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For some drivers, Go-Jek is "their first step towards the formal financial sector," says Go-Pay CEO Aldi Haryopratomo. (Photo by Akira Kodaka)
The Big Story

Go-Jek sparks an Indonesian banking revolution

E-payments pave the way to bank loans and financial inclusion

ERWIDA MAULIA, Nikkei staff writer | Indonesia

JAKARTA -- Wawan Suwandi opened his first bank account nine months ago when he became a motorbike taxi driver for Go-Jek, the Indonesian ride-hailing company.

"Before that, I had never felt a need to have a bank account," said Suwandi, in his early 30s, who works from his hometown Tangerang, a Jakarta suburb.

Go-Jek helped Suwandi open the account, allowing him to receive direct electronic payments from customers who use the company's mobile wallet, Go-Pay. "Some drivers may still rather receive their pay in cash, but I think only those too lazy to learn new things. Go-Pay makes [transactions] easier."

Besides enjoying the ease of banking with his smartphone, Suwandi says Go-Jek drivers with good performance ratings can take advantage of other perks. Several banks offer Go-Jek drivers the chance to take out a mortgage or save for hajj pilgrimages. "I'm new at Go-Jek, but I hope soon I'll be entitled to [such benefits], too."

Suwandi is one of the millions of Indonesians who have recently opened a bank account for the first time thanks to new economy companies like Go-Jek. Rapid smartphone adoption and easy-to-use e-payment apps are penetrating Indonesia's vast unbanked population on a scale that the country's traditional banking industry has never been able to achieve.

 Indonesia's e-payment market is growing crowded as companies rush to tap the country's vast unbanked population. (Photo by Akira Kodaka)

This is good news for Indonesians -- and their country's economy. The World Bank views access to financial services as a "critical step" toward reducing poverty and inequality. "Financial inclusion allows people to save for family needs, borrow to support a business or build a cushion against an emergency," World Bank Group President Jim Yong Kim said in April.

The rise of e-payments in Southeast Asia's largest economy also represents a massive business opportunity -- a fact not lost on some of the world's largest tech companies and venture capital funds, which have been pouring billions into Indonesian e-payment companies. Investment from big U.S. investment firms such as KKR, Warburg Pincus and Sequoia, along with tech giants like Google, Alibaba Group Holding and Tencent Holdings, have created a frenzied atmosphere in Indonesia's e-payment and fintech industries.

Morgan Stanley said in a report released in May that attractive demographics -- half of Indonesia's population is under 30 -- and improving connectivity is luring foreign funds.

"Investments in this space from technology companies -- such as Go-Pay, Grab and Doku -- have grown rapidly over the past three years," Morgan Stanley said. "A number of these companies are trailing the technology and we believe it is a matter of time before they take off."

As many as 95 million adults in Indonesia still lack an account at a traditional financial institution or a mobile money provider -- the fourth-largest unbanked population after China, India and Pakistan, according to the World Bank. But the number of Indonesians with accounts has been growing rapidly since 2011, rising to 49% of the adult population in 2017. Indonesia's 29 percentage point gain from 2011 to 2017 is far above the global average.

A government social welfare program for poor households is one reason for the boost. In the past, such aid was distributed in cash at post offices. But since 2015, the government has been channeling the funds through bank transfers. It is part of the "cashless society" campaign by President Joko Widodo's administration aimed at increasing Indonesia's financial inclusion to 75% next year.

But most Indonesian banks still largely rely on physical branches to reach new customers -- leaving many underdeveloped and remote regions of the vast archipelago of 17,000 islands with little to no access to banking services. The country's top lender, Bank Rakyat Indonesia, even resorted to sending mobile bank branches on vans and boats to hard-to-reach areas.

This is where agile new companies like Go-Jek and Tcash come in. The top two e-payment players in Indonesia take advantage of the fact that more Indonesians own mobile phones than bank accounts. Mobile subscriptions reached 385 million in 2016 -- by far exceeding Indonesia's 260 million population, since many people own multiple numbers. The number of smartphone users reached an estimated 67 million last year, according to eMarketer.

On the back of growing smartphone use and worsening traffic jams in major Indonesian cities, Go-Jek, one of Indonesia's four startup unicorns, has quickly evolved from a motorbike taxi-hailing service to a provider and facilitator of a wide array of services -- including food and parcel deliveries, and cleaners, beauticians and masseuses on call. Its app has been downloaded more than 96 million times, and the company partners with more than 1 million drivers.

