Offline Programs are Getting Tech Players More Customers in Indonesia

In a small 2×2 meter kiosk along Jakarta’s Radio Dalam street, Romana provides digital payment services to her customers by using the GrabKios platform. She offers several services, including phone credit top-ups, OVO credit-top ups, bill payments, and domestic remittance services for customers. The 37-year old has used GrabKios [previously named Kudo] since 2017.

Since becoming a GrabKios agent, Romana has been able to complete transactions totaling a maximum of IDR 20 million (USD 1,427) a month, compared to below IDR 10 million a month previously as a phone credit seller before joining GrabKios. Her income is largely derived from selling phone credit, and facilitating bill payments, as well as domestic remittances.

“The profit is not big, it ranges from IDR 500 to IDR 13,500 (USD 0.04 to USD 0.96) per transaction, depending on the service. Compared to other players’ products, GrabKios is much cheaper and easier to use,” Romana said.

She admitted that she did not have a banking account in the past and used to pay via Indomaret, an Indonesian convenience store chain, before she joined GrabKios. However, after becoming an agent, she opened a bank account, which has made it easier for her to perform transactions.

Meanwhile, Rofiatun, a mother of three, joined Tokopedia’s offline agent program Mitra Tokopedia in 2o18. Mitra Tokopedia empowers agents operating small kiosks or mom-and-pop stores by helping them use Tokopedia’s platform to increase their product sales. By becoming an offline agent, Rofiatun has been able to purchase products such as snacks and beverages at slightly lower prices for her kiosk.

“Although the product prices are quite similar or slightly cheaper than those from traditional distributors, I can use the profits for my children’s allowances. This way, I can help my husband who works as a Grab driver, to earn more income. Moreover, I can transfer money to my family, even in small denominations, on my own,” Rofiatun told KrASIA.

People such as Romana and Rofiatun, who belong to the middle-to-low income segment, may not have tapped digital platforms if these services had not directly benefitted their lives.

Indonesia is the largest internet economy and most populous country in Southeast Asia. The country’s internet economy is estimated to be worth USD 40 billion in 2019.

More than half of the country’s total adult population are now using mobile internet. Furthermore, according to the Global Digital 2019 report from We Are Social and Hootsuite, Indonesia is also among the top countries in the world by mobile internet usage. Its users are connected to mobile internet for approximately four hours a day, while the global average is three hours and 13 minutes.

However, few Indonesian users use mobile internet for productivity, the report said.

Empowering kiosk operators to reach more customers

Empowering warungs [mom-and-pop stores] and small kiosks has become a way for e-commerce and tech players to reach more customers, especially those who are from the middle-to-low income segment, and who mostly do all their transactions offline.

“The offline retail portion in Indonesia is still huge. Indonesia retail e-commerce is below 4% of the country’s total retail sales. The remaining 96% is still offline. Hence, we believe an agent network is the most effective model to capture this market,” said Agung Nugroho, chief executive officer and co-founder of GrabKios.

He added that using technology alone makes it impossible to reach middle and low income earners, who are less technologically savvy. Through warungs, the firm expects that technology will penetrate this segment.

Nugroho added that he is doing this because he believes in helping people through financial inclusion.

Kudo [before becoming GrabKios] was a pioneer in empowering traditional retailers since 2014, prior to merging with Grab in 2017. It was founded by Albert Lucius and Agung Nugroho. Today, GrabKios is available in 505 towns and regions, with 2.6 million users across Indonesia.

GrabKios approaches agent candidates through sales or marketing staff, so it is easier to earn the trust of the locals. Nugroho said that there are no specific requirements to become an agent, apart from the fact that candidates should have a warung or kiosk for selling products.

GrabKios equips the warung owner or agent with technology to help the agent’s customers order goods and manage transactions. Moreover, the agent program offers some additional business opportunities, such as airtime top-ups, bill payments, travel tickets, money transfers, and the registration of Grab driver-partners. The company claims that a warung’s revenue increases by as much as 30%–40% after adopting its system.

E-commerce unicorns have joined the fray

Many tech players are entering the middle and low income segment, which has room still to grow. Therefore, other tech companies including e-commerce unicorn players don’t want to miss out on the market.

SoftBank Group-backed Tokopedia and Shinhan Financial Group-backed Bukalapak entered the offline world last year. The platforms named their agent programs ‘Mitra Tokopedia’ and ‘Mitra Bukalapak’, respectively.

Tokopedia’s assistant vice president of new retail Adi Putra said that Mitra Tokopedia complements its existing consumer base, and expects to eventually serve the full range of customers that the platform can reach.

“We hope Mitra Tokopedia bridges the online and offline world for partners spread across various cities in Indonesia while preserving Indonesia’s neighborhood-based culture. Synthesizing both online and offline retail will result in powerful synergy, that will help achieve the mission of democratizing commerce in Indonesia through technology,” Putra told KrASIA.

As of October 2019, there are around 350,000 active Mitra agents for the platform. Putra said that Tokopedia’s 30 digital products will gradually be made available to Mitra Tokopedia partners, thus encouraging traditional retail players to contribute more to Indonesia’s digital economy.

Edward Buckingham, a professor of management and director of engagement at Monash Business School said that engaging with agents is an effective way for tech and e-commerce players to penetrate rural areas.

“The cost of logistics and transactions to reach them [rural areas] is high, but if they partner with local people or get them to become agents, especially those who have good social networks, it will be easier. The agent can become the bridge, and the solution between the informal and formal economies,” Buckingham told reporters on the sidelines of the Fintech Summit in Jakarta, in September.

Furthermore, tech players should be able to successfully prove that their business models are more efficient than that of other players. They also need to provide opportunities to their customers [agents] to use their networks to increase the latter’s standard of living.

However, Buckingham foresees that empowering agents will not be a long-term plan for tech players. He thinks Indonesians will be tech savvier in the near future. Hence, customers will not need agents as the middlemen for connecting with companies. They will eventually reach out to companies directly, hence tech players’ business models need to evolve.

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This article first appeared on KrASIA. It’s republished here as part of our partnership.

Mengedepankan Pasar Lokal: Presiden Tokopedia Patrick Cao Berbicara tentang Rencana IPO dan Strategi Bisnis

Platform e-commerce terbesar di Indonesia, Tokopedia, memasuki dekade keduanya. Di ulang tahun ke-10, perusahaan menyatakan ambisinya untuk menjadi “super ecosystem” untuk konsumer dan bisnis lokal. Berdasarkan riset terbaru oleh LPEM FEB UI, Tokopedia diproyeksi akan berkontribusi sebanyak $12 miliar pada ekonomi Indonesia tahun ini, dari sisi nilai transaksi, lapangan kerja, serta meningkatnya pemasukan penjual di seluruh pelosok.

Perusahaan membuat gempar dengan pernyataan CEO dan Co-foundernya, William Tanuwijaya, tentang rencana mereka untuk IPO dalam beberapa tahun ke depan. Hal ini diterima dengan baik oleh publik serta para analis, melihat rekam jejak positif perusahaan dalam dunia ekonomi digital Indonesia. Hal ini diharapkan bisa mengajak perusahaan lain untuk mengikuti jejaknya.

KrASIA belum lama ini berbincang dengan Presiden Tokopedia, Patrick Cao untuk berdiskusi mengenai strategi bisnis perusahaan dan detail persiapan IPO.

KrASIA (Kr): William mengungkapkan di depan publik bahwa Tokopedia akan lebih fokus “go local” daripada berlomba-lomba dengan pemain lain untuk ke pasar internasional. Bisakah Anda menjelaskan sedikit tentang hal ini?

Patrick Cao (PC): Usaha Kecil Menengah (UKM) adalah tulang punggung ekonomi Indonesia. Sekarang, terdapat lebih dari 60 juta UKM di negara ini, dan kami berkontribusi untuk memberdayakan sekitar 6,6 juta bulan lalu. Selain membantu UKM yang sudah ada, kami juga menyalurkan gelombang baru UKM melalui platform ini. Menurut riset terbaru LPEM FEB UI, Tokopedia telah menciptakan 857.000 lapangan pekerjaan baru, mulai dari penjual aktif dari Aceh hingga Papua, sama dengan 10,3% dari total lapangan pekerjaan baru di Indonesia pada tahun 2018.

