Indonesian startups are racing to serve the millions of consumers that banks haven’t reached. Here’s a look at some of the leading players, their innovations and how they have redefined the market.
By Putu Agung Wija Putera
Indonesia has a banking problem. More than 170 million, or about two-thirds, of its citizens don’t have a bank account.
This means that these people – usually lower-income Indonesians – can’t access basic financial services, whether it’s depositing their savings, getting a credit card or taking out loans at reasonable interest rates. It’s a lack that threatens their welfare and financial well-being.
Some local entrepreneurs, though, have spotted an opportunity in this landscape. New online-to-offline startups are helping Indonesians without bank accounts to access products and services that they were once excluded from – online shopping, to begin with, but more importantly, a range of financial solutions too.
Kioson, Kudo & Co.
Two of the most prominent players, Kioson and Kudo, are built along similar lines. Agents first top up a virtual account with their own money. They would then use that balance to help customers shop online or make payments, while the customers just need to pay the agent in cash. The agents receive a commission for each transaction.
While the agent still needs to have a bank account to top up the virtual one, the Kioson/Kudo model effectively allows more people without bank accounts to shop or pay their bills online. Consequently, e-commerce firms can now reach customers they could not have accessed before.
Meanwhile, PonselPay enables individuals and small businesses to make payments using their mobile phones. Users pay cash to top up their accounts, which can be used for online transactions. While the service does support transferring to and from bank accounts, there is no need for a bank account at all if both parties in a transaction have PonselPay accounts. PonselPay thus reduces the need to hold too much cash, which can be a security concern for small business owners and individuals alike.
Another interesting innovation is Mapan, by the for-profit social enterprise startup Ruma. Based on the local traditional form of group buying called “arisan barang”, groups comprising 4–15 members pool their money together to buy their desired goods (usually household and electronic items) – one at a time. The pooling of their purchasing power also allows the participants to obtain their goods more cheaply from Mapan’s partner manufacturers.
In such a group, each member decides what they want to buy. An appointed leader acts as Mapan’s agent, collecting the orders. After Mapan randomly decides on which item will be bought, the leader collects an equal amount of money from each group member to pay for the purchase. The process repeats until everyone in the group got the item they wanted.
Their success, and why
Some of the region’s biggest players have seen the potential of such businesses and are seeking to ride on the networks and markets that these startups have built. PonselPay was acquired by Go-Jek in 2016, while Kudo was snapped up by Grab just a few months ago in a deal valued over US$100 million. The acquisitions help the bigger players improve and expand their cashless payment products, Go-Pay and GrabPay, respectively.
Kioson, on the other hand, became the first Indonesian startup to go public, raising US$3.3 million in its initial public offering (IPO). On at least two occasions, the Indonesian Stock Exchange temporarily suspended trading of Kioson shares after significant price hikes. Kioson also acquired e-voucher company Narindo in a post-IPO deal that would expand its range of products and services.
These startups have been able to take advantage of a gap in the market for three main reasons. Firstly, as small entities, they have the room and agility to innovate and continuously improve or tweak their product with relatively little risk involved. Secondly, backed by their technical know-how, they use technology that many Indonesians, including those from lower-income groups, can access: mobile phones.
Finally, they provide ease of use; they don’t let users get bogged down by too many forms and documents. In some cases they would need someone to have a bank account – for example, a Kudo or Kioson agent. Still, this means that in a small village or neighborhood, only the agent needs to have a bank account for everyone else to enjoy online shopping or bill payment.
Government, banks react
The Indonesian banking sector faces supply- and demand-side problems when it comes to serving lower-income groups. Potential customers have to contend with long travel times, queues and excessive formalities. In some cases, they do not have the necessary documents to access certain financial services, or even open a basic bank account.
At the same time, the banks themselves find it expensive to open new branches. According to a Bank Indonesia official, these banks also may not even have products suitable for lower-income groups.
The Indonesian government and banks have moved to act on these issues though.
Bank Indonesia, the nation’s central bank, aims to get 98 million more Indonesians to open their own bank account by 2019. Meanwhile in 2015, the Financial Services Authority (“Otoritas Jasa Keuangan”, or OJK) launched the Laku Pandai branchless banking campaign. Under this program, certified agents help people open bank accounts with the participating banks, deposit and withdraw money. To open such an account, one only needs to provide an identification card, vastly simplifying the process.
Accounts opened under the Laku Pandai program are exempt from administration fees, and minimum balance or deposit requirements. Furthermore, as a customer continues to save, banks can assess their creditworthiness and eventually extend more financial services to them. These services include linking the account for bill payments, loans and simple insurance products.
As of June this year, 20 conventional banks and 2 Islamic banks have participated in the program. More than 300,000 Laku Pandai agents are present in all of Indonesia’s 34 provinces, serving over 10 million customers. Two participating banks (Bank Sinarmas and BNI 46) are partnered with Kioson, allowing Kioson agents to also become Laku Pandai agents for the banks (provided they have an account in the given bank).
Now that the big banks have the means to reach the bottom of the economic pyramid, startups like Kudo, Kioson, PonselPay and Mapan will have to work hard to justify their presence in the market by bringing greater value to consumers. These companies will also have to aggressively pursue market share and build up trust among Indonesia’s unbanked and underbanked.
While they are unlikely to completely replace banks in the lower-income regions, we could see these startups working together with banks and financial institutions as Indonesia seeks to develop a more inclusive banking environment.