant network,” said Prentice.
Prentice added that the company will be rolling out SME loan products across Indonesia, the Philippines and Vietnam by the end of this month. Its focus remains on expanding its merchant network, which will include names like Philippines’ budget carrier, Cebu Pacific this year.
(Update: Microsoft, the owner of Skype, has verified with DealStreetAsia that Geoff Prentice is not co-founder of Skype as claimed by him. We have reached out to Prentice for comment.)
Edited interview excerpts with Geoff Prentice, co-founder of Oriente:
You co-founded Skype in Silicon Valley, and then started your own VC firm. How did you find your way to Oriente in Southeast Asia?
I spent about five years in Skype, 45% of our users were in Asia, with China being our biggest market so I spent a ton of time in Asia. In Skype, I was in charge of all the commercial stuff. After that we sold to eBay, and that was where I met one of our co-founders, Hubert. He was also the first person at Lufax. I started Atomico which has about $2 billion AUM in Europe and I was there for about eight years. When I started my own fund with Lawrence, we were looking at things like financial services – like Lufax for Southeast Asia and we couldn’t find anything interesting and that’s how Oriente began.
But why financial services in Southeast Asia?
I realised that the companies that were the best to invest in were the really simple ones, solving really simple problems. Uber was really simple – transport. We realised that the rates in this region were so high and no one was solving this so we decided to start this. Today we have 4 million downloads, dispersing 85,000 credit lines a month from just 1,000 in May. We have 84 merchants and 320 stores already.
You recently raised $105 million from JG Summit, Sinar Mas and Berjaya. That’s pretty significant for your first round.
Yes, I think I’m lucky with Skype to be honest. When we first started out at Skype and we wanted $1.5 million, nobody was giving money for a year and half. I think the good thing about being from Skype and Lufax is that people trust us to get things done, so we were able to raise that kind of capital.
Here at Oriente, we’re trying to build a whole infrastructure. Everyone is just coming up with an online solution and figuring out how to do cool tech. But what you have to do in Southeast Asia is you literally have to build this thing from the ground up. We have 1,400 employees. We have to build the world’s best technology – collections, risk, all that stuff. That’s where the opportunity is.
But you are not the only one offering such loans in the market. How then are you differentiating yourself from everyone else?
No one is heavily invested in the infrastructure that we have. That’s the biggest difference. They don’t put $80 – $100 million building the world’s best technology with people on the ground, KYC team, offline sales team – that whole end-to-end thing, no one has built that yet.
But you’re up against so many other players. You’ve got ride-hailers like Grab Financial and GoPay, you’ve got Chinese strategics like Tencent and AliPay, and you’ve got the traditional banks also entering the fray. Many of them have the kind of capital resources to invest in technology and talent to compete with you.
There’s a saying that goes: It’s not the big who beat the small, but the fast who beat the slow. We’re focused solely on this instead of doing 12 other things. We’re not sorting a ride-sharing company today or next week – we’re focused solely on making this happen and we have a track record of making it happen.
Right now 64% of shoppers in our merchant network use cash, followed by debit and credit cards at 16%. We’re third – 12% of shoppers use Oriente and we’re on track to be the number two payment channel.
What we focus on is actually solving a problem, and there are a lot of good consumers who can’t get access to credit, and we give merchants a 20% uptick in their sales. We have invested heavily in our infrastructure and we’re reaping the benefits of that.
Why are your clients choosing you?
It’s basically a virtual credit line. Any of our users can walk into any department store within our network and buy anything in the store. All it takes is 8 minutes to approve your loan via your mobile phone. We charge about 4-5%, many other microlenders in the market can charge as high as 22%. Many of our competitors also require filling up lots of paperwork – we do away with all of that. We also offer cash loans but that’s becoming less and less – that’s at a higher rate because it’s a smaller amount.
If you buy offline at a store, we’re probably going to approve you for a larger amount and your rate will be much lower because first of all – we see you so we know you’re a real person. Secondly, you’re putting out a down payment as well, and you’re buying a good not getting cash so that really decreases your risk.
What about this idea that Southeast Asians are shopping online? Where does this place Oriente then?
97% of sales is still offline in SEA – that’s where people are. 67% of people in SEA have no bank account. That’s how we figured out – let’s go where the people are, which is offline. It costs less to acquire customers offline than it does on Facebook, the risk goes down because you physically see the person, and you make these merchants happy and you can grow your merchant network. We’re signing up 6 to 8 merchants per month. Offline is the best place to be.
What’s next for Oriente this year?
The number one thing for us now is growing our merchant network.
Right now just 2% of the market has credit cards, so there’s unlimited demand. That also means that nobody is competing with each other yet. I don’t think we’re going to see any competitor until two credit cycles away.
There’s going to be a big downturn at some point soon, and there’s going to be a lot of shakeout along the way. We’re not going to be as focused on the number of consumers borrowing because we have a lot of borrowers, but we really want to focus on growing our merchant network.
We’ve been focusing on department stores because they’re places where you buy lots of stuff. Another interesting point – our borrowers are also mostly female and in their 30s, compared to the generic borrower demographic which tends to be younger and male.
How are you viewing the regulatory landscape in SEA? Many regulators have been clamping down on lending across the region.
They should be. It would be a disaster for us if we have too many of these P2P lenders like those in China running around, it would be terrible. I think the regulatory environment here is very proactive. The reality is – you don’t have vested interest in Indonesia and the Philippines the same way you have it in Singapore or Hong Kong. If you’re doing this in Europe, you’re taking market share away from existing banks. For many of these markets, there is no market share you’re taking away from. As a result, the government is actually looking to various players to provide people with credit lines. It’ll make them look better so in that respect they’re actually very helpful. We’re working very closely with the regulators to replace some of these peer-to-peer guys, many of whom are Chinese.
What would the exit strategy for you be like? Do you ever see yourselves being bought over?
No, I wouldn’t. First of all, no one has ever sold a company. People always buy you. We want to build something sustainable and go from there. The opportunity is way bigger here than it was in Skype or Lufax.
I think one worry in the market is the metrics that people are using. I see it both from the investors and the companies sides – it’s terrifying.
Stuff like – how big is your loan book? Can there be a more absurd metric than how big your loan book is? It’s very easy to borrow money, it’s very hard to get it back. Our core business is all about risk management. Some of these venture capitalists just think – okay how fast are you growing? This is not Angry Birds, this is not Skype. This is about money. That’s why we’re very focused on growing prudently, ensuring that our infrastructure is the best, that we have the right borrowers and that we’re growing sustainably.
This credit cycle is going to turn. We’re going to continue growing our business, and in some weird way we’re kind of looking forward to that, because then we’re going to see a lot of shake ups happening. So we just need to be really prudent about how we’re doing this.