Saat ini kami memiliki 350.000 partner toko yang juga disebut Mitra. Kami mengembangkan teknologi dan platform untuk menyediakan layanan tambahan untuk mereka. Misalnya, kami membantu pengadaan lebih cepat melalui fitur grosir, dan menyediakan modal kerja untuk mempermudah mereka menambah inventaris. Kami membuat desain Mitra Tokopedia sederhana agar lebih mudah dicerna. Setelah satu tahun, aplikasi ini telah diunduh lebih dari dua juta pengguna Android.

Kr: Apakah perusahaan bekerja sama dengan pemerintah setempat terkait hal itu?

PC: Ya, kami sadar bahwa konsumer di desa kecil punya kebutuhan dan preferensi yang berbeda dengan konsumer yang berada di Jakarta, jadi kami melakukan personalisasi layanan untuk mereka. Bagi UKM, kami menyiapkan Tokopedia Center di setiap berbagai area dan desa terpencil. Sebuah pusat belajar dan pengalaman digital dimana UKM bisa belajar bagaimana berperan sebagai merchant, bagaimana mengelola aplikasi, membuat transaksi online-to-offline (O2O), menggunakan pembayaran serta layanan finansial digital, dan lainnya. Baru-baru ini, kami telah bekerja sama dengan pemerintah Jawa Barat untuk memperluas akses pemberdayaan ke area terpencil melalui beragam inisiatif, salah satunya adalah membuka Tokopedia Center di sebuah desa bernama Sukanagara. Kami sudah merencanakan untuk membangun dalam jumlah besar selama dua tahun ke depan.

Kr: Benarkah ada rencana ekspor produk dari merchant Tokopedia?

PC: Yang pertama dan utama, intensi kami adalah untuk membangun teknologi terbaik demi memberdayakan industri logistik dan pengadaan di Indonesia, serta memperbanyak partner. Karena itu kami memiliki data, trafik dan teknologi. Ketika sudah berhasil menjangkau seluruh Indonesia serta menghadirkan pengalaman setara di setiap sudut area, tidak menutup kemungkinan kami akan memperluas sisi logistik dan pengadaan untuk membantu mereka melakukan ekspor. Selain itu, kami juga akan lebih fokus untuk membangun pengalaman terbaik di Indonesia terlebih dahulu, itu saja sudah sebuah hal yang besar. Saat kami bisa mencapai tahap itu, ekspor bisa jadi pertimbangan.

Kr: Dengan lebih dari 90 juta pengguna aktif serta vertikal yang bervariasi, Tokopedia saat ini berada di tahap mana?

PC: Jujur, saya melihat: kami baru saja memulai. Jika Anda berpikir tentang metrik penetrasi, baik itu e-commerce, pembayaran digital, atau logistik dan pengadaan yang didukung teknologi di Indonesia, saya pikir kami, juga para pemain lain telah membangun bisnis yang luar biasa. Namun, jika Anda melihat posisi kami diantara pemain lain di Cina atau AS, jalan kami masih panjang. Kami masih jauh di belakang mereka. Jumlah transaksi kami terlihat besar menurut riset terkini, juga diproyeksikan dapat berkontribusi 1,5% dari total PDB negara. Namun, dibandingkan dengan total kontribusi perdagangan, jumlah ini masih rendah. Jadi, masih ada begitu banyak peluang dalam vertikal inti dan ruang besar untuk tumbuh.

Kr: Berita tentang rencana Tokopedia untuk IPO telah menyebar di media beberapa bulan terakhir. Bisakah anda bercerita sedikit mengenai persiapan sejauh ini?

PC: Saya melihat hal ini sebagai pertumbuhan yang positif, karena itu berarti kami telah melampaui skala tertentu. Dari sisi persiapan, jujur, persiapan kami sangat lama. Sejak pertama kali saya bergabung sebagai CFO tiga tahun lalu, kami secara konsisten memastikan bahwa tata kelola perusahaan kami berada pada standar tertinggi di Indonesia, dan sesuai dengan standar praktik internasional. Saya pikir sangat penting bagi kami untuk listing di pasar Indonesia mengingat fokus yang terpusat pada lokal. Namun, dual listing menjadi sama penting untuk mengamankan akses ke likuiditas yang lebih besar. Di luar tata kerja infrastruktur, William dan saya berbicara tentang kondisi pasar saat ini, apakah ini saat yang tepat dengan mempertimbangkan volatilitas pasar, kondisi makro, dan sentimen, karena semua hal itu penting.

Di tahap akhir, dan mungkin yang paling penting adalah memahami kesehatan bisnis kita. Saya pikir kami telah melakukan banyak upaya untuk meningkatkan layanan yang memiliki nilai tambah bagi pedagang dan pelanggan kami, hal itu tercermin dalam tingkat klik yang mendorong pendapatan. Pada waktu bersamaan, kami sudah melakukan optimasi biaya untuk waktu yang cukup lama.

Saya yakin Anda mulai melihat pendekatan pasar yang lebih rasional dari pihak kami. Anda tidak akan melihat kami melakukan festival belanja besar seperti promo 11.11 atau 12.12 seperti pemain lain, karena menurut saya menjalankan promosi dua hari sebenarnya bukanlah hal yang sehat. Fokus inti kami adalah semua tentang inovasi produk untuk meningkatkan pengalaman pelanggan karena itulah cara Anda membangun bisnis yang berkelanjutan. Pada tahap ini, masuk akal bagi kami untuk mulai memikirkan IPO sebagai bukti validasi dari segala yang kami bangun dalam sepuluh tahun terakhir.

Kr: Apakah pernah terfikir untuk listing di pasar New York seperti Alibaba, yang juga adalah cerita sukses sebuah debut IPO?

PC: Perbedaan terbesar antara kami dan mereka adalah bahwa kami lebih mengutamakan listing lokal terlebih dahulu. Apakah kita memilih AS untuk target internasional, itu tergantung pada waktu listing dan kondisi pasar saat itu. Debut IPO sangat rumit tetapi saya beserta anggota tim telah mengantar sejumlah perusahaan go public di ventura sebelumnya. Jadi kita bisa belajar dari pengalaman, dan tentu saja, pengalaman pemegang saham — seperti Alibaba, Softbank, dan Sequoia, yang memiliki portofolio perusahaan yang telah sukses go public — juga akan membantu kita mengetahui waktu dan tempat yang tepat. Kami sangat menanti sampai di titik itu.

Patrick Cao, presiden Tokopedia / Tokopedia

Kr: Apa yang menjadi fokus bisnis Tokopedia di tahun depan dan seterusnya?

PC: Mari kita mulai dengan misi untuk mendemokratisasi teknologi perdagangan di Indonesia. Definisi perdagangan pada dasarnya sama, tetapi itu semua berevolusi. Pertama, untuk perdagangan barang fisik, kami jadi yang terbesar di negara ini. Kedua, kami membantu bisnis dan merek di dalam platform untuk bertumbuh dengan pesat. Yang ketiga adalah mengenai barang digital. Kami baru-baru ini mengumumkan kemitraan dengan pemerintah dalam meluncurkan fitur pembayaran untuk lebih dari 900 jenis layanan administrasi negara, termasuk pajak. Penting bagi kami untuk menjawab setiap kebutuhan orang Indonesia dan kami akan terus meningkatkan kualitas produk serta menjadikannya lebih seamless.

Terakhir, adalah untuk terus meningkatkan layanan lokal, itulah sebabnya saya merasa akuisisi Bridestory menjadi sangat penting di tahun ini. Pada dasarnya, kami membawa tim terbaik untuk membantu memperkuat layanan yang berfokus pada wanita seperti pernikahan, serta untuk ibu dan bayi. Saya merasa kami semakin meluas ke ranah rumah dan furnitur serta kebutuhan utama lainnya di masa depan.

Terlepas dari area perdagangan, hal lain yang akan terus kami lakukan adalah meningkatkan IaaS (layanan infrastruktur) yang menciptakan pengalaman yang lebih baik dalam menggunakan layanan commerce dimana logistik dan pengadaan membantu pedagang lebih cepat scale-up. Kami juga akan terus fokus pada pengembangan layanan keuangan dan pembayaran. Populasi yang terjangkau produk perbankan masih rendah, jadi kami ingin membuka potensi itu untuk mendukung ekosistem yang lebih besar, baik pedagang, pelanggan, atau mitra toko. Hal-hal tersebut akan terus menjadi fokus kami di tahun 2020 dan seterusnya.

