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Fintech Can Help Underbanked Indonesians Enter the Digital Age

There are roughly 200 million unbanked adults in Southeast Asia, around half of the region’s total population, according to research. Furthermore, about 90 million can be classified as underbanked in that they have bank accounts, but no other financial products like insurance, credit, or investments. And it stands to reason that millions of the region’s businesses are similarly financially strained.

Indonesia's banking statistics are even more dire, with 140 million people (more than 70% of the adult population) either unbanked or underbanked. And that's mainly because servicing a low-income nation consisting of 17,000 islands through traditional physical banking systems was never going to be viable. However, fintech activity in Indonesia has ramped up recently. And now, the country looks set to become a textbook example of a "leapfrogging market" where traditional banking structures are entirely bypassed. Instead, customers progress straight to mobile apps and digital payments.

Latest Indonesian fintech activity

The past few months in Indonesian fintech have been characterized by sizable startup venture capital rounds, a ramp-up of local startups, and increased participation by foreign players. The following are notable fundraising transactions.

AwanTunai raised $11.2 million

AwanTunai, a Jakarta-based startup, raised about $11.2 million in August through a new funding round by investor Insignia Ventures Partners. AwanTunai is a point-of-sale financing solution, which provides a comprehensive financing solution for micro-merchants like grocery stores, mechanics’ garages, electronics retailers, and pharmacies. Focused on digitizing the country’s cash economy, AwanTunai’s digital distribution platform allows its merchants to access working capital and accept payment from AwanTunai consumer credit. The startup also issues mobile-based consumer credit to the millions of Indonesians without access to traditional banking products. In addition, it provides consumer financing to its merchants’ customers to drive sales.

Digital Payments Holdings raised $44.47 million in Series A funding

In July, the operators of OY! Indonesia, Digital Payments Holdings, raised $44.47 million in its Series A funding round. OY! Indonesia is aimed at enterprise clients and provides them with products like SMS-based collection services, bulk disbursements, payment checkout, and disbursement APIs.

Wagely raised $5.6 million

Wagely allows workers to withdraw their earnings on-demand before payday. The earned wage access (EWA) startup expects to reach a quarter-million users this year and raised $5.6 million in June. Integra Partners led the strategic investment round with participation from the Asian Development Bank's venture arm and others. It will help the organization to build a holistic financial wellness platform for low- to middle-income workers.

Komunal raised $2.1 million in Series A funding

Komunal offers neo-rural banking services. The 2019 startup has received $2.1 million in its Series A round of funding led by East Ventures with participation from Skystar Capital (both also seed investors in Komunal.) The funds will be used to enhance the DepositoBPR product, which enables societies nationwide to access the government-guaranteed deposit rates without visiting a bank. DepositoBPR has recently been regulated under an official license from Financial Services Authority, making Komunal the first authorized funding agent in Indonesia.

Ayoconnect raised $5 million in pre-Series B funding

Ayoconnect (previously known as Ayopop) is a financial API developer platform that has experienced rapid adoption of its product by over a hundred Indonesian companies ranging from banks to retailers and other tech startups. A $5 million pre-Series B funding round takes its total capital to over $10 million. Existing investors Finch Capital and Amand Ventures participated, in addition to new investors including Kakaku.com, Brama One Ventures, and Indonesian government-owned Bank BRI’s corporate venture capital wing.

Xendit raises $150 million Series C funding.

Xendit, a Y Combinator alumnus that is best known for its digital payment infrastructure, as well as other financial products, has raised $150 million in Series C funding. The round led by Tiger Global Management, with participation from returning investors, takes Xendit’s valuation to $1 billion, adding it to Indonesia's growing list of unicorns.

Ajaib raises $243 million

Ajaib, a stock and mutual fund investment platform, has just raised $153 million in its Series B funding after a $90 million Series A round earlier this year. The funding pushes the startup to unicorn status. Ajaib has over a million of Indonesia’s total 2.7 million stock investors as its clients. And it plans to use the new funds to recruit talent and launch financial literacy campaigns to attract new clients.

Foreign fintechs in Indonesia

Increasingly, foreign fintechs are trying to establish themselves in the Indonesian market. They include British paytech company PPRO, which has recently integrated two of Indonesia's most popular payment methods into its platform. And Experian, a leading global information services company, has partnered with Indonesian telecommunications provider 3 Indonesia to achieve financial inclusion in Indonesia. The collaboration will enable credit assessment via ready-to-use alternative data with adaptive learning. And US-based Logiq, a provider of e-commerce and fintech business solutions, shared that it will soon launch a new super-app in Indonesia.

The Indonesian government is strongly encouraging the digitalization of the nation’s financial services industry, listing it as one of its top priorities in December 2020. New regulations were introduced in August to smooth the process of establishing digital banks. They permit near-full foreign ownership of local lenders and significantly reduce the administrative burden for new services.

Indonesia has the largest economy in Southeast Asia, and its e-commerce market is estimated at $43 billion this year. In addition, its digital financial services market is anticipated to reach $8.6 billion by 2025.

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