Yinglan: Let’s start with a quick introduction of yourself to our listeners and how you became a founder.
Dino: I started life off as a banker, and 12 years in banking is probably quite enough for most people. My last posting was as the VP of Investment Banking in Indonesia for Morgan Stanley. In 2011, I really felt that it was time for a change, and decided to go back to school. I ended up at the Sloan program, at the Stanford GSB, it was the best year of my life after 12 years of work.
I really broadened my horizons there and that’s where I was first exposed to fintech because 2011-2012, that’s when peer to peer lending was really starting to take off in the US with Lending Club and Prosper.
Now I’ve started to learn a lot more about fintech so I spent an additional four and a half years in the Bay Area, right in Palo Alto, really running a kind of alternative data based underwriting financial inclusion fintech platform.
And, fast forward 2016 for personal reasons I came back to Asia. And that’s when I actually came across Rama, and Rama was an old friend of yours who back in Gojek was the Chief Product officer.
And late 2016 Rama sold his shares in Gojek. He obviously made a mountain of money there, but he wasn’t ready to retire. He actually started traveling the countryside and started seeing the real pain from the lack of financial inclusion out to the regional areas. His dream was really to try and build a digital rural bank.
And when I came across Rama we were actually both consulting for this big data analytics company who wanted to get into FinTech. We caught up over lunch and he told me his vision. In typical Silicon Valley style, he actually gave some money to a friend.
That friend went into some villages in Central Java and just started lending at very low interest rates. The data he got from that was actually really eye opening. A lot of these farmers with access to low cost credit were really able to kind of get out of that poverty trap that they were in. And to me, that was a personally kind of a moving and significant story, and I said, “Wow, this is the guy that I wish I came across when I was in Palo Alto.”
He is like a celebrity engineer in Indonesia. He was able to bring across a sizable chunk of the Gojek early project engineering team. And that’s how AwanTunai really came into being. I actually wasn’t quite ready to do another startup from scratch. I know how much hard work that involves, but here before me I had Rama, who was one of the dream technical co founders anyone could ask for. He had an engineering team with him. And it was really just all the right ingredients, especially given the opportunity in Indonesia, to really start again and launch another startup.
Yinglan: One of the things that really impressed me was the speed and focus which you, Windy and Rama really executed on product in accordance to your vision. Tell me a little bit on how this speed and focus for AwanTunai was, you know, in the sense that you are getting a bang last year free market. How were early days like?
Dino: So there were two things that really drove our success and a lot of it centers around discipline. I truly learned a lot from Rama and Windy. They’re remarkable people in terms of scaling digital operations and decision making.
So, most decision making, if not all, is data driven. Myself as CEO, my opinion actually doesn’t count unless it’s backed up by field data. And that was the discipline that Windy ran with a lot of the kind of growth and operational experiments.
We would test a whole range of products and iterations in the field. And, you know, the decision making was really driven by what the market was willing to accept. And, you know, that way we were able to launch quite a lot of products into the market, you know, before we actually settled on a sole product right now, which is AwanTempo, the inventory financing product that we have, we actually tried 10 different products.
And we were able to execute 10 different products in the space of two years, you know, due to that discipline in decision making. When we thought that something wasn’t working out either the data said that, “Look you don’t get too attached to it. This is something that’s not going to scale up within the kind of economic parameters that we’ve set for ourselves,” and we move on.
And that discipline is also important in a larger setting. We’ve come across startups who kind of succumbed to the temptation of boosting up their numbers prematurely. So with the use of cash burning you can always increase your GMV or whatever core metric that you need to appeal to investors. But to do so too early before you’ve really found that product market fit and before you optimize that business model, it’s actually quite a dangerous thing to do. And it becomes very difficult to pivot or to adjust the model after you’ve scaled up.
So we actually maintain the discipline to keep iterating, and not to kind of just be tempted to gross up the numbers, and sweep the mess or the NPL underneath the carpet. I’m actually very grateful for you Yinglan to really keep supporting us, as we kind of iterated over the last since 2017 to 2018 before finally, you know, launching this fantastic product in early 2019.
Yinglan: What has been your approach to working with micromerchants? Our listeners, especially those not familiar with Indonesia, would probably be wondering how the platform makes a difference from their perspective.
Dino: Serving the unbanked or the micro merchants of Indonesia has been a major goal of many organizations both startups and large financial institutions. Over 90% of the Indonesian workforce is actually self-employed or what they call basically you know micro small, medium enterprises. So it’s a massive segment of the economy and it is significantly underserved.
