In this week’s episode of On Call with Insignia, ⁠Brankas⁠ CEO and co-founder ⁠Todd Schweitzer⁠ returns after two years (check out ⁠our first conversation⁠ with him here) with the latest insights on open finance and Brankas’ progress in driving this transformation in the region. 

But first, in case you’re not familiar: how does Brankas work? 

As Todd puts it simply, “We work with tech companies, consumer and SME apps that are looking to have financial services integrations. We also work with the banks themselves to become suppliers of these products. That creates a marketplace where you have the institutions on one side and the tech companies on the other. Brankas is making it much easier for those two groups to connect.”

They provide services across Indonesia, the Philippines, Vietnam, and Thailand. In 2023, they expanded into MENA, particularly Bahrain, UAE, and Saudi Arabia, which we talk about more in part 2, coming out next week!

Timestamps

(00:00) Todd and Brankas’ Introduction;

(05:47) Opportunities for Open Finance in Southeast Asia: SME and Migrant Worker Banking;

(13:38) The Tradeoffs for Tech Companies Integrating Financial Services;

(18:04) Maturing Banking Experiences in Southeast Asia;

(22:08) Southeast Asia’s Developing Open Finance Regulation;

(25:26) Stay tuned for part 2 next week;

TLDR / LinkedIn Post

5 Trends on Open Finance from Southeast Asia’s leading open finance solutions provider Brankas

(1) Indonesia’s SME backbone (60%+ of GDP) opens up opportunities for open finance to create more profitable and better customer experience for SME banking, through embedded credit, payments, trade facilitation, cross border payments within third-party apps.

“In Indonesia, the opportunity is, and where we see the most interest from our bank partners, especially is solving SME banking by providing APIs that connect the business unit of a bank to tech companies that are solving another non-financial need for SMEs.”

(2) Southeast Asia as a hub globally for migrant workers opens up opportunities for open finance to bridge gaps in overseas banking.

“For example, being able to have a local Indonesian account where you can use that account in some ways while in Hong Kong, or whether it’s an overseas Filipino in Bahrain that wants to actually guarantee a loan back in their home province in the Philippines…”

(3) There is a case for tech companies to build out their own financial services, and companies like Carro have leveraged this to great effect for profitability and growth, but it requires scale, relationship building (with banks), and long-term investment (e.g., raising debt). Open finance is another option. 

“If you are a tech company that is going into financial services, the amount of money you need to spend, the reserve requirements you need, the regulatory costs associated with this. It’s no joke. And so what you thought was a pretty lean business can become a very cost-heavy business very quickly.”

(4) Blurring lines between bank, fintech, and non-fintech financial service experiences puts pressure on banks to raise the bar on reliability. This includes raising standards on uptime, which Brankas hopes to do with their bank stability report. 

So that’s really the fact that banks see reliability and uptime as a differentiator is a great signal that I think we should be doing more of this and bringing transparency and actually banks offering this as a point of differentiation to their consumers, “Hey, use our digital bank because we will be there when you need us 24/7, 365.” 

(5) Open Finance regulation has evolved in ASEAN, but in various piecemeal aspects. For example, Indonesia has developed licenses for payment API providers, of which Brankas has secured two. Brankas is also participating in pilot initiatives from the Philippines’ central bank. 

“If you’re in a new industry where the regulations are being written as we speak, and it’s not an established industry, it’s very important to be proactive with your regulators. Demonstrate that you are willing to and eager to contribute as an industry player as one data input into their decision making.”

However, the story is different for the Middle East, stay tuned for part 2!

About our guest

Todd Schweitzer is Co-founder and CEO at Brankas. Todd has held senior roles in private equity and management consulting, spanning technology, public sector, and financial services. He holds dual Bachelor’s degrees with honors in Economics and International Studies from the University of California, Irvine, and a Master’s in Public Policy from Harvard University’s Kennedy School of Government with a focus on economic development policy.

The content of this podcast is for informational purposes only, should not be taken as legal, tax, or business advice or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any ⁠⁠⁠⁠⁠⁠Insignia Ventures⁠⁠⁠⁠⁠⁠ fund.

Transcript

Paulo: It’s been a while since we’ve had you on the show, having this one-on-one conversation. And I’m sure for our listeners, especially those who are tuning in, who hadn’t been able to catch up on that last episode, they’re pretty new to Brankas. So maybe you can give a fresh reintroduction to the company and yourself as well.

Todd: Sure. Thank you, Paulo. And thank you to the Insignia team. 