Kr: Berbicara mengenai akuisisi, sudah menjadi hal yang lumrah ketika perusahaan teknologi besar mengakuisisi startup yang lebih kecil, kami merasa Bridestory bukan akan jadi akuisisi yang terakhir, apakah ada rencana ke depan yang bisa dibagikan?

PC: Bridestory adalah akuisisi penuh pertama kami. Hal ini tidak sering terjadi, karena biasanya, kami melakukan kemitraan dan mendukung pengusaha dengan memanfaatkan modal, data, dan teknologi. Bridestory, bagaimanapun, adalah pengecualian karena menurut kami integrasi penuh akan lebih baik untuk kedua perusahaan. Kami selalu mencari celah untuk memanfaatkan sumber daya demi mendukung perusahaan teknologi lainnya, tetapi mengenai akuisisi selanjutnya, itu semua tergantung dari keinginan keluarga besar [pemangku kepentingan], dan bagaimana hal itu akan menguntungkan kedua belah pihak, terutama dari perspektif strategis. Namun untuk saat ini, beluma ada yang bisa kami ungkapkan.

Kr: Selain fokus pada pengembangan inti bisnis, apa faktor lain yang berkontribusi dalam kesukesesan Tokopedia?

PC: Saya pikir fokus pada pasar Indonesia adalah suatu keuntungan. Kami tidak terganggu bahkan ketika pemain lain ekspansi secara regional atau global, karena kami menyadari bahwa ini bukanlah keahlian kami. Selama sepuluh tahun terakhir, kami telah berkompetisi dengan pemain lokal dan internasional, tetapi penetrasi dan pemahaman mendalam kami tentang pasar lokal sudah sangat menguntungkan sehingga belum ada rencana untuk ekspansi ke luar negeri.

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Artikel ini pertama kali dirilis oleh KrASIA. Kembali dirilis sebagai bagian dari kerja sama dengan DailySocial

Smart logistics is the Indonesian Digital Economy’s Up-and-Coming Sector

Although logistics is the backbone of domestic and international trade, the sector has faced various challenges in Indonesia, such as poor infrastructure, and the lack of reliable IT and communication networks.

According to Mordor Intelligence, logistics costs vary between 25% and 30% of the GDP in Indonesia, as compared to developed economies, where it is below 5%. This means that delivering goods from one city to another in Indonesia can be challenging and expensive.

As the e-commerce industry matures, logistics tech is now considered to be the next emerging industry following the expansion of Indonesia’s digital economy. The various challenges in logistics have attracted various investments to tech startups entering the space, with many of them raising significant funding this year.

According to Sebastian Togelang, founding partner of Kejora Ventures, logistics in Southeast Asia and Indonesia is developing at a robust pace. “In Indonesia, logistics is growing at a double-digit percentage year-on-year, for the past few years. The current trend indicates that logistics is expected to continue to flourish in the years to come in terms of investment and market size,” he told KrASIA.

As an investor, Togelang has plenty of faith in this industry. Earlier this year, Barito Teknologi and Kejora InterVest Growth Fund led a USD 50 million investment in logistics startup SiCepat Ekspres.

According to him, logistics is a key enabler of the internet economy, by playing a key role to ensure the movement of goods from merchants to consumers. Furthermore, to a certain extent, it involves payments between parties. Therefore, this sector will enjoy a sizable increase, based on the general development of the economy and internet economy. This makes it attractive to investors.

“When we talk about the whole logistics spectrum, the Southeast Asia market size is about USD 600 billion, depending on which reports you read. But my take would be that, anywhere in the world, logistics is the bloodline of the economy itself. Hence, I would like to see the logistic tech sectors riding on the wave of the region’s thriving economy,” Togelang continued.

Togelang believes that e-commerce is still at its infancy in Southeast Asia and that the sector will continue to expand more than fivefold in the next few years. And with Indonesia being the largest market and economy in the region, logistics in the country holds many opportunities.

This factor has made Togelang and his team in Kejora confident about their investment in SiCepat Ekspres, considered as one of the largest Series A investments in the region. In addition, the startup’s founders have a proven track record in commerce and logistics. Moreover, SiCepat Ekspres has shown promising development, as its revenue has grown more than 15 times since Kejora first invested in its seed round two years ago, according to Togelang.

“Given the strong market growth rate, developing a logistics company is easy. The real challenge, however, is to make it profitable. We, unfortunately, see that some of the other logistics players still have a ‘burning money’ mentality. Therefore, when taking into consideration SiCepat’s rapid rise while maintaining its strong bottom line, we are very confident about investing in the company,” he added.

Striving for efficiency

The entire logistics supply chain process combines various functions, such as transportation, warehousing, packaging, distribution, storage, and so forth. According to a report by PwC titled Shifting Patterns: Future of The Logistics Industry, the lack of a “digital culture” and training are the biggest challenges for conventional transportation and logistics companies.

This allows new entrants such as tech startups to fill the gap and capture new business opportunities. They can digitalize core operational activities to create smart logistics systems.

Several key technologies deployed by logistics startups include radio frequency identification (RFID), GPS, cloud computing, and data analytics. Smart logistics is expected to improve the way companies transport goods, control inventory, find and manage warehouses, replenish stock, and eventually the overall retail experience.

Tiger Fang, co-founder and CEO of Kargo Technologies, realized that there is high demand and opportunity in this sector. Fang is a former Uber executive who launched the US firm’s operations in Indonesia, Malaysia, and Thailand. He decided to leave his old job to build a logistics tech startup in 2018.

“I think the digitalization of trucking and logistics is not a question of if, but when. At the time of the Uber and Grab merger, we were operating at a pretty significant scale, doing millions of trips every week across 40 cities in Indonesia,” Fang told KrASIA. “Uber was in the logistics of moving people, while Kargo is in the logistics of moving freight,” he continued.

Fang said that approximately 75% of trucking companies in Indonesia have fewer than 20 trucks. Therefore Kargo provides them with a digital gateway to be able to find jobs faster, get paid faster, and to expand their businesses.

“Logistics comprises nearly a quarter of Indonesia’s USD 1 trillion GDP but is beset by poor infrastructure and a myriad inefficiencies,” Fang said. He explained that trucks delivering goods from urban production centers often make the return trip empty, drivers for day-to-day trucking gigs are typically sourced through multiple phone calls and WhatsApp groups, contracts are often handwritten, and payments are sometimes made months after the driver finishes the delivery.

Observing these conditions, Fang and the team at Kargo developed a driver app and enterprise dashboard that offer real-time location tracking, job assignments, invoicing, digital proof of delivery, and payments that are integrated seamlessly with all systems.

“Meanwhile, on the shipper’s side, they are able to track their assets in real-time and have access to the biggest trucking network so they can focus on their core business. This beats worrying about how to find a truck and overpaying many brokers,” he continued.

Kargo Technologies simplifies the freight-forwarding supply chain with their services, making them much more efficient and this benefits both shippers and trucking companies.

Besides freight-forwarding, another branch of logistics that is currently being disrupted by digital innovation is warehousing. Earlier this year, Indonesia’s largest e-commerce company Tokopedia launched a fulfillment service called TokoCabang that utilizes a smart warehouse network spread across various regions in Indonesia.

Through TokoCabang, Tokopedia’s sellers can store their products in its network of warehouses. The company also provides assistance that includes handling incoming orders, packaging, and handing the packages over to shipping couriers.

Other players in the warehousing space are micro-warehousing startup Crewdible and cross-border e-commerce fulfillment AllSome. The latter is a Malaysian startup that is currently preparing for entry to Indonesia.

This warehouse management service is usually intended for small and medium enterprises (SMEs) that have expanding businesses and inventory but cannot afford to rent big storage spaces for themselves.

“One of Crewdible’s missions is to support small individual sellers to become enterprises. By handling the most difficult and mundane task of e-commerce businesses, Crewdible aims to free up sellers’ time so that they can focus on developing the business, adding more products, and doing more marketing,” Crewdible CEO Dhana Galindra told KrASIA.

Crewdible also enables unrentable vacant spaces and turns them into businesses, giving equal benefits for both e-commerce sellers and space owners.

Photo by Ruchindra Gunasekara on Unsplash

Promising business

Finding the right and sustainable model is a big challenge for any business, including logistics tech startups. As the industry has no dominant player, startups need to experiment to discover viable ways of doing business. However, several industry players believe that businesses in this space are promising and that they are able to generate positive cash flow even in a relatively short period.