So, as an ex banker, I know the history of banks trying to serve the micro SMEs. It’’s a road that is littered with a lot of dead bodies. You know from 1997 to 2007, the central bank of the government pushes banks to try and serve this very difficult segment with credit. And it was disastrous; the loss rates and the NPLs were through the roof.
So it was actually with a lot of trepidation, when Rama asked me to lead AwanTunai and really serve the segment which as an ex banker I knew was a very difficult and dangerous segment to serve. And the product that we designed was in part driven by some of the experience that I’ve achieved in the US so in my first startup.
So in my first startup we served what in the US they called deep subprime — folks with very low or very thin credit files, who the banks would simply never touch. But we knew that using transaction data, you can actually differentiate the good, in a way, within this deep subprime segment. And that was really the approach that we took with AwanTunai as well.
The key to fintech is really your source of data. We spent our first two years learning that a lot of the data sources in Indonesia, be it data purchase from telco companies or data that you’re able to scrape off people’s mobile phones, is actually very noisy, and not very predictive for the purposes of credit decision making.
You can certainly make money if you’re charging a few hundred percent interest per annum which, unfortunately, is what some of the players do. But our vision was — how do we deploy 2% credit per month, and make it sustainable. The datasets that we experimented with in the first three years, just simply couldn’t get it to that magic 2% mark.
And that’s why with AwanTunai we really focus on on acquiring data that’s highly predictive, and in a way that’s how we build our proprietary acquisition model — data acquisition model — where we put in hardware into the downstream supply chain, this is POS hardware/ EDC hardware into the traditional wholesalers, who when we come in sometimes are [using] pen and paper. They have very minimal systems in terms of how they manage the customer database as well as the transaction data.
With input hardware there [we’re able] to really capture very valuable offline transaction data which is proprietary. No one else has captured this data. That data has been able to power how underwriting works and it’s extremely predictive. Because when you think about it, what’s the correlation of your social media data or your telco data with how much your shop sells, whereas the inventory that your shop purchases, every single week and every single day is highly correlated with how that business is performing. And that’s the type of data that we acquire. And that’s proprietary to AwanTunai.
Yinglan: And I just want to actually share with our listeners, because not that many people know the immense market size and market opportunity of this segment, a marketing video we wanted to share and also maybe share a little bit of traction on getting this subject.
Dino: So this is an interesting concept about Indonesia. It’s always a huge blue sky opportunity and this was a story that investment bankers were certainly selling 10 years ago. Nothing has changed there. In a perverse way there is a reason why the opportunities are so large, because it’s really hard to execute solutions in Indonesia.
There are so many unsolved problems because those problems are really difficult to solve. The Japanese found that out when they came in the 80s, into the textile sectors and into the property sectors. So, yes, absolutely. The opportunity is immense. But there’s a reason for that, because it’s really hard to solve those problems.
The opportunity is still there. And fortunately, now I think there’s a real difference and that difference to a certain extent is technology. Technology has reached a level where, you know, a lot of the hype around AI and the magical use of big data and all that. It’s actually becoming very accessible to a lot of startups. It’s almost becoming a commodity service you can buy off-the-shelf, automated machine learning tools that can utilize a lot of this.
The technology infrastructure is also significantly improved in Indonesia connectivity has really started spreading into the regional areas of Indonesia. Whilst maybe you won’t get 3G out in the rural areas, consistently, it’s starting to get there. In the next kind of like two, three, or five years, the regional infrastructure will certainly catch up to the major urban areas.
This is really the right time to be building that infrastructure to really position yourself to kind of capture this massive opportunity because technology and infrastructure is finally, after decades of promises, catching up and being able to really deliver highly scalable solutions in this country.
Paulo: You mentioned how difficult it is to really address this long standing problem in Indonesia, and now you’ve come in, and AwanTunai with technology and digitization to, to help these micro merchants with the help of wholesalers. I’m curious to know how you work with the wholesalers. What was the experience like trying to get their buy-in into the solution and guide them throughout the whole process to embrace this new way of doing things?
Dino: So, I wanted our solution to be a hybrid solution because we don’t believe a pure digital solution is possible yet in Indonesia.
