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Sharing Economy

In fintech race, Go-Jek app extends consumer credit to offline stores

PayLater marks 'beginning' of more financial services for Indonesia's unbanked

A customer uses a smartphone to scan code while paying for food using Go-Pay in Jakarta.   © Reuters

JAKARTA -- Go-Pay, the digital payment arm of Indonesian ride-hailer Go-Jek, will extend a mobile credit service to brick-and-mortar stores starting next month, laying the foundation for a broader financial business targeting its millions of users.

The expansion of PayLater, which lets users pay for transactions on the Go-Jek platform at the end of the month, is yet another development in the ride-hailer's battle with Singapore-based rival Grab and Ovo, its payment partner in Indonesia.

For Go-Jek, the move represents more than merely catching up with Ovo in Indonesia's booming e-payments market. The Indonesian "decacorn" -- a startup valued at than $10 billion -- already offers financial products to drivers and merchants, including savings accounts and housing loans, through its local bank partners. 

But PayLater "is the beginning" for the company to "provide a wide array of financial products" to users, a segment that it has left untouched, Go-Pay CEO Aldi Haryopratomo told the Nikkei Asian Review.

The next stage in the evolution of financial technology will allow users "who are unbanked and never had access to these financial services ... [to] grow their credit history and move up the economic ladder," Haryopratomo said. "And that is what PayLater is about."

PayLater launched in September, initially for food delivery. It has expanded into other Go-Jek services like ride-hailing. By July, the ride-hailer will give users the option of using PayLater at more than 300,000 offline locations, as well as at online merchants that accept Go-Pay.

PayLater will be available only to users approved by Go-Jek's credit analytics, based on various data such as transaction history. The credit limit and monthly fee vary among users, but most are charged 25,000 rupiah ($2) with a credit limit of 500,000 rupiah, the company said. To mitigate its credit risk, Go-Jek partnered with local peer-to-peer lender Findaya.

Ovo, backed by Indonesian conglomerate Lippo Group and partly owned by Grab, was late to the digital credit card scene, only introducing the feature in January for purchases at its partner e-commerce company Tokopedia. But Ovo beat Go-Pay in extending to offline merchants, announcing the move in early May. Traveloka, an online travel booking service, also provides users similar service.

These options allowing users to pay later are "basically a lending service," said Mulya Chandra, equity analyst at Morgan Stanley Sekuritas Indonesia. Chandra said it makes a lot of sense for payment providers to move into the segment "in terms of getting bigger revenue generators."

Many Jakarta stores accept both Go-Pay and rival Ovo, both of which are pumping money into "cash back" campaigns to woo consumers. (Photo by Kentaro Iwamoto)

"Their current payment businesses might not provide huge profitability, considering the discounts and subsidies they currently provide to acquire and maintain customers, but revenue from lending could help to recoup their investments faster, while offering upside in the future," the analyst said.

Already armed with considerable user data -- Go-Jek claims 2 billion in annualized transaction volume for 2018 across all markets -- additional credit data gathered from PayLater will help the ride-hailer bolster its credit scoring ability. Haryopratomo said he thinks more granular data eventually will help "deconstruct the financial products" that the banks have.

The Go-Pay CEO cited mortgages as an example. Banks typically find it difficult to lend to urban residents, many of whom remain unbanked and lack the credit history and rating to support a large loan.

"Why does a mortgage have to be for a house? Why can't you have a mortgage for building a toilet?" Haryopratomo said. "[How to] build credit for a mortgage is very well-known... [but for] the bank to build the credit for a toilet is actually going to take time. It's going to require the technology to provide it."

"With Go-Pay, we can do the credit scoring more efficiently because there is a lot of data, the disbursement cost is cheaper because you just use Go-Pay, and the collection [is through] Go-Pay as well."

Indonesia's transaction volume from e-money totaled 2.9 billion in 2018, a surge of 210% on the year, and industry insiders say Go-Pay and Ovo together made up a majority of the volume.

But Haryopratomo took a different view of the process.

"Instead of saying how many transactions we achieved," the CEO noted, his company wants to say "how many families are able to send their kids to college because they are able to manage their financial life" more easily. "Spending, savings, investments and loans -- frictionless through our system."

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