How Gojek-backed Bank Jago is taking on Sea, Akulaku’s digibanks

When Bank Jago announced its financials for 2021, one thing stood out. Since launching its app in April of that year, the digital bank has onboarded 1.4 million users. It’s not the biggest number in the market, but the Gojek-backed firm reached the figure without sacrificing its bottom line, posting around US$600,000 in profit before tax for 2021.

Meanwhile, Akulaku-backed Bank Neo Commerce, a competitor that launched its app around the same time as Bank Jago, has acquired 14.6 million users. Another rival, Sea Group-backed SeaBank, has succeeded in getting more than 800,000 users despite launching its app around four months later.

However, these two digital banks posted a loss in 2021.

One of the reasons Bank Neo Commerce and SeaBank acquired users more quickly than Bank Jago is because they offer high interest rates as part of their promotion schemes. Bank Neo Commerce provides an 8% interest rate for its time deposits, while SeaBank is offering a 7% interest rate for its savings product.

On the other hand, Bank Jago’s time deposit product only offers the average interest rate in Indonesia, which is around 3% to 4%.

For Arief Harris, Bank Jago’s deputy CEO, he doesn’t want to concentrate on giving a large interest rate as it may sacrifice user loyalty in the long run.

“We opt to provide features that can ease users in doing transactions,” he said in a media session.

While Bank Jago also offers a promotional interest rate, the total amount of users’ funds that fell under this scheme is below 5%, according to Harris.

The difference in promotion schemes is one of the reasons why Bank Jago’s ratio between interest expense and total third-party funds – which can refer to checking accounts, savings accounts, and time deposits – is less than its competitors. This means that the digital bank spent less money for every third-party fund it collected.

Tjandra Gunawan, president director of Bank Neo Commerce, told local media that the strategy to offer high interest rates can help the company’s profitability in the future.

“Big interest promo is able to increase the number of our users, transactions will grow, and we can collect more ‘cheap’ funds. On the other hand, we can start to lend more money through direct lending, which will increase our net interest margin (NIM),” he said.

In January, Bank Neo Commerce recorded 6.2% NIM – which is usually treated as one of the profitability metrics in the banking business – an increase from 4.4% in the same period last year. In a public presentation, Gunawan said that he expects the digibank to hit profitability in 2023.

Tinnike Lie, the owner of finance-focused YouTube account TipsHemat, has compared several digital banking apps in Indonesia. According to her, Bank Neo Commerce gave the highest interest rate among the options she compared. However, she said that not all Indonesians are looking for that kind of benefit.

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