“There are many ways to monetize. We’ve successfully piloted a subscription model with hundreds of paying customers. When we match shippers with transporters, we are able to create an industry-leading take-up rate, validate the business model, and the associated unit economics. Today, we are focused on building liquidity and the network, so we are investing in our expansion to new enterprise customers and geographies. Traditional brokers in the business charge up to 20% commission for each shipment,” said Fang.

He said that in just six months of operations, Kargo Technologies has already won marquee clients and contracts and is now the largest trucking network in Indonesia. The startup has had positive unit economics from the start and it is already on the pathway to profitability, Fang added.

Rooling Njotosetiadi, co-founder and CEO of newly established freight-forwarding startup Logisly, also shares the same optimism. Logisly’s platform was launched in January 2019, and the company has seen positive cash flow in less than a year. “We are cross margin-positive from transactions because we help shippers and trucking companies become more efficient in delivering goods,” said Njotosetiadi.

“As our system matches empty trucks and shippers, we can offer a better deal for both customers. For example, for a truck already shipping something from Surabaya to Jakarta, rather than coming back empty, the trucking company would prefer to deliver something on their way back for a lower price. We can get margins from that,” she continued.

The business model seems to work. Although a young company, Logisly has already partnered with more than 200 trucking companies and has worked with around 100 shippers from various sectors.

Crewdible has also applied the same strategy. Galindra said that logistics, especially warehousing, does not require a money-burning strategy because they offer niche services to segmented markets.

“Maybe for ride-hailing, users would choose a cheaper platform because ride-hailing operators mainly offer the same service: taking a passenger from point A to point B. However, in warehousing, we offer value and services such as quality assurance, secure storage, speed of response, and more. A business wouldn’t mind paying a little extra as long as the service meets their needs,” he said.

For online sellers, Crewdible charges 3.5% for every invoice or a maximum of IDR 10,000 (US 0.71). This fee is then split—80% for the warehouse owner and the rest for Crewdible, said Galindra. He said that with a clear business model, Crewdible has shown positive developments. The company recently raised USD 1.5 million from Global Founders Capital and aims to hit profitability 13 months from now.

Competition is still wide open

According to Mordor Intelligence, the Indonesian logistics industry does not have a high level of industry concentration. International players are responsible for approximately 30% of the market size while the remaining 70% comprises local players.

The field is still wide open for logistics tech startups as no single player currently dominates this sector.

“If we look at other countries’ development of the market, logistics is not a winner-takes-all kind of situation. We are expecting that there will be two to five notable players in each vertical. Specifically for last-mile delivery, the top five players will continue to compete for the pole position. However, we believe this to be more of a marathon rather than a sprint. Hence, players who are able to crack unit economics and profitability from day one will be more sustainable in the long run,” said Togelang.

As a newcomer in the industry, Njotosetiadi believes that logistics and all of its verticals have a huge market in Indonesia. There is an opportunity for every player and therefore, she is not too worried about the competition.

More investments to come

KrASIA notes that at least eight logistics startups raised fresh investments this year. Bearing in mind that this industry is swelling quickly, it wouldn’t be a surprise to see more investors targeting the logistics space next year.

According to Bhima Yudhistira, a digital economy analyst at the Institute for Development of Economics and Finance (INDEF), logistics is a sector that will blossom and attract investments next year.

”Logistics is very interesting because it has many verticals and we see that many new players offer innovations like smart warehouses outside metro areas. These players also cooperate with e-commerce platforms, which helps them grow fast. Indonesia’s scope for logistics is huge, so I think we will see greater transformation in this field in the near future,” he told KrASIA.

Kejora Ventures’ Togelang said that logistics tech in Southeast Asia has barely scratched the surface. Kejora expects to see far more progress in this sector in the future and the firm is excited to actively shape its development.

Here is the list of Indonesian logistics startups that were in the spotlight and received fresh funding in 2019:

Kargo Technologies, USD 7.6 million seed round in March led by Sequoia Capital India

Kargo Technologies is a logistics startup that integrates shippers and logistics providers in a single marketplace, solving inefficiencies and reduce costs.

SiCepat Expres, USD 50 million in Series A funding in April, led by Barito Teknologi and Kejora InterVest Growth Fund

SiCepat Expres offers couriers, warehouses, as well as air and cargo delivery services throughout Indonesia, and caters to tens of thousands of online merchants. It claims to deliver over 200,000 packages every day. The startup currently has 600 outlets throughout the country and aims to have 200 drop points in Greater Jakarta this year.

Triplogic, an undisclosed amount from East Ventures in May

Triplogic handles deliveries in 61 cities across the country. By placing smart lockers in local shops to utilize as drop-off points, parcels can be delivered to their destinations within three hours. Triplogic claimed to handle thousands of deliveries each day and aims to have more than 15,000 drop points by the end of 2019.

Waresix, USD 14.5 million Series A round in July, led by EV Growth, SMDV, and Jungle Ventures

The startup connects shippers and businesses with available warehouses and trucks across Indonesia, providing better transparency, quality of service, and improved income for asset owners. Waresix currently has more than 20,000 trucks and 200 warehouse operators in its network across the country.

Ritase, USD 8.5 million in a Series A investment round in July, led by Golden Gate Ventures

Ritase provides a B2B digital transportation system that matches shippers and transporters, simplifying the logistics supply chain to create a more efficient ground freight process. It has signed up 500 small and medium-sized transportation companies, with more than 7,500 trucks and 7,000 drivers.

Logisly, an undisclosed amount from Convergence Ventures and Genesia Ventures in August

The startup increases trucking utilization and brings more transparency to trucking with technology.

Shipper, USD 5 million in seed funding in September from Y Combinator, Insignia, and Lightspeed

Shipper is a logistics aggregator platform. Shipper works with multiple micro-hubs across the country to enable the first-mile pickups and currently operates ten warehouses to help with e-commerce fulfillment.

Crewdible, USD 1.5 million in pre-Series A funding in October from Global Founders Capital

Crewdible connects e-commerce sellers with warehouse owners for order fulfillment. It turns empty facilities such as houses and offices into micro-warehouses.

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This article first appeared on KrASIA. It’s republished here as part of our partnership.

Gojek Commissioner Has High Hopes for an IPO

Indonesian energy industry tycoon Garibaldi Thohir, also known as Boy Thohir, was appointed to the board of advisors in ride-hailing firm Gojek in July.

After Gojek founder Nadiem Makarim joined President Joko Widodo’s new cabinet, Thohir stepped up as president commissioner to lead the company’s non-executive board. Thohir had been Gojek’s independent commissioner since July.

Thohir belongs to a family of entrepreneurs that are internationally recognized for their success in the business world, and his father is the co-owner of Astra International, an investor in Gojek.

KrASIA recently interviewed Thohir about his role as president commissioner with Gojek, as well as his investments in digital businesses.

KrAsia (Kr): How familiar were you with Gojek prior to being appointed as its commissioner?

Garibaldi Thohir (GT): I knew Nadiem before he began to develop Gojek. I partnered with Northstar Pacific’s founders Patrick Walujo and Glenn Sugita [the early investors of Gojek] for years.

Six years ago, Patrick told me that Nadiem began expanding Gojek. He said he would support Nadiem’s business. Sometimes Nadiem would come to me for my advice. Gojek grew until it expanded to other countries in Southeast Asia. One day, Nadiem and other friends [in the company’s management] at Gojek officially asked me to be its commissioner. I was interested because I could contribute more to Gojek, an Indonesian creation.

During the past six years, I sometimes gave them advice concerning the management style and direction. Even though it is a startup, it is going to become a big company, like eBay or Amazon. Gojek does not need to change its DNA. It is going to become a publicly traded company one day.

Kr: Are you worried about Gojek’s loss-making status?

GT: I do not really know the details, because I’m not an active part of its day-to-day operations. But if we look at Gojek, there are other businesses such as GoFood, GoRide, and GoPay. We should not only look at individual parts of its business, but also its whole ecosystem.

GoFood is the most phenomenal. The other services that will boost the business are transportation and the payments space.

I think in the future, every part of Gojek’s business will be profitable. The goal is to reach a certain size. To achieve this, it has to spend money. When it achieves its growth targets, Gojek will become profitable. Ultimately, as investors, we expect our portfolios to be profitable.

Kr: Have you encouraged Gojek to become a publicly traded company?

GT: Yes, I think every startup company will evolve to become a publicly traded company. It is a way for investors to exit. I think there are still big tech companies in China that earn profits. We can learn from them.

In Gojek’s case, I believe Gojek has a viable business model. If it achieves scale, its costs will reduce.