So Brankas is a financial technology company that focuses on the infrastructure kind of behind the scenes to enable next-generation digital banking. So a lot of the terms that you may have heard, like open finance, open banking, embedded finance, banking as a service, a lot of new terminology, but it’s really all part of the same trend, which is financial institutions, building new technology through APIs and other tools. 

So that they can plug in financial products on third-party apps. Now, what that means in more layman’s terms is there’s more and more financial institutions that are looking to partner with tech companies that already have a group of users. 

And those users could be a certain type of consumer or could be a certain type of small business. It could be a particular function within a business like the finance team or the HR team. It could be anything from drivers for a ride-sharing app to an HR platform to an aquaculture, e-fishery small business platform in Indonesia. 

And these are companies that are not necessarily fintechs themselves, but because they have a trusted user base and because they have a lot of data on those users, they become an awesome way for banks and non-bank financial institutions to actually distribute and access that customer base by partnering with these tech companies. 

Again, depending on whether, where the regulations are at, or depending on who you talk to, this trend can be called embedded finance, banking as a service, or open banking, open finance, but it’s really all the same principle. 

So what does Brankas do? First of all, we provide the connectivity between banks and financial institutions to these third-party apps because a lot of these apps, They’re focused on their core business. They’re focused on managing their users and their core product. They want to offer financial services inside their product. But they’re not necessarily eager to go through long, detailed integration with each bank partner one on one. 

And frankly, they may not even be having I.T. or regulatory compliance to actually enable that connection because more and more of these banking as a service integrations require a bit of licensing or registration. 

So on the one hand, Brankas simplifies that for the user. So we take on a lot of the regulatory burden around data handling and other requirements to make it a super simple, easy onboarding process for the tech companies that want embedded finance plugged in. 

And we’re agnostic, by the way, we don’t just partner with one bank to do one product. Our customers have a way to pick and choose the institutions they want for different products and they can really mix and match, which is really valuable to them. 

On the other side of the marketplace are the financial institutions that are looking to publish API products to do exactly what I just described. So we’re in a place in Southeast Asia where the first mover banks and financial institutions have already launched some initial API products, maybe to support payments or KYC (know your customer) and identity products, but the vast majority are trying to figure out how and what to build. 

But the proof point is already there from their competitor banks, actually. And so a lot of institutions are looking for an expert technology partner that can help them actually become a supplier of these APIs that enables them to partner more deeply with tech companies. 

So that’s what we do. On the one hand, we work with tech companies and consumer and SME apps that are looking to have financial services integrations and then we also work with the banks themselves to become suppliers of these products and together with that, that creates a marketplace where you have the institutions on one side and the tech companies on the other and Brankas is making it much easier for those two groups to connect. 

So we started in Indonesia, then we expanded to the Philippines. We’re now in Vietnam, Thailand, and in 2023, we expanded into the Middle East. Particularly Bahrain, UAE, and the Kingdom of Saudi Arabia. So maybe we can talk about that later, but yeah, that’s the summary of Brankas today.

Opportunities for Open Finance in Southeast Asia: SME and Migrant Worker Banking

Paulo: One of our colleagues used to say it’s like a supermarket and you guys are really, especially as fintech becomes more in some ways commoditized and a lot more accessible, trying to manage the supply and demand and making it easier for, as you mentioned, not just fintechs, but any tech company to plug in the services and also the institutions to be able to create those services for other companies to use. 

So given these two sides of that marketplace that you talked about what are sort of the shifts or trends that you’ve seen from 2023 going into 2024 maybe across different markets — as you did mention, you’re in Indonesia, Philippines we’ll talk about the Middle East later on — but maybe within Southeast Asia first, what are some of the trends that you’ve seen in the update for these services?

On Indonesia

Todd: So Indonesia is interesting. I think in Indonesia, we’re moving to next-generation digital banking and embedded finance. And what I mean is, Indonesia has had the benefit of a lot of venture capital, some [successful] entrepreneurs, some real success stories. And, as you and I know, the tech sector in Indonesia is thriving. 

Also, the large banks in Indonesia that would otherwise, even maybe three or four years ago, were still pretty comfortable with the scale that they had, I think, particularly in consumer and SME, they’re feeling the pressure from and feeling a real competitor from digital banks as well as non-bank tech companies. 

So in Indonesia, it’s not about version one. How do we go digital? How do we offer certain payment API products? I think a lot of that infrastructure is in place where we see the biggest trend in Indonesia in the open finance banking as a service realm is small and medium enterprise solutions. So banks are thinking about how they use the lessons learned on the consumer side and the digital banking side to have really good SME banking experiences. 