In April 2016, Go-Jek ventured into financial technology with the launch of Go-Pay. The convenience of paying and tipping drivers with an e-wallet created a large, growing user base: half of Go-Jek's 100 million monthly transactions are processed through Go-Pay.

Kiosks in a traditional market in south Jakarta now offer e-payment options. (Photo by Akira Kodaka)

Tcash, meanwhile, rides on the vast network of its parent company, state-owned Telekomunikasi Selular, or Telkomsel. Indonesia's largest mobile operator boasted 178 million subscribers as of June.

With 97% of Indonesia's mobile subscribers on prepaid plans, Telkomsel has long-established relationships with small telecom kiosks scattered across the country that sell its airtime and data packages. Tcash recruits these kiosks as its agents -- offering people a new way to pay monthly bills, make motorcycle installments and transfer money, among other services.

"In every village in Indonesia ... in the mountain or rural areas, there will be someone or a small kiosk selling phone credits," Tcash chief executive Danu Wicaksana told the Nikkei Asian Review in a July interview. "Almost everyone needs to buy airtime every two, three weeks or so. These kiosks can be leveraged by Tcash."

The country's major banks were the first e-money issuers, led by private lender Bank Central Asia and state-owned Bank Mandiri about a decade ago. The top three mobile operators -- Telkomsel, Indosat and XL Axiata -- soon followed.

Since then, Indonesia's e-payment industry has exploded. The central bank has issued 31 e-money licenses to date, the most recent on Aug. 8, and new players are still rushing in to capture a slice of the fast-growing market. Morgan Stanley noted recently that only 2.1% of transactions in Indonesia in 2017 used e-money, as cash remains dominant. But the share is forecast to rise to 24% by 2027.

Yet with so many new companies entering the market, most industry players expect a shakeout that will leave only a handful of survivors. The consolidation is already beginning, with Go-Jek acquiring three local fintech startups in December.

Wicaksana predicts that Indonesia's e-payment industry will evolve like those of India and China, where many companies jumped into the market but only two or three survived. (Warren Buffett's Berkshire Hathaway said on Aug. 27 it had invested in One97 Communications, the parent of Paytm, India's largest mobile-payments company.)

"Given the current position, assets, the strength that we have, we believe we have a chance [to be one of the survivors]," Wicaksana said.

A person with inside knowledge at Ovo, an e-payment platform launched by Indonesian conglomerate Lippo Group, echoed his view. "There are too many players in the field," he said. "Ovo is thinking about acquisition."

Threat to "lazy" banks

The growth of the fintech industry is expected to boost Indonesia's economy over the long term and speed its transition to upper middle-income status. But along the way it could also shake up the country's banking industry.

"We think over the long term fintech companies will take some share of banks' businesses, either in existing or potential segments that could have been grabbed by banks," Morgan Stanley says.

A report by PwC Indonesia in July says a majority of Indonesian bankers surveyed felt threatened by Go-Pay and Alibaba's Alipay.

Alibaba and its local partner, Elang Mahkota Teknologi, launched Dana, a mobile wallet running on Blackberry Messenger, in March. PwC adds that Telkomsel, Singapore-based ride-hailing service Grab and popular Indonesian e-commerce site Tokopedia -- all of which have their own e-payment platforms -- are also "on the horizon to be perceived as emerging banking competitors."

Among major Indonesian banks, BCA and Bank Negara Indonesia appear to have a head start in developing fintech businesses. But others, including Indonesia's top two lenders -- BRI and Bank Mandiri -- are seen "potentially challenged" as they are considered less innovative in digital products and fintech collaboration, according to Morgan Stanley analysts.

Executives of some major banks say they do not see fintech companies as a threat, and instead have begun or are seeking to collaborate with them. "As long as their business is aligned with ours, we'll invite them to collaborate," said Rico Usthavia Frans, a director at Bank Mandiri, adding it is partnering with fintech startup Amartha to channel microloans. "Competition is surely happening, but collaboration is, too."

Iskandar Simorangkir, secretary of the National Financial Inclusion Council, said only "lazy" banks "with outdated ways of thinking" are feeling threatened.