Kr: Should Gojek pursue an IPO in Indonesia or other countries? If they choose Indonesia, is the market capable of absorbing the market valuation of Gojek?

GT: As the commissioner of the Indonesia Stock Exchange (IDX), I encourage Gojek to have an IPO in Indonesia, as this will create a multiplier effect.

I have had discussions with the IDX directors; we definitely have to beat the market size of Singapore or Thailand. Many Indonesian companies have listed on Singapore’s SGX. So we have to rethink the value and attractiveness of IDX, so companies will prefer to carry out their IPOs in Indonesia. I encourage Gojek to have an IPO in Indonesia. IDX should be proactive in providing added value to startups. If Gojek succeeds, other industry players will follow suit.

Kr: How do you view Gojek’s expansion in Southeast Asia? Why has it gone smoothly in some countries?

GT: You need to view things from a growth perspective. Growth in Thailand and Vietnam has been extraordinary. Gojek is a potential champion. In Southeast Asia, Indonesia is currently the largest market. The player who can dominate the Indonesian market becomes the champion, because Indonesia represents half of the market in Southeast Asia.

I am sure that Gojek will be the champion in Southeast Asia. It should be and must be. Even as its competitors may have a lot of funding, I think money is not everything. Indonesian companies have to support Gojek.

KR: The World Bank has downgraded Indonesia’s growth outlook for 2019. What do you think the impact will be?

GT : Many economists predict there will be a recession in the United States. Money will flow out of the US. Europe is an old economy. Capital will not come from or flow into the European market. The Indian and Chinese economies are challenging.

However, in Indonesia, the elections went smoothly. Joko Widodo became president again for the second term. If the new cabinet and regulations are market-friendly and attract more foreign direct investment, I believe there will be a bigger chance for direct investments to flow into Indonesia, including its digital businesses, as Indonesia is the largest and most attractive market in Southeast Asia.

Kr: Do you think conglomerates have come to recognize the importance of digital transformation?

GT: Frankly, this is a big gamble. Indonesia is a big market. The tendency of large groups is to set up investment arms. For instance, Djarum Group has GDP Ventures, and Sinar Mas Group has Sinar Mas Digital Ventures, which has emulated people such as Masayoshi Son with his Vision Fund. Indonesian firms are headed that way, because they see the need to transform.

Kr: Why were you interested in investing in Umma, an Islamic community focused app?

GT: It’s simply because 80% of the total population of Indonesia is Muslim and this is a big market. I saw a need in the market, which if we could meet, would create a big opportunity.

Another reason why I was interested is because the Muslim population in Indonesia comprise the mid to mid-low income segments. Somehow, they might not get the right information, so they could be misled by religious propaganda. Therefore, we would like to offer legit products and services to these people.

My group and Erick [my brother] have already invested in Umma. We have some businesses that we will integrate into the app, such as Republika [Indonesian national daily newspaper, known as a publication for the Muslim community], umrah and hajj travel services, and sharia insurance. Umma has been downloaded by more than 26 million users; the daily user count currently stands at 200,000.

I realized that a religious app is sometimes too sensitive for some people. Therefore, the app is focused on creating a sharing community among Muslims. The app has several topics for the community, such as Muslim content, fashion, halal food, and lifestyle.

It is expected to generate revenue from advertisements. The plan is to offer services such as sharia financing, as well as umrah and hajj travel options once the app has garnered 20 to 30 million users.

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This article first appeared on KrASIA. It’s republished here as part of our partnership.

Bagaimana Sejatinya Sebuah Perusahaan Fintech Syariah?

Asia mendorong pertumbuhan bisnis jenis baru dalam dunia fintech. Dengan perkiraan dana senilai $22,7 miliar yang disalurkan pada akhir 2018, industri keuangan di kawasan ini telah mengalami perubahan signifikan dalam hal teknologi.

Hal ini termasuk dalam industri finansial syariah yang kian menjadi fokus di negara Asia Tenggara dengan jumlah populasi umat muslim terbanyak, seperti Indonesia dan Malaysia. Sejatinya, finansial islami atau berbasis syariah mengacu pada aktivitas finansial yang dijalankan sesuai dengan syariat Islam. Terdapat sekitar 1,6 miliar umat Islam di Asia – mayoritas bertempat di Indonesia – yang menuntut solusi finansial berbasis syariah yang inklusif dan efektif, memungkinkan segmen lain yang jangkauannya lebih luas dalam masyarakat, termasuk mereka yang belum terjamah layanan bank atau underbanked.

Menurut sebuah perusahaan akuntansi global, KPMG, terdapat sekitar 438 juta orang yang belum terjangkau layanan bank di Asia Tenggara, dengan mayoritas konsumen pada ekonomi layaknya Indonesia, Malaysia, atau Filipina memiliki akses sangat sedikit terhadap layanan finansial. Bagi 240 juta umat Islam di Asia Tenggara, perusahaan fintech berbasis syariah menjadi alternatif solusi finansial, seperti platform P2P dan urun dana, dengan proses penerimaan yang cepat dan aksesnya luas.

Berbasis syariah

Dari penuturan Shabana M Hasan, seorang ahli dari Akademi Riset Syariah Internasional pada Finansial Islami di Malaysia (ISRA), finansial Islam adalah sistem finansial yang diteruskan dari kitab suci Islam (Qur’an) dan tradisi nabi (Sunnah). Prinsip dasar sistem finansial Islam adalah penegakan keadilan dan kesetaraan dalam semua kesepakatan dan transaksi. Hal ini diwujudkan melalui empat larangan fundamental: riba, spekulasi (qimar), pendapatan di muka (masyir), ketidakpastian (gharar).

Singkatnya, riba mengacu pada semua bentuk bunga yang melipatgandakan pengembalian pada pinjaman. Dalam finansial Islam, hal ini tidak diperkenankan karena dapat menimbulkan ketidaksetaraan kekayaan, peningkatan jumlah hutang, dan mengarah pada eksploitasi. Spekulasi (qimar) sama dengan istilah zero-sum game dimana dalam transaksi keuangan, pemenang akan mendapat kekayaan dari jumlah pengeluaran yang kalah. Islam melarang spekulasi finansial karna merepresentasikan sebuah tindakan persuasif yang tak bermoral. Pendapatan di muka (maysir) mengacu pada jenis pendapatan yang dihasilkan sesuai peruntungan. Ketidakpastian (gharar) meliputi setiap transaksi yang memiliki unsur ambiguitas, ketidakpastian, dan beresiko. Misalnya, penjualan dengan harga atau barang yang sifatnya tidak jelas dan dianggap tidak valid. Hal ini juga yang menjadi dasar pelarangan berbagai instrumen keuangan yang sifatnya diteruskan – seperti futures dan options – dalam finansial Islam.

Dalam rangka menghindari riba serta berbagai larangan, finansial berbasis syariah kini memanfaatkan kesepakatan berbasis aset dan ekuitas demi mempromosikan pembagian resiko. Alasannya untuk menyelaraskan kepentingan semua pihak dengan adil dan sama rata.

Kehadiran industri fintech, menurut Shabana, akan membawa dampak besar bagi pelanggan, terutama dalam hal inklusi finansial dan kenyamanan. “Startup fintech Syariah telah membuka sebuah sumber pendanaan baru bagi UKM [usaha kecil dan menengah], yang nyatanya akan mengalami kesulitan untuk meraih pendapatan berbasis syariah dari bank. Jadi, dengan layanan fintech syariah, mereka yang belum terjangkau layanan bank bisa memulai riwayat kreditnya demi mencapai inklusi finansial.”

Perusahaan fintech syariah juga mencanangkan aktifitas keuangan yang lebih sederhana, nyaman dan ramah pengguna bagi pelanggan yang menginginkan transaksi berjalan selaras dengan prinsip-prinsip di keyakinan mereka. “Efisiensi dan transparansi yang dilakukan fintech tidak hanya memberi kenyamanan, tapi juga membangun kepercayaan publik terhadap sistem secara keseluruhan.”

Hingga kini fintech telah mentransformasi banyak area dalam finansial syariah di Asia. Jenis layanan utama yang ditawarkan oleh perusahaan fintech syariah adalah pinjaman peer-to-peer (P2P) , crowdfunding, transfer uang, pembayaran mobile, platform perdagangan, manajemen kekayaan, dan asuransi.

