HONG KONG -- Skype co-founder Geoffrey Prentice has raised $105 million in the first significant funding round for his latest venture, a microlending business in Southeast Asia, intensifying the battle for the region's vast unbanked population.
Indonesian conglomerate Sinar Mas Group led the Series A investment round in Oriente, founded by Prentice in Hong Kong in 2017. The startup is poised to enter Vietnam and has recently expanded into the Philippines and Indonesia. Prentice declined to disclose the startup's valuation but said it is growing faster than Skype did in its early days.
The microlending business model has been around for decades, but Prentice believes Oriente has an advantage -- a sophisticated risk control algorithm that helps to keep the default rate around 1%. This compares to an industry average of 8%. The difference, Prentice said, allows Oriente to offer lower interest rates.
Apart from recruiting data scientists from China, where Prentice said has more advanced fintech than elsewhere, the company has put so-called purpose-based lending at the center of its business. "Once we know what people are borrowing money for, we have a better understanding of the risks," he said. To encourage users to reveal their purpose of borrowing, the company offers lower interest rates for users who visit a partnered shop and purchase items through installment payments.
Oriente charges roughly 3-4% monthly interest rate, while Prentice said some microlending platforms in Southeast Asia charge more than 15%. Those who pay back in instalments are eligible for a discount of 25-50% on the interest rate.
Helping individuals and businesses access better financial services is crucial if Southeast Asian economies are to continue expanding at a healthy clip. The region is home to some of the world's fastest-growing economies. Although the Association of Southeast Asian Nations [ASEAN] had $2.8 trillion worth of economic output last year, only 27% of the region's 650 million people were formally banked in 2016, according to global consulting and auditing company KPMG.
There is enough potential in that number to attract international conglomerates. Earlier this year, Tencent Holdings, which operates the popular WeChat Pay in China, made its debut as a ringgit-based digital payments service in Malaysia. Its rival, Hangzhou-based Alibaba Group Holding, has gained a toehold through its investments in fintech startups in Thailand and the Philippines.
Southeast Asia has its own fintech companies. Grab, the region's ride-hailing champ since its Uber Technologies merger earlier this year, has begun to offer loans and insurance. The 6-year-old startup is expanding a payments service throughout Southeast Asia and has said it will also introduce a remittance service early next year.
But the region lacks a dominant fintech player, Prentice said. Oriente, established in 2017, offers microloans to individuals and businesses through a mobile app. The startup also provides offline lending to shoppers at retail partners.
The entrepreneur who built one of the world's first internet-based systems for making voice and video calls is now betting on this experience to put Oriente ahead of Southeast Asia's microfinance pack.
Oriente's co-founders include Hubert Tai, the key architect of Chinese internet finance platform Lufax. Until Beijing's restrictions on online lending disrupted its plan to go public this year, Lufax was reportedly valued at $60 billion through a potential float on Hong Kong.
"Today, Oriente's ventures in the Philippines and Indonesia are growing at a faster rate than either Skype or Lufax did in their first six months of launching," Prentice said.
In the Philippines, Oriente joined hands with Filipino conglomerate JG Summit Holdings to introduce the Cashalo app in May. The mobile app now has about 50,000 monthly users. In August, Oriente partnered with Sinar Mas Group to roll out another microlending app customized for Indonesians. It plans to expand into Vietnam next year.
Prentice said the $105 million will be used to fuel the company's expansion. Oriente, which has 1,100 employees across the region, is "recruiting 50 to 100 people a week," Prentice said.