Dissecting this Indonesian digibank’s high-risk pursuit of profitability

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Hello reader,

It’s fascinating to track which industries overseas firms place their bets on when a country opens itself up to foreign investment. It is a vote of confidence for sectors that receive heavy investment from external investors – a sign that there remains unfulfilled growth in those spaces and plenty of money to be made.

So when Indonesia loosened foreign ownership rules last year, the rush to grab a slice of the archipelago’s digital banking sector came as no surprise, given the tech-savvy nation’s large unbanked and underbanked population.

Yet, from super apps and ecommerce platforms to VCs and fintech firms, the sheer number of stakeholders that have thrown their hats in the ring is staggering. You can find a comprehensive list and analysis of the firms bankrolling Indonesia’s digital banks in this Tech in Asia visual story.

Today, we turn to loss-making Bank Neo Commerce (BBYB, IDX), a digibank in which fintech unicorn Akulaku has a 40% stake. The Indonesian firm is on course to post an operating loss of over US$120 million for 2021 and 2022 combined.

However, the firm has a high risk, high reward strategy, which it believes will help it to turn a profit next year.

Bank Neo Commerce has placed its bets on consumer loans, unlike Gojek-backed rival Bank Jago (ARTO, IDX), which stayed in the red for seven years and only turned profitable in 2021 by focusing on lending to SMBs.

In this edition’s feature piece, my colleague, Aditya, not only delves into what a focus on the riskier consumer loans entails for Bank Neo Commerce (given the worsening economic climate) but also whether the strategy will lead the Indonesian digibank to profitability.

— Shravanth

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Image credit: Timmy Loen

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