And SME is an interesting segment because these are companies, either sole proprietorships to really medium-sized, very healthy companies but data availability on these companies is pretty weak. It does today take a lot of human intervention and kind of staff at the bank evaluating each loan proposal, for example. 

But a lot of these businesses, particularly the smaller side of these small businesses, may be a very healthy business, but the size of the revenue that small business generates for the bank is not justifying having a whole team of people work on it. 

So if a bank is serving a large corporation, they can have a dedicated relationship manager and a whole team. But if it’s a small business, a small shop owner, auto mechanic shopper, a small retail store that needs working capital financing or that wants to renovate their storefront or something like that, it sounds pretty straightforward, but the economics start to fall apart when you have a bunch of human reviewers and you have multiple weeks of review. 

And so I think in Indonesia, the opportunity is, and where we see the most interest from our bank partners, especially is solving SME banking by providing APIs that connect the business unit of a bank to tech companies that are solving another need non-financial for SMEs.

And so connecting those two where you can have embedded credit and payments and maybe trade facilitation, cross border payments inside that third-party app is going to be really valuable and it makes for a much more profitable and a better customer experience for SME banking. 

So that’s where we see a lot of exciting activity. And also in Indonesia, the SMEs are the backbone of the economy. It’s a disproportionate share of GDP, and it’s really the driver for economic growth. It’s something that I’m proud of, that we’re, in a small way, contributing to that economic growth.

On the Philippines

In the Philippines, let’s say it’s a bit behind Indonesia, but there is, I think, a waking up that’s happening. 

The regulators, whether it’s the Central Bank of the Philippines, the BSP, or whether it’s the SEC that regulates consumer finance companies, or the National Privacy Commission — it’s I think one of the first in its kind in Southeast Asia that actually has a dedicated government-wide industry-agnostic data protection, data handling regulator — they are all on their own and there’s a bit of bit more coordination now developing standards and rules around open finance. 

So we’re seeing a lot more top down rules of the road, which is a good thing, because when it’s unregulated, a lot of the more conservative institutions will stay behind and wait for clarity. So I think there’s a lot more clarity. Now at the same time, the banks are waking up to the need to be a bit more thoughtful about consumer digital banking and recognizing that they need to rethink customer experience there, and partly that’s driven by the likes of GCash, for example.

It’s partly driven by the fact that there are now licensed digital banks that can actually move a bit faster than the large universal banks. I can’t say too much about the startup community yet because, the Philippines, as you would know, Paulo, you’re based here in Manila like I am. 

I think the Philippines is still waiting for its huge success stories for startups, big exit and big, successful, institutional kind of tech companies in a way that Indonesia has already had. Indonesia has several of its tech unicorns that have IPO locally or abroad or that have had big exits. 

And in the Philippines, we’re still waiting on that. So the startup industry is still nascent, but there’s some great companies early in the growth stage. And on the institutional side, I think the banks are investing a lot. So the ecosystem is developing, I would say, in the Philippines, but we’re seeing it developing from a lot more sides than we did before.

Paulo: I think in Indonesia, you did mention you had the benefit of a thriving startup ecosystem, a lot of SME enablers, which could serve as your pool of third parties to work with. For the Philippines and maybe even Vietnam and Thailand, where I guess it’s a little bit more behind, are you thinking about other types of third parties to work with or are you seeing other potential use cases?

Todd: Yeah, it’s interesting. The opportunity I’m always looking at is serving migrant workers. One characteristic across Southeast Asia is there are just so many migrant workers, whether it is Indonesians working as domestic workers in Hong Kong or it’s the Myanmar, Burmese diaspora in Thailand, of which I think there are half a million just in Bangkok alone.

And so Southeast Asia is a hub globally for looking at innovation in overseas migrant worker financial solutions. And of course, remittances are a big part of it. There’s still a lot to be solved there and a lot of inefficiency. 

But it’s things like overseas banking and being able to actually have, if you’re an Indonesian in Hong Kong, being able to have a local Indonesian account where you can use that account in some ways while in Hong Kong, or whether it’s an overseas Filipino in Bahrain that wants to actually guarantee a loan back in their home province in the Philippines and wants to be able to share their income data and their identity data for their job in Bahrain, that it can serve as justification for them being the guarantor in the Philippines. 

They sound like very esoteric, nerdy stuff, but it’s actually fundamental and a key part of the economy in Southeast Asia. So there’s a lot of lessons that can be learned and problems to be solved when you join together the migrant worker conditions with this new open finance trend.