"I believe technology advancement supports financial inclusion. Fintech companies are not killing banks," Simorangkir told Nikkei. "If banks want to survive, they have to adapt, they have to work together with fintech companies. They have to complement each other instead of competing against each other."

Tcash CEO Danu Wicaksana says his company is looking to leverage telecom kiosks to gain customers. (Photo by Shotaro Tani)

Some banks are already benefiting from partnerships with digital companies. Bank CIMB Niaga has acquired 940,000 new customers by opening up new accounts for Go-Jek and Grab drivers -- most of whom were previously unbanked. Lani Darmawan, director for consumer banking at CIMB Niaga, said it processes 2 million transactions a month from the drivers.

"We see Go-Pay as a bridge for the unbanked to reach a formal financial sector. For some of our partners -- drivers and merchants -- partnering with us is their first step towards the formal financial sector," Go-Pay chief executive Aldi Haryopratomo said in an email to Nikkei. "We're also planning to partner more intensively with established financial institutions."

Tcash CEO Wicaksana told a similar story. He said private lender Bank Tabungan Pensiunan Nasional has acquired 1 million new customers through its partnership with Tcash in the past two years.

"I told my agents -- the telecom kiosks -- to acquire users that they know, their neighbors," he said, adding the kiosks will then work with BTPN agents. "They get a commission from every account opening."

"For some of our partners -- drivers and merchants -- partnering with us is their first step towards the formal financial sector"

Go-Pay chief executive Aldi Haryopratomo

Lippo Group, which runs small lender Nobu Bank, originally relied on its own retail businesses to promote Ovo, the e-payment platform it launched in early 2017. But it wasn't until Ovo was integrated into the Grab app in June that it began to take off.

"When Ovo started, Lippo was only trying to use it within its own ecosystem, but realized it couldn't win against its competitors with this approach," said a person familiar with Ovo's business. "That is why it thought partnering with a transport company is key, and the partnership with Grab is a big advantage for Ovo." He said Ovo now has 13 million registered users and 250,000 transactions per day.

Delivery service or credit agency?

Achmad Darmawan was a street food seller before he joined Go-Jek as a driver four years ago. He had never been considered creditworthy before, but just a few months ago his mortgage loan application was approved via Go-Jek, which partners with state-owned mortgage lender Bank Tabungan Negara. Darmawan hopes to buy a house outside Jakarta.

"Now I only have to complete some other paperwork [before the loan will channeled]," said Darmawan, adding the mortgage payment will be automatically withdrawn each day from his bank account.

While lifting the number of Indonesians with bank accounts will be crucial for the development of the country's economy, access to credit is considered to be even more vital to social mobility.

"Opening accounts is a means toward a more important financial service, namely loans," Simorangkir said. "That is the goal of financial inclusion, so that all layers of the communities, down to the grass roots, can access bank loans, so they can start businesses and become wealthy."

In a sort of role reversal, Go-Jek also helps a state-backed lender, BNI, find potential borrowers -- and provides data on which might be the most creditworthy. Go-Jek mines the transaction data of the 125,000 restaurants that partner with its food delivery service, Go-Food, to determine which may be eligible for government-subsidized microloans called KUR.

BNI wasn't able to grant enough of the microloans to meet its commitment last year, but this has changed drastically since the partnership with Go-Jek.

Rapid mobile and smartphone penetration is opening up new opportunities for digital companies in Indonesia. (Photo by Akira Kodaka)

"From data at Go-Jek, we can learn the restaurants' daily transactions, demand and sales," said Simorangkir, also a deputy to the coordinating minister for the economy, whose office oversees KUR disbursement. "After the first half of this year alone, BNI has proposed a more than 50% increase to their KUR commitment."

There are 115 commercial banks in Indonesia, and Tcash's Wicaksana said they all compete for the same tiny slice of pie -- the few Indonesians considered creditworthy by the banking industry -- to obtain loan revenues.

"Instead of fighting with other banks to give [the lowest] interest rates ... why don't they invest with [us] to penetrate other types of market?" he said.

At least for now, customers appear to be the clear winners from all the competition, as they have a wealth of e-payment options to choose from -- all at deeply discounted prices.

"It's practical ... [since there is] no need for a hassle such as preparing small notes," said one avid Go-Pay user. "And although the discounts are not as much as before, it's still cheaper [using Go-Pay] than paying with cash."

Nikkei staff writer Shotaro Tani in Jakarta contributed to this story.

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