I certainly spoke about that technology coming, but that’s the thing, it’s not here yet. We see some competitors, launching with full digital solutions where they’re trying to acquire data from the telco companies, and really try to do fully automated operations. There isn’t enough digital infrastructure to capture the data needed in a call for this type of fully automated operation.
So that’s why in AwanTunai’s solution we’ve co-opted a valuable part of the ecosystem and that’s really the traditional wholesaler within the supply chain. We don’t believe in reinventing the wheel. A lot of these wholesalers hold very valuable data.
It happens to be offline so part of our innovation is really to help digitize a lot of these very valuable offline information, but the fact still remains that we still need a ground team to acquire these wholesalers. We still need a field operations team to actually onboard these wholesalers to put in hardware and to digitize them.
In a certain way, we’re building the role infrastructure that can actually digitize very valuable data that will enable the digitization of the whole economy. We’ve identified wholesalers as a critical component of the broader infrastructure that needs to be built out. And we’re collaborating with them; we’re empowering them by implementing hardware and digitizing their operations to deploy a fully automated product, hopefully in three, four, or five years time.
Paulo: So you mentioned about really building this raw infrastructure and laying the groundwork for more things to happen beyond financing. What are your thoughts on what direction you know this digitalization could go for the wholesalers, for the micro merchants and for the supply chain in general.
Dino: So I actually just had a very interesting conversation with one of the heads of a major FMCG operation in Indonesia. When you look at value proposition, especially an up into this micro merchant segment, you can either look at a price proposition, which is, in a way, what a lot of the kind of e-commerce companies are doing. They are providing highly discounted products in this kind of bottom end of the supply chain. Or you can do a service proposition — reliable supply and efficient patient delivery. And that’s not what the ecommerce companies are doing.
So what we’re trying to do is a really good move for the service value proposition because we feel that that’s something that’s a lot more sustainable, and certainly a lot more profitable than simply discounting on pricing. Now, the issue is that building a strong service proposition for the downstream supply chain is an extremely expensive affair. We’re talking about the scale where only Alibaba or Amazon can really build that scale of infrastructure. And I personally don’t think there’s enough capital within the even existing unicorns to really build up that scale of infrastructure in Indonesia.
And that’s why our approach is really to co-opt the existing players there, for the price of a $200 terminal that we put into a wholesaler, what are we actually getting? We’re getting a warehouse. We’re getting a captive market of some of the best micro merchants in the city. We’re getting guaranteed supply and we’re getting a fleet of trucks. A lot of these wholesalers have their own kind of delivery trucks.
So it’s a very asset-light model of trying to achieve the same thing where we will certainly digitize the downstream supply chain, but rather than have to reinvent the wheel, build your own warehouses, put robotics into them, and fix up the roads and all that infrastructure which is near impossible for any single organization to do, we’re going to co-opt the existing players who have a lot of the building blocks available. It’s just that they need to be digitized, and that’s part of the work that AwanTunai is doing. We’re digitizing a lot of these raw data that enables a lot of value creation in terms of being able to deliver a much better service to the micro merchants.
Paulo: So you work a lot with what you would call the rural economy, the offline market, or the unbanked, but at the same time you’ve also helped bridge them to financial institutions as well. What has been the change that you’ve seen in terms of how these larger financial institutions that you work with, look at the offline market or the unbanked. How has that changed, and what do you see in terms of their participation in all of this?
Dino: So right from the start I wanted to position AwanTunai as a service provider to the banks and certainly not as a competitor. In the early days of FinTech in Indonesia, you get guys beating their chest and saying they’re going to disrupt the banks, but that just doesn’t happen. It didn’t happen in the US. It didn’t happen in China. Nowhere in the world has fintechs been able to fully replace banks yet.
So when we first started, our position was really to become the origination platform for the banks to access a totally brand new market. We’re not cannibalizing any of their existing customers. We’re opening up this kind of micro SME segment — this vast segment that the banks who have been repeatedly pushed to service, or have simply been unable to.
And when we approach banks, we’re very open with them. We open up our entire credit books, so to speak, or risk management methodologies. There’s no kind of secret black box with AI. We’re very transparent in terms of how we underwrite how we manage the risk. A testament to that is that we have four banks right now that we originate directly onto the balance sheet. Essentially we originate a loan and we send all the KYC data directly to the banks, so that you know we’re actually originating a bank asset directly onto the bank’s balance sheet.