The Tradeoffs for Tech Companies Integrating Financial Services

Paulo: And I think that definitely opens up the partners that you might have. It goes beyond Southeast Asia. You’re talking about Bahrain, you’re talking about Hong Kong, and all these other places where banks could partner with you guys to actually service people within the region as well. 

And I think another point that was brought up from the trends that you spoke about when it comes to open finances. There’s definitely blurring lines between fintechs and banks. I think in Indonesia there’s a lot more acquisitions. So what is Brankas’s role in all of these blurring lines? And what is the impact in banking experiences for consumers and businesses? 

Todd: You’re right. So I agree with your premise. The lines are blurring. And not just that, there’s crossover. So there’s large tech companies that have acquired a bank or that have acquired an e-wallet, or a consumer finance company or a vehicle lending company or a remittance company. 

You’re seeing a lot of these where tech companies start to become banks. You see a little bit on the other side, where banks are looking to do non-financial services. But primarily techs are creeping into the financial sector. 

I think the big dilemma and where Brankas supports our customers and partners here is. It’s important, whether it’s a kind of a traditional bank or a tech company that’s recently acquired or had done some sort of joint venture with a bank, important for them to decide to choose how they’re going to play. And what do I mean by that? 

One option is — so I’m a large tech company. I have a great data set on my consumer user population. I should start offering financial services directly to the consumers, and then I can generate more revenue per consumer and increase my valuation and all that. 

And so then I can acquire a banking license and or a lending license and just serve that user base directly. And then I’m sure I have lots of financial projections about how great that looks in terms of revenue and that’s a great strategy and there’s a lot of companies that have pursued that strategy. 

The trade-off of that strategy is financial institutions will be left willing to partner with you, with me if I’m that company. Because I’m now putting a stake in the ground that I can do everything top to bottom and, I’m going to make the most of my customer base.

The option two is that you focus on being the tech company and managing the user base that you built your product around and you work with financial institutions that are specialists in a certain type of product that serves your customer base. And you do a partnership that allows for you to be the distributor of those financial products to your customer. 

The trade-off there is you’re doing revenue share. You’re giving up some margin. And maybe there’s a risk that that financial institution starts selling directly to your customer base. But the benefit is that you can pick and choose the financial service providers that are the best in their industry at serving your customer base. So these are the tradeoffs that you need to make. 

And I think I’m not suggesting one or the other. It really depends on where you think your strengths are but I think not being clear about the tradeoffs then trying to do an in-between strategy is going to result in some tough decisions down the road. 

As the lines are blurring, it becomes even more important to say, here is my DNA and here’s my best way to play. And this is the bet I’m going to make. 

Paulo: And I think even as it may sound appealing from a revenue standpoint, maybe to build your own internal financial services. function or business unit. But I don’t think unless you have a certain scale or a certain sort of war chest, it may be quite complicated, which makes services like Brankas’s a lot more compelling, especially if you do want to focus just on what you’re building.

Todd: And that’s a great point. Fundraising, as you would know, Paulo, is much more difficult today than it was two years ago. If you are a tech company that is going into financial services, the amount of money you need to spend, the reserve requirements you need, the regulatory costs associated with this. It’s no joke. 

And so what you thought was a pretty lean business can become a very cost-heavy business very quickly. And I know of some companies that are in trouble because they made big moves into becoming their own financial service provider and it is likely that they were overly optimistic about what the real day-to-day costs of that would be. And now they need to make tough decisions. And that asset may even be dormant because they’re not able to sustain it.

Maturing Banking Experiences in Southeast Asia

Paulo: And then speaking to the other side of the equation there with banks as well. Brankas recently documented the banking performance of several banks in the Philippines and Indonesia and it’s a bank stability report. 

Maybe you can share a little bit about the motivation behind that report and how this factors into this whole conversation that we’ve been having about blurring lines between tech companies and banks.

Todd: So part of Brankas’ day-to-day operations is monitoring uptime performance of our bank partners because we’re connected to their APIs. And we’re monitoring their online banking websites and their mobile apps. 

Because for our customers, we need to have some indicator before the customer tries to do a transaction. We need to know ahead of time, if at all possible, whether that bank is down and not able to process the transaction or not able to have a customer log in. 

And so this is part of our day-to-day operations in order to provide a better customer experience, because you don’t want a customer to go through the whole operation to complete a payment at an e-commerce shop where they’re paying by bank, powered by Brankas, for example, or they’re topping up an e-wallet powered by Brankas. And only at the last step when they’re confirming the transaction, they find out that the bank is offline. 