Perkembangan Lanskap

Dengan persyaratan khusus syariah, apa yang menjadi tantangan dalam perkembangan fintech syariah? Menurut lanskap fintech syariah IFN – inisiatif internasional yang memetakan pasar perusahaan fintech syariah – terdapat banyak bisnis yang terjun ke dalam industri ini. Pada akhir 2018, terdapat total 113 perusahaan aktif atau dalam tahap peresmian; 46% nya berada di Asia.

Alami, sebuah perusahaan yang menawarkan marketplace untuk pendanaan UKM berbasis syariah, berhasil menyalurkan dana senilai Rp17 miliar (USD 1.2 juta) melalui platformnya ke berbagai UKM di Indonesia pada Agustus 2019. Menurut pendiri dan CEO Alami, Dima Djani, ada permintaan pasar yang signifikan terhadap solusi fintech berbasis syariah di negara ini.

“Indonesia memiliki populasi Muslim terbanyak di dunia, terdapat lebih dari 200 juta orang dengan penetrasi industri perbankan Islam hanya 8%,” kata Dima. “Kami percaya potensi pasar keseluruhan bisa mencapai setidaknya dua kali lipat dari jumlah itu dalam waktu lima tahun, mengikuti rencana pemerintah Indonesia untuk meningkatkan penetrasi pasar menjadi 15% pada tahun 2023. Sementara permintaan UKM untuk solusi finansial syariah kian meroket, pergerakan bank cenderung lambat dari yang diperkirakan. Inilah yang menjadi alasan Alami untuk mengadopsi pendekatan finansial P2P untuk akselerasi.”

Finansial P2P, yang juga dikenal dengan crowdfunding syariah, adalah solusi fintech yang umum ditawarkan dalam pendanaan syariah. Menggunakan format ini, investor mulai berkontribusi pada proyek-proyek yang sesuai dengan syariah yang ada dalam platform perusahaan fintech, sebagai imbalan untuk pembayaran pokok dengan profit.

Dana Syariah, perusahaan fintech lain yang berbasis syariah di Indonesia, juga menjalankan crowdfunding berdasarkan prinsip syariah. Perusahaan ini mengakhiri tahun 2018 dengan RP80 miliar yang disalurkan melalui platform urun dana dengan target Rp500 miliar di akhir 2019.

Atis Sutisna, pendiri dan CEO Dana Syariah menjelaskan bahwa untuk memastikan semua proyek dalam platform sudah sesuai dengan prinsip syariah, perusahaan mengawasi secara ketat selama proses seleksi hingga selesainya. “Misalnya, sebelum membiayai proyek properti, analis kami akan lebih dulu menganalisis kelayakan proyek tersebut untuk pendanaan. Saat semua persyaratan sudah terpenuhi, tim kami akan menentukan biaya untuk bahan bangunan, serta biaya operasional yang membutuhkan dana. Kami pun akan memantau seluruh proyek pengembangan untuk memastikan semuanya sesuai kontrak dan syariah.

Atis juga mengatakan bahwa setiap transaksi dalam platform harus berdasarkan hukum syariah dan atas persetujuan Dewan Pengawas Syariah. Di Indonesia, dewan penasihat ditunjuk oleh Majelis Ulama Indonesia.

Dima Djani dari Alami menegaskan persyaratan dari peraturan ini “Produk dan bisnis model kami harus terlebih dulu disaring oleh Dewan Pengawas Syariah dilanjutkan ke divisi syariah Otoritas Jasa Keuangan Indonesia (OJK). CEO dan kepala divisi produk kami juga mengikuti pelatihan produk finansial syariah yang ditawarkan Majelis Ulama Indonesia. Di Alami, kami tidak hanya fokus pada kepatuhan syariah, tetapi juga prinsip-prinsipnya.”

Di Indonesia, untuk mendapatkan lisensi, OJK dan Majelis Ulama Indonesia mengharuskan setiap perusahaan fintech syariah untuk memiliki Dewan Pengawas Syariah sendiri.

Isu Kepercayaan

Kendati permintaan atas finansial syariah tidaklah sulit, untuk mendapatkan kepercayaan pasar adalah suatu perjuangan bagi perusahaan fintech syariah. Atis Sutisna dari Dana Syariah mengatakan bahwa kredibilitas adalah sesuatu yang penting dalam sektor ini. “Permintaan pasar atas finansial syariah kian meningkat, mereka sedang mencari alternatif investasi tanpa riba. Namun, tantangan terbesarnya adalah ketika menyinggung kredibilitas brand.”

“Ada stigma yang beredar di sekitar bisnis terkait Islam. Dahulu, banyak kasus penipuan bisnis yang mengatasnamakan agama, hal ini menciptakan persepsi negatif di kalangan masyarakat yang mengaku patuh pada hukum syariah. Inilah alasan mengapa penyuluhan publik itu penting bagi kami, “Kami mencoba mendidik masyarakat tentang perusahaan kami melalui keterlibatan masyarakat, pemasaran digital, talkshow di radio, dan penampilan di TV,” tambah Dima.

Dima Djani dari Alami sependapat. “Kami menanggapi kredibilitas dengan sangat serius. Alami pun telah memenangkan beberapa penghargaan bergengsi seperti Kompetisi Ventura INSEAD dan Taqwatech di Malaysia Tech Week. Tim kami juga adalah mantan pekerja bank, yang memahami bisnis dan pasar.”

“Bagaimanapun juga, ada isu kredibilitas terkait bisnis syariah di Indonesia yang dijalankan oleh orang-orang non-profesional. Hal ini terkait dengan pemahaman publik atas konsep finansial syariah itu sendiri. Kami merasa bahwa kurangnya edukasi pasar untuk model P2P dan keuangan syariah,” ujar Dima. “Indonesia adalah negara dengan populasi Muslim terbesar di dunia, tetapi sistem finansial Islam tidak diajarkan di sekolah, dan kami melihat ini sebagai tantangan yang signifikan ketika datang untuk mengenalkan masyarakat dengan layanan kami.”

Hal ini menyulitkan perusahaan fintech syariah dalam merekrut personilnya, terlebih pada saat konglomerat teknologi mulai menyerap tenaga kerja berbakat. “Sebagai startup fintech tahap awal yang syariah, kami merasa kesulitan untuk bersaing dengan unicorn dalam kompetisi merekrut tim IT profesional,” ujar Atis.

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Artikel ini pertama kali dirilis oleh KrASIA. Kembali dirilis sebagai bagian dari kerja sama dengan DailySocial

What Does It Mean to be a Shariah-Compliant Fintech Company?

Asia is driving new developments in fintech. With an estimated $22.7 billion in fintech funding funnelled into the region by the end of 2018, the region’s financial industry has been seeing a steady technological shift.

This includes the world of Islamic finance, which has been a focus in countries in Southeast Asia with significant Muslim populations, such as Indonesia and Malaysia. By definition, Islamic finance, or shariah-compliant finance, refers to financial activities conducted in accordance with Islamic shariah law. Asia has over 1.6 billion Muslims—the majority of which are in Indonesia—and they require shariah-compliant financing solutions that are inclusive and convenient, allowing a wider reach to various segments within society, including the unbanked or under-banked.

According to global accounting firm KPMG, there are around 438 million unbanked individuals in Southeast Asia, with the majority of consumers in economies like Indonesia, Malaysia, or the Philippines lacking access to financial services. For Southeast Asia’s 240 million Muslims, shariah-compliant fintech companies represent alternative financing solutions, such as crowdfunding and P2P platforms, with fast approval processes and wide accessibility.

Shariah-compliance

According to Shabana M Hasan, an expert at the Malaysia-based International Shariah Research Academy for Islamic Finance (ISRA), Islamic finance represents a financial system that is derived from the Islamic holy text (Qur’an) and prophetic traditions (Sunnah). The basic tenets of the Islamic financial system are the enforcement of justice and equality in all dealings and transactions. This is manifested through four fundamental prohibitions: usury (riba), speculation (qimar), unearned income (maysir), and uncertainty (gharar).

In a nutshell, usury (riba) refers to all forms of interest that provide a predetermined, fixed rate of return to the lender. In Islamic finance, this is forbidden as it may encourage wealth inequality, increase indebtedness, and lead to exploitation. Speculation (qimar) is a “zero-sum game” where, in financial transactions, the winner gains wealth at the expense of a loser. Islam forbids financial speculation as it represents a form of immoral inducement. Unearned income (maysir) refers to a type of income that is randomly generated or luck-based. Uncertainty (gharar) covers any transactions that possess elements of ambiguity, uncertainty, and hazard. For instance, a sale where the price or nature of the goods is unclear is considered invalid. This is also the main reason for the prohibition of various financial instruments such as derivatives—such as futures and options—in Islamic finance.

