How Tokopedia is raising the bar for financial literacy in Indonesia

How do you raise the quality of life for Indonesia’s 275 million residents? In a country where an estimated 66% of citizens are unbanked, the answer lies in fintech.

That’s what some of Indonesia’s largest unicorns are banking on. To capture a majority market share, these industry giants are going back to the basics by working to ensure that residents have access to a debit or credit card, bank account, insurance, and loans.

Indonesian technology company Tokopedia is one of the biggest names looking to make a mark in the segment – and what sets it apart is its vision.

“When we expanded into the fintech space in 2016, we started by partnering with credit card issuers and helping people apply for credit cards through our platform,” says Vira Widiyasari, vice president of the company’s fintech and payments business. “Our goal was to improve their financial literacy and financial health and allow them to fulfill their life goals in an affordable manner. It’s an exciting space with unexplored opportunities.”

It starts with education

As a whole, the Indonesia-based platform aims to help merchants reach a wider audience and improve the lives of individuals and business owners. While this sounds simple enough, some problems persist nationwide: Technological and financial literacy rates are relatively low and basic infrastructure for Internet connectivity is lacking particularly in rural areas.

Vira Widiyasari, vice president of Tokopedia’s fintech and payments business. / Photo credit: Tokopedia

The solution for Widiyasari was twofold. The company would need to work with financial institutions and encourage cash-on-delivery customers to go online.

“We collaborate with local, global, and international financial services, wallet providers, and retailers to offer over 50 payment solutions across all segments. These include credit card and direct debit payments, virtual accounts, ‘pay later’ options, and offline payment points,” she explains.

The platform also offers cash on delivery, an avenue it uses to educate buyers on adopting digital payments.

Tokopedia’s merchants, meanwhile, are often former offline business owners and are not financially literate. Since the firm’s foray into the fintech space five years ago, however, the ecommerce unicorn has taken steps to change things.

When the Covid-19 pandemic made its entrance last year, Tokopedia doubled down on its merchant listings, adding an estimated 2.8 million micro, small, and medium-sized enterprises (MSMEs) to its online marketplace, bringing its total number of sellers to more than 10 million as of December 2020.

According to Widiyasari, this has opened up opportunities for both MSMEs and consumers.

“A customer in Surabaya can purchase something from within and outside of Java Island. Creating this convenience, and helping merchants to reach out to our wide pool of customers, is going to be a long-term game,” she adds.

Another focal point for Tokopedia is collaborating with various partners to democratize financial inclusion through technology. “Profitability will follow that,” notes Widiyasari.

Accessibility through affordability

Tokopedia knows that achieving profitability goes back to extending the purchasing power of its users.

In 2019, Tokopedia launched Modal Toko, a capital loan facility it provides to its sellers to help them develop their businesses. Based on predetermined credit limits imposed by partners – and under the supervision of the country’s financial services regulator OJK – merchants can make loan withdrawals of up to roughly US$21,000. With this extended financial runway, merchants can top up their inventory, expand their variety of goods for sale, and use credits to showcase certain products in their online stores.

The Tokopedia Tower in Jakarta, Indonesia. / Photo credit: Tokopedia

“We want our sellers to be able to grow their businesses through Tokopedia, especially during the pandemic,” explains Widiyasari. “It’s difficult to secure working capital or loans for merchants who don’t have credit scores or lack credit capacity information, so we additionally introduced TokoScore, an alternative credit scoring system that eases the process using ecommerce data sources.”

Through TokoScore, financial institutions get better visibility over a potential borrower’s capacity to make loan repayments, she adds.

Likewise, consumers enjoy the same benefits through the credit scoring system, which measures users’ consumption data and behavioral habits to determine the borrower’s credit worthiness. The system is the first of its kind for an ecommerce platform in Indonesia and – according to Widiyasari – helps the underbanked meet their basic needs more easily.

“If a customer wants a mobile phone, an installment plan would help them determine how much to set aside monthly to buy that phone. When that affordability is presented to them this way, it helps them budget their finances accordingly,” notes the executive.

In the past year, take-up rates for these loans have almost doubled, giving Tokopedia’s licensed lending partners further confidence in the platform. Similarly, users who have taken up loans or made purchases are more likely to return to the app thanks to its all-encompassing host of services, from bill and tax payment services to its marketplace for phone credits, physical goods, savings, and investment products.

“The Indonesian market favors the one-stop shop where all [a customer’s] needs can be fulfilled in a single place,” Widiyasari notes. “This is what the future of finance looks like. It’s about affordability and expanding the purchasing power of our buyers.”

Tokopedia’s confidence in its vision for the future of finance is backed by its figures: The platform has over 100 million monthly active users and has most recently attracted backing from internet giant Google and Singapore’s sovereign wealth fund Temasek Holdings.

The savings game

Another area that the company hopes to give users more accessibility to is investing. Tokopedia began this endeavor with the introduction of Tokopedia Emas, an alternative investment platform that allows users to buy, invest, and save in digital gold. The product rolled out in early 2018, making Tokopedia one of Indonesia’s first unicorns to dive into the space.

“Culturally, gold is viewed as a valuable commodity,” Widiyasari points out. “The product is also a sharia investment product, which is really important since Indonesia has the world’s largest Muslim population.”

People can register and use the platform in minutes, with an investment of as low as US$0.36. They can then access gold price fluctuations in real time and withdraw their funds at any point. The platform’s product is one means of improving the financial happiness of Tokopedia’s customers – usership has grown almost 20x and transactions almost 30x in the past year, according to Widiyasari.

To capture a larger demographic of younger Indonesians, though, Tokopedia offers mutual fund investment options starting from US$0.72. Last year, it debuted an initiative called Rabu Nabung – which loosely translates to “savings Wednesday – that rewards gift cards of up to US$5.33 to users who purchase mutual funds on Wednesdays.

That said, Tokopedia’s work is hardly complete. Improving the quality of life for Indonesians means continuously iterating its products and checking in with customers on what can be done better.

“On a monthly basis, we ask buyers and merchants about their experience on our platform and their evolving pain points,” Widiyasari says. “As living conditions change, needs change, too. We intend to focus on our mission of democratizing commerce by improving our financial solutions and making Indonesians’ lives better.”

Converted from Indonesian rupiah. Rate: US$1 = 14,107.55 rupiah.

Tokopedia is an Indonesian technology company with the country’s biggest marketplace. Its mission is to democratize commerce through technology. Find out more by visiting its website.

This content was produced by Tech in Asia Studios, which connects brands with Asia’s tech community. Learn more about partnering with Tech in Asia Studios.