That’s really a testament of the institutional partnerships that we’ve worked very hard to build over the past two to three years. The vision going forward is there’s no need to compete. There’s certain things that fintechs do a lot better than banks and origination is one of them. There’s also things that banks I think do better than fintechs. Part of that is risk management, and in a way the protection of depositor funds, or capital. And I think that should still probably remain to the banks.
Our piece in the whole ecosystem is really to enable all the local banks in Indonesia to be able to access this 90% of the workforce that comprises the micro SMEs, that simply hasn’t been able to be properly serviced by the foreign institutions.
Yinglan: I want to talk about the world currently and how AwanTunai is dealing with the whole coronavirus situation. We see in other geographies, like China, some lending companies have been affected in terms of origination, source of funds, delinquencies. What’s the situation like in Indonesia? I’m a big fan of AwanTunai’s approach, and share with us how you have been preparing for these scenarios.
Dino: So, to be honest, we’ve been blind lucky. 100% of our loan book is with traditional warungs or traditional grocery stores. Now in the event of a lockdown it’s the grocery stores, the pharmacies and the banks that are going to remain open. So we’re probably one of the very few segments that will be able to continue to operate in this very difficult segment.
And that’s really just luck because I wanted my risk team to really fully understand how to underwrite traditional grocery stores before really opening up in other sub segments, because we even have restaurants buying supplies from our wholesalers but we actually wouldn’t you know underwrite those those customers because I felt that the risk team really needed to concentrate on one vertical at a time. And in fact we were actually going to start considering restaurants, until this whole coronavirus thing hit, so it was just really pure luck there that our portfolio is relatively insulated from the giant mess that is out there.
And it is a big mess. So we’ve got a lot of banking friends in our organization. And you know we’re hearing some horrific numbers out there, like 60 to 70% of a bank’s portfolio are deciding to ask for some kind of moratorium or repayment holiday. So that’s a real distress starting to show in the generalist lenders.
Now I guess, in terms of what this presents to AwanTunai, we can actually continue to operate and if not actually grow so what we’ve been focused on for the last month is really fast tracking, a lot of our digitization services. Right now, we do have field teams where we onboard merchants before they fully transition onto the app, and then they use the app independently.
But given the whole coronavirus thing, we’ve been trying to protect our field teams, so we’re actually fast tracking a fourth quarter product which is a full digital self service product to now. And the engineering team has really pulled out a rabbit out of the hat. They’ve gotten our first digital online product out there, where the merchants can not only get full loan applications and cashless payment on the app but also do online ordering of SKUs.
And it’s kind of a bizarre situation where this kind of crisis, gives us the excuse to really push for full digital operations where merchants who were used to face-to-face operations now have a really good reason to just essentially work from home, get on our app, order all the SKU from the app, essentially, have the wholesaler confirm which one inventory is available, and the merchant can pay using our app, cashless. And the suppliers will deliver the product to them. So that’s a full kind of like contactless experience that we’ve been able to deliver in a very short period of time. And we’ve just launched for one week but already a full 20% of our transactions is going through this whole automated ordering system.
So that presents a real opportunity for us in times of crisis. What tends to happen is perhaps the weaker business models that have managed to grow just by virtue of cash burning, they may start to experience a lot of stress as this emphasis on quality now with NPS just rising across the board. You know, I think a lot of these weaker players will fall off, and any way that’s highly beneficial for us. There’s been a lot of noise in the Indonesian fintech sector. And as this crisis unfolds what we’re really hoping is, as we’re able to continue operating, as our customer base is relatively insulated from stress so we’re not really seeing that much deterioration in our NPL book, we’re actually able to grow and highlight the quality of the execution team and the business model to the market.
Yinglan: And the traction we’ve seen is pretty amazing. I’d like to end this interview on a positive note and make it useful for our listeners. What’s one thing you’ve learned as a founder thus far that you’d like to share with our listeners, especially during this time?
Dino: So it may sound flippant but Rama has really taught me to meditate. Now, there’s a lot more to it than that. Meditation really just helps you manage the stress like there’s immense pressure that builds up on you and just being able to manage that stress really helps in decision making. What I found, when I compared myself to my investment banking days, when I first started until now is that my capacity to make complex decisions with limited data has really increased.
By being able to remain calm, even in the face of Armageddon, you know your company with these risk controls is able to weather certain forces out there. And being able to trust your team, not panicking and having knee jerk reactions, that’s all quite important, because it allows you to really make the right decisions when you are making very costly decisions in a very time sensitive period.