“In a bid to avoid usury and other prohibited elements, shariah-compliant financial institutions presently utilize various equity-based and asset-backed arrangements with the aim of promoting risk-sharing. The reason for this is to align the interests of all parties in a manner that is equitable and fair,” Shabana said.

The arrival of fintech, according to Shabana, could bring substantial benefits to customers, especially when it comes to financial inclusion and convenience. “Islamic fintech start-ups have opened up a new source of funding for SMEs [small and medium enterprises], who in reality will find difficulties in getting shariah-compliant financing from banks. Overall, with Islamic fintech services, the unbanked segment of society is now able to create a new form of credit history, thus achieving financial inclusion.”

Islamic fintech companies also make financial activities simpler, more convenient, and user-friendly for end customers who require their transactions to align with tenets set by their faith. “This efficiency and transparency enabled through fintech not only provides greater convenience to customers, but it also establishes public trust and confidence in the overall system.”

To date, fintech has transformed many areas of Islamic finance in Asia. The main types of services offered by Islamic fintech companies are peer-to-peer (P2P) lending, crowdfunding, money transfers, mobile payments, trading platforms, wealth management, and insurance.

A Thriving Landscape

With shariah-specific requirements, how challenging is it for a shariah-compliant fintech company to thrive? According to IFN Islamic Fintech Landscape—an international initiative mapping out fintech companies catering to the Islamic finance market—there are plenty of firms that are tossing their hats into the ring. As of the end of 2018, a total of 113 companies are active or at the launch phase; 46% of them are located in Asia.

Alami, a company that provides a marketplace for shariah-based SME financing, has managed to channel financing worth IDR 17 billion (USD 1.2 million) through its platform to various SMEs in Indonesia as of August 2019. According to Alami’s founder and CEO Dima Djani, there is a significant market demand for shariah-based fintech solutions in the country.

“Indonesia has the most Muslims in the world, with more than 200 million people, yet with only 8% penetration of Islamic banking industry,” Dima said. “We believe the total market potential will be at least double that amount in five years’ time, following the Indonesian government’s plan to increase market penetration to 15% by 2023. While the SMEs demand for shariah-compliant financing solution was skyrocketing, the Islamic banks moved slower than anticipated. This is why Alami decided to adopt our P2P financing approach to scale faster.”

P2P financing, which is also known as term-based shariah crowdfunding, is a common fintech solution offered in Islamic financing. Under this format for lending, investors contribute to shariah-compliant projects listed on the fintech’s company platform, in return for principal repayment with profits.

Dana Syariah, another Indonesia-based shariah-compliant fintech company, also operates on a term-based shariah crowdfunding basis. The company ended 2018 with IDR 80 billion channeled through its crowdfunding platform for the year, with a target of IDR 500 billion of annual financing by the end of 2019.

Atis Sutisna, founder and CEO of Dana Syariah, explains that in order to ensure that all projects on the platform are shariah-compliant, the company employs a high level of scrutiny during the selection process and until each project’s completion. “For instance, prior to financing a property project, our analysts will first analyze whether or not the project is eligible for funding. When all the requirements are met, our team will work together to determine the actual cost for building materials, as well as other operational costs that will require funding. We will then monitor the entire development project to make sure that everything is shariah-compliant and according to the contract.”

Atis also said that every transaction made on the platform has to follow shariah law, as it’s subject for approval from the Shariah Supervisory Board. In Indonesia, this advisory board is appointed by the Indonesian Ulema Council.

Dima Djani from Alami confirms this regulatory requirement. “Our business model and product must first be screened by the Shariah Supervisory Board, and then by the shariah division in the Indonesian Financial Services Authority (OJK). Our CEO and head of product also joined the shariah financial training provided by the Indonesian Ulema Council. In Alami, we are not only focusing on shariah compliance, but also shariah principles.”

In Indonesia, to be officially registered, OJK and the Indonesian Ulema Council require every shariah-compliant fintech company to have its own Shariah Supervisory Board.

Trust Issues

While the demand for Islamic financing remains buoyant, earning market trust is an uphill battle for shariah-compliant fintech companies. Dana Syariah’s Atis Sutisna says credibility is crucial within the sector. “Market demand for shariah-compliant financing is high, they’re looking for an alternative investment that has no element of usury. However, the biggest challenge that we’re facing is when it comes to our brand credibility.”

“There’s stigma around Islam-related businesses. In the past, there have been cases of business fraud using religion, and this has created negative perceptions among the public for businesses claiming to be shariah-compliant. This is why public outreach is very important for us,” Atis said. “We try to educate the public about our company through community engagement, digital marketing, radio talk shows, and TV appearances.”

Alami’s Dima Djani concurs. “We take our credibility seriously. Alami has won several prestigious awards, such as the INSEAD Venture Competition and Taqwatech at Malaysia Tech Week. Our team also consists of former bankers, who understand the business and the market.”

“However, there’s a credibility issue for Islam-related business in Indonesia for being run by individuals who are not professionals. This is related to the public understanding of the shariah finance concept itself. We feel that there’s a lack of market education for P2P models and shariah finance,” Dima said. “Indonesia is the country with the largest Muslim population in the world, but Islamic finance is not taught in schools, and we think this creates significant challenges when it comes to educating the public about our services.”

That makes it difficult for shariah-compliant fintech firms to recruit the personnel they need, particularly when major tech conglomerates are soaking up talented labor. “As an early-stage shariah-compliant fintech startup, we find it challenging to compete with the unicorns when it comes to hiring top IT professionals from the talent pool,” Atis said.

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This article first appeared on KrASIA. It’s republished here as part of our partnership.

Digital insurance, Indonesia’s next innovation gold rush

Following the fintech boom in Indonesia, here comes the next wave: insurance technology. “Insurtech” encompasses a variety of digital tools and platforms, including aggregators and marketplaces, that offer or provide access to insurance products. Startups and conventional insurers are exploring the field to find more efficient ways of linking up with consumers.

They see a huge untapped potential. Just like how Indonesians are “underbanked”—meaning many people still lack access to banks and financial services—they are also “underinsured.”

According to data from Indonesia’s financial services regulator, OJK, as quoted in a CB Insights report, insurance literacy in Indonesia was only at 15.8% in 2017. Big strides have been made with the country’s new mandatory basic health insurance known as BPJS. In all, 193 million Indonesians are now registered as part of the BPJS scheme, which means more than half the population are in the program. But this covers only the necessities, and patients are required to seek treatment at public healthcare facilities that are part of the scheme.

For everything outside of BPJS, insurance penetration in Indonesia is as low 2%. In other words, only 4.5 million out of 264 million Indonesians carry any additional insurance policy, most commonly life insurance.

A slow start

At the moment, the development of insurtech in Indonesia lags behind that of fintech, especially online lending platforms. Insurtech platforms haven’t blossomed in the same way as lenders, perhaps because many Indonesians have a different perception and attitude towards insurance.

“[Online] lending was easy to grow because it gives access for people to get cash conveniently. But with insurance, it is the other way around. People need to pay money on a regular basis and won’t feel the benefits instantly. It will be challenging [for insurance providers] to get the trust, especially from older, more conventional people,” JP Ellis told KrASIA. He is the founder of the financial services marketplace C88, which aggregates a variety of credit and insurance products.

The commonly held view is that insurance is expensive, and that getting insured and eventually having claims settled is a complicated process. This all contributes toward the low adoption of insurance in Indonesia.

According to EY’s Global Insurance survey, the traditional insurance industry lags behind in developing innovative and customer-friendly digital experiences like information transparency, customer engagement through social media, and the use of analytics for tailor-made solutions.

This only exacerbates the adoption gap because insurance products fail to match current consumer habits and expectations.

A conventional insurer’s view

Like other sectors, we are nearing a point of digital disruption for insurance.

As Indonesia’s digital economy grows, insurtech businesses focusing on bringing conventional insurance online will play a more significant role and take up a bigger portion of the country’s digital economy.

Bianto Surodjo, the chief partnership and distribution officer at Allianz Indonesia, believes two factors contribute to a growing insurtech business opportunity in the country. The first is the government’s agenda to accelerate “insurance inclusion,” just as it did with financial inclusion. The second factor is the rapid growth of e-commerce, fintech, and general online business in Indonesia.

