With a digital economy worth US$82 billion in 2023 and expected to reach US$110 billion in 2025, the role and value of digital financial services in Indonesia continues to grow. 

But funding into fintech in the last two quarters this year (>US$500 million) still remains less than Q1 in 2023 (US$1.4 billion), driving more pressure for fintechs to find more definitive growth strategies that are not dependent on external funding while still being able to compete with more well-funded players.  

Ahead of tomorrow’s podcast continuing our conversation with Fazz’s Mark Hew, we recap this past Season 6’s insights into fintech in Indonesia in 2024, a theme that has dominated our calls thus far this year.

(1) Maturing unbanked and underbanked consumer behavior in Indonesia when it comes to what they “outsource” to fintech. 

Where the unbanked and underbanked in rural Indonesia previously needed to “outsource” payments, and this is where digital financial services platforms like Fazz Agen’s stepped in, end users have today shifted in their motivation for leveraging these offline-to-online platforms. Instead of “outsourcing” payments, they prefer to just “outsource” topping up their e-wallets and making the transactions themselves. 

“The trend of converting cash to e-money has shifted to where they just want to top up their e-wallets instead of making purchases directly.” – Fazz Head of Payments and Agents Business, Chief of Staff Mark Hew

This has presented Fazz with an opportunity, with their existing API infrastructure and licenses, to serve as the technology powering not just e-wallet top-ups and PPOB transactions, but transactions across other financial service platforms, which they have begun to do already with “some of the big names in Indonesia, like Blibli, Brick, Bukalapak, and Flip.”

This means an evolution in the role of their agent network, one of the largest in the country, in th Fazz business model. 

“While people might think of the agent network as our core product, I see it as a testbed for us. If we can effectively serve our own agent network, which is one of the largest in Indonesia, then we can serve any other company, regardless of their business model.” – Fazz Head of Payments and Agents Business, Chief of Staff Mark Hew

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(2) Still massive billion dollar flows left untapped in the traditional FMCG supply chain in Indonesia for best in class lending fintech. 

The traditional FMCG supply chain alone, sans modern retail and Alfamarts, already sees hundred billion worth of inventory flowing through three levels of supply chain, amounting to US$300 billion worth of flows that can be financed by platforms like AwanTunai, which have built their business around scalable risk management on digitized inventory management. 

“So obviously there’s a lot of banks and SME banks and other fintechs already in the space, but there still is a lending gap of about US$50 billion in total assets, which we can easily look to solve. 

Now our lending is to the traditional FMCG suppliers, which are basically the backbone of the Indonesian economy. These are the staple goods, the daily necessity goods. And what we have come to realize is with our ERP plugin solutions, we can detect patterns in this particular industry. 

And just within this industry, we can easily grow to a US$10 billion loan book without having to change either the product or the industry. So what we see in terms of growth is loan book growth and regional expansion in Indonesia.” – AwanTunai CFO Shilpa Gautam

This belief in the potential of the market extends not only to AwanTunai but their lenders as well, which have seen an increase in participation from local Indonesian banks and global banks with Indonesian branches.

“When I joined AwanTunai, there were three lenders. We had one large private credit fund and we had two Indonesian banks. Today we have over nine Indonesian banks. We have global banks which are going to deploy to their Indonesian branch, and we’ve got private credit institutions lined up.” – AwanTunai CFO Shilpa Gautam

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(3) Improving the ability of SMEs in Indonesia to access financing through open finance APIs marrying data sources (tech companies) with capital sources (banks), as both tech companies and banks embrace digital financial services into their operating models.

Expanding the ability of banks to lend to SMEs goes beyond the traditional FMCG space. More of this potential can be unlocked with open finance banking. 

“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.

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.” – Brankas CEO and co-founder Todd Schweitzer

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(4) Enhancing Indonesian rupiah participation in global trade through stablecoin-powered atomic settlement.

One of the biggest opportunities presented by an ecosystem of regulatory compliant stablecoins like StraitsX’s with XSGD, XIDR, and XUSD, is the ability to do direct FX swaps across these currencies, reducing costs and increasing speeds of cross-border transactions. 

“You want to defend your local currency, but the truth of the world is that 90 percent of the global trade is still settled in US dollars. 

The FX that you have when you’re going overseas. Some countries have bilateral agreements like Singapore does with Indonesia. We can just do a direct FX swap between Singaporean dollars and Indonesian rupiah. But a lot of other currencies are actually still settled through US dollars.

And beyond the Singapore dollars, the licenses also mean to say that we are not just talking about a Singaporean dollar stablecoin or Indonesian rupiah stablecoin, which is XIDR, which we launched about two years ago.”

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(5) Competitive lines for fintechs, apps, and banks in Indonesia being drawn across what users can do with “stored value”, not just adoption

As more Indonesians adopt ewallets and (digital) banking accounts, competition is not just about driving adoption, but retaining usage of the “stored value” of customers in these ewallets and banking accounts. 

“If you see in Indonesia as well, most larger fintechs or super apps have a banking part to it as well. Banking is getting embedded into the whole experience. So I think that’s how I see 2024 and beyond where I think neobanks alone find it very hard to scale. So that’s why everyone is getting associated with let’s say a larger ecosystem. 

So that is a kind of theme which I see playing as well because with FinTech and banking merging that way, users will get a better experience in terms of the money they are storing and store value as well.

That redefines how people look at FinTech. So once a baseline is set, others start to do the same thing. So your differentiation or competitive advantage, I don’t think lasts very long in the tech world.” – Flip VP of Product Sourabh Gupta

One example of how Flip has expanded the value of user “stored value” is through the ability to facilitate international transfers for both businesses and consumers. They are able to expand this value more easily with infrastructure that can be extended to other use cases as well. 

“So all of this infrastructure, which we built with partner integrations, et cetera, and orchestration on top of it for consumers, we extended that to the business side as well, because similar to consumers, businesses also have a need to, let’s say, do international transfers. They will have, let’s say, vendor payments and purchasing outside of Indonesia. 

And it’s still an early phase. So we still are trying to find a product market fit there. But on the consumer side the product market fit exists. What is interesting is that within the Indonesian user segment we have a very good presence.” – Flip VP of Product Sourabh Gupta

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