Now it’s interesting that in a place like Singapore the Monetary Authority requires banks to have no more than four hours of downtime per year. And you just saw in the news recently that DBS in Singapore, because they had a massive one single downtime event but significant earlier this year. All the executives took a pay cut, including the CEO took a 30 percent pay cut, or was forced to take a 30 percent pay cut by the board, presumably, because of this downtime. 

Meanwhile, in the Philippines and Indonesia, we’re seeing banks that have downtimes in the 8-10% of its whole operating time over the year. But there are some great performers too that have 99 percent or more uptime for the year. 

The reason why we published this report is we want to introduce a bit of transparency and accountability. I don’t claim that the stability report is a perfectly scientific view, and we didn’t cover all the banks. It’s only the ones where we have partnerships and have access to this data. But it’s a way of celebrating those banks that are doing the right things in terms of being a reliable digital channel for their customers. And also calling some accountability for those that have had downtime events. 

There was one bank that had a 20-hour downtime in a single instance which is significant when you expect and you rely on a bank to be available 24/7 on the mobile app or website to serve your needs. It’s not intending to call out or point fingers at any certain banks, but it is meant to start a conversation. About what customers should expect from their banks. 

So this is just the first version and an early step. But I think one of the indicators that this is well-received is we’ve had a lot of responsiveness from our bank partners and from banks that weren’t included in the report are particularly proud of their reliability. 

So there’s one digital bank in particular where they contacted me and said, “Hey, we are proud that we’ve had such reliable stability over the last year. Can you please include us in the next report?” 

So that’s really the fact that banks see reliability and uptime as a differentiator is a great signal that I think we should be doing more of this and bringing transparency and actually banks offering this as a point of differentiation to their consumers, “Hey, use our digital bank because we will be there when you need us 24/7, 365.” 

That’s why we did the report. We’ll certainly do future additions and looking forward to the responses from users and from the banking community. 

Southeast Asia’s Developing Open Finance Regulation

Paulo: Excited to see how many more banks you guys are able to document in the next report. 

And I think, that will definitely maybe even influence the way regulators look at banks as well and try to set expectations as Singapore has. 

And speaking of regulators and governments, you mentioned in our first podcast two years ago that you’ve taken an educational route in some ways, working a lot with the regulators to build up these frameworks to introduce open finance.

How have these regulatory relationships evolved over the past two years especially going into licenses? You did mention earlier that a lot of your services that are available to third parties are dependent on what the regulatory developments are within that market. So maybe you can shed more light on that.

Todd: Open finance and financial services APIs — this is brand new regulation and not just in Indonesia or the Philippines. This is new everywhere. 

Open banking itself is really six years old. 2018 in the UK was the first market globally. And this is a brand new domain for regulators across the globe, and one thing I’ve learned over the last several years is when you’re dealing with newly chartered regulations and newly charted territory it’s actually important for the industry participants to be contributors to the regulations as they’re being written, literally. 

And that can happen by really number one, being an open book for the regulator and saying we’re happy to have a consultative meeting. Anytime we can share updates, written updates are in a meeting our recommendations on what we think is going to build trust in the industry. We can do that as a company. 

We can do that through industry associations like FinTech associations or association of data protection officers or even through a chamber of commerce. So where we’re speaking on behalf of the industry and in the spirit of a kind of healthy, secure and competitive industry here. So I think that’s been critical. 

And even over the last few years, the regulations have evolved. So Indonesia has, for payments, produced a new set of licenses for different types of payment providers. One of the categories includes those that are not direct payment providers but that are providing the API connections. So Brankas has secured two different licenses from the Bank of Indonesia for that. 

Likewise in the Philippines, there are some pilot initiatives from the central bank but then there are also ad hoc licensing and regulations and registrations, different terms for different industries where you can participate in a regulatory sandbox, which is a vehicle for the regulator to give some kind of ad hoc approval, even if there’s not a crystal clear license for that type of business. 

So anyway, so it gets very complex very quickly, but the key thing is if you’re in it, and my advice to other founders is if you’re in a new industry that where the regulations are being written as we speak, and it’s not an established industry, it’s very important to be proactive with your regulators. 

Demonstrate that you are willing to and eager to contribute as an industry player as one data input into their decision making. If it’s done through the right channels and appropriately and in as much of an unbiased way as possible, I think it’s usually received very well by the authorities.

Paulo: Yeah, and it can definitely be a strong competitive advantage as well, especially if you’re one of the first players in that market to engage with regulators.