“While the current life insurance market is growing well, its penetration is at less than 2%,” Surodjo told KrASIA.

If the industry is able to grow with a CAGR of 15–20%, he predicts, then within ten years the estimate gross written premium (or the total value customers paid for their policies, before deductions for reinsurance and ceding commissions) will have exceeded IDR 1 quadrillion (USD 70.2 billion) with a profit pool of more than IDR 100 trillion (USD 7 billion), excluding those enjoyed by distributions including banks, agents, and reinsurance.

Surodjo said that like other industries, such as commerce, transportation, and banking, where the adoption of technology inside the business has vastly accelerated, we can expect a similar trend to happen in the insurance industry in the next three to six years.

Digital insurance and distribution will complement existing conventional insurance services, he believes. New, simple, and low-priced insurance products will find a better acceptance via digital distribution channels, but more complex products will still require face-to-face interactions with an insurance expert for customers to buy-in.

“Nevertheless, the digital aspect is not only about selling but also about post-selling activities. [Digital tools] we expect to adopt more quickly are in payments, claim processing, as well as the integration with an online doctor as well as pharmacists,” Surodjo continued.

Supportive regulation is needed

As the business in this sector is starting to grow, government regulations that specifically regulate digital insurance are needed to support insurance companies to continue developing digital-based products that are accessible for everyone.

Today, the insurtech platforms still refer to OJK’s regulations about financial digital innovation that mostly highlights fintech platforms.

“Indonesia has been a progressive regulator and it has a very involved fintech association. The regulation in fintech is pretty clear, especially about digital financing innovation, online lending, and so forth. However, we haven’t seen any regulation that addresses digital insurance in the country,” said JP Ellis.

According to local media reports, OJK is currently preparing regulations related to insurtech. The new set of rules will include provisions for the business models, as well as payment mechanisms for claims and complaints, aimed at protecting consumers. OJK is reportedly involving industry players to draft this regulation, but it is not clear when exactly the regulation will be issued.

There will likely be a push and pull process as the rules are laid out, with the interests of startups and innovators on one side, and the traditional insurers on the other.

“We need a regulation that is able to balance between the ‘innovation stimulators’ as well as safeguard all stakeholders of the industry, such as customers and insurance companies,” Surodjo points out.

The intersection of insurance and digital platforms

While regulators are still catching up, insurers and insurtech startups have begun paving their own way.

One major trend that can be observed in Indonesia is the integration of insurance products with digital platforms like Gojek, Grab, Traveloka, Tokopedia, and Bukalapak, which already have a massive user base.

Many Indonesian consumers are familiar with these apps, so buying insurance products through them is an easy first step to adopt digital insurance.

What’s more, these platforms are equipped with seamless payment options, which makes the transactions convenient.

“Through strategic business cooperation with several digital partners, we ensure that the benefits of insurance products and services can be experienced by more people, readily accessible and understood by all types of customers,” said Surodjo.

Trends in Indonesia’s digital business sectors tend to take a leaf from China, and the same is true for insurtech. In China, partnerships between digital platforms and insurers are common.

Let’s take, for instance, Zhong An, touted as the biggest insurtech company in the world. The company uses an aggressive B2B2C distribution strategy that allows it to target a variety of customers with specialized insurance offerings, also sometimes called microinsurance. Zhong An offers these through its more than 300 partners across health, travel, auto, e-commerce, banking, and other sectors.

A similar strategy has been adopted by a number of traditional insurers and insurtech companies in Indonesia.

In May, Allianz Indonesia formed a partnership with the country’s e-commerce unicorn Bukalapak to launch an insurance product called “Buka Proteksi Diri.” Allianz also invested in Gojek and collaborates to provide protection for Gojek drivers.

Besides Allianz, another company that continuously adds strategic partners to its portfolio is local insurtech platform PasarPolis. Founded in 2015 by Cleosant Randing, PasarPolis is the only startup that counts all of Indonesia’s three unicorns—Gojek, Tokopedia, and Traveloka—as its investors.

PasarPolis integrates its products into their systems allowing them to target millions of Indonesians. Similar to Zhong An, PasarPolis offers various microinsurance products. The company has over 100 products including health and accident coverage for Gojek’s drivers and passengers, damaged goods protection for Tokopedia’s shoppers and sellers, as well as flight and train delay insurance for customers who buy tickets in Traveloka.

PasarPolis CEO Cleosant Randing believes that it would be very difficult, if not impossible, for insurtech platforms to stand alone without being integrated with bigger digital platforms in the network.

“I think it is very unlikely for a customer to buy a train ticket on one platform and then look for separate insurance elsewhere,” Randing said. “In my opinion, being a part of the ecosystem is the best way for an insurtech company to scale up the business quickly while making a bigger impact on society.”

Fintech adoption within insurtech is crucial

While digital platforms help insurers deliver the right insurance product to the right people, they also offer another crucial advantage: seamless, cashless payments.

One of the reasons why many people are reluctant to sign up for conventional insurance is because of its complicated payment and claims processes. To address this issue, digital insurance platforms are collaborating with digital payment channels in order to provide a simple payment method to their customers.

“It does not matter whether you’re a standalone app or part of an integrated app. At the end of the day, people base their decisions on whether you are providing fast, reliable service at low cost,” Asheesh Birla, senior VP of product management at Ripple, told KrASIA.

Adoption of digital services comes down to having an efficient payments infrastructure, he stresses.

Insurtech platforms also need to provide tools for quick and easy claims in order to bring a seamless experience to customers. The tools should simplify claims settlements and reduce the cycle time so they can be performed completely virtually. Therefore, it’s not surprising to see that “instant claims” has become insurtech platforms’ favorite offering for its clients.

The existence and widespread adoption of fintech channels is a prerequisite for making insurance an attractive premise for Indonesians.

New horizons: Lifestyle-focused microinsurance

Lastly, it’s not only the ways people discover and pay for insurance products that are undertaking a digital shift. It’s going down to the core of what an insurance product is.

When we think of insurance plans, conventional life and health insurance services might be the first to come to mind. These two services are included in BPJS, Indonesia’s mandatory insurance scheme.

But insurtech has given rise to more and more lifestyle-focused microinsurance products that cover specific scenarios.

According to Daily Social’s Insurance Technology Survey 2019, five top insurtech platforms in Indonesia are Asuransiku, AXA MyPage, insurance88.com, PasarPolis, and Jagadiri. All offer various lifestyle-focused insurance products in addition to health and life protection.

And some are really going the extra mile to provide creative service packages in this area. For instance, JagaDiri has a Jaga Gamers product that protects game-addicts from possible health problems caused by spending too much time in front of a computer screen.

PasarPolis claims to have over 100 insurance products, some as specific as a cinema and event tickets cancellation hedge for users who buy tickets via Gojek’s ticket platform GoTix.

These kinds of services might sound strange, but the demand is actually high, according to PasarPolis’ CEO Cleosant Randing. Microinsurance products are designed with smaller premiums and a limited coverage scope to support those who might not have access to conventional plans.

“Insurance products are often seen as ‘luxury,’ but more people actually long for simple and affordable insurance facilities to cover their daily lives,” said Randing.

Microinsurance products are usually sold at very affordable prices—as low as IDR 10,000 (USD 0.70) for the Jaga Gamers policy– therefore the market for this segment is growing and attractive for young consumers.

PasarPolis sells around two million policies per day, and its consumers are mostly from digital generations or millennials, Randing told KrASIA.

Although Indonesia’s financial services authority OJK does not have regulations that specifically address digital insurance yet, it has long been aware of microinsurance’s potential.

In 2013, OJK rolled out a Grand Design for Microinsurance. Since then, many companies have entered the sector.

Falling short of functioning as actual regulation, the document served as a framework and reference for insurance operators, regulators, and all stakeholders in developing microinsurance services in Indonesia. Several important points mentioned in this outline are that insurance policies should be written in simple Indonesian that is easy to read and understand, and that claim payments should be processed no later than ten days after the required claim documents have been handed over by the policyholder.

Microinsurance, married with digital technology, is seen to have a big potential in countries like Indonesia where people have been traditionally adverse toward insurance products.

With convenience, specific and affordable policies, as well as greater transparency in the claims process, most Indonesians might come to accept the benefits of protecting themselves against a variety of potential risks–even if it means spending money on it now.

This article first appeared on KrASIA. It’s republished here as part of our partnership.