The tech companies bankrolling Indonesia’s digital banks

Indonesians are no stranger to digital banks. Jenius, whose owner Bank BTPN is a subsidiary of Japan’s Sumitomo Mitsui Banking Corporation, has operated in the archipelago since 2016.

But 2021 saw a number of new digital banking players bursting into the scene, with Gojek-linked Bank Jago leading the charge. Players from Sea Group, Grab, FinAccel, and Akulaku have also joined the fray, while traditional banks, not to be outbid, are investing heavily to develop their digital arms. At the moment, it looks to be a close fight.

Despite Jenius’ head start, new competitors are pulling ahead. For Bank Neo Commerce, an attractive 8% interest rate on time deposits has rapidly acquired 14.6 million users for the bank since its 2021 launch. That’s almost 4x Jenius’ 3.8 million users as of March this year, though the Akulaku-backed digital bank’s rapid growth has also come at a high cost.

While those like Jenius were an organic product of traditional lenders innovating on a dated banking experience, the country’s newest digital banks are of a different breed. Many have formed by way of acquisitions or investments between small local banks and tech companies.

This is spurred in part by an easing of foreign ownership rules by the country’s Financial Services Authority last year. When compared to setting up a new digital banking entity, launching one by way of M&A offers tech firms a form of regulatory arbitrage.

“These tech firms likely saw a better deal in snapping up the smaller banks, which will not be subject to the revised paid-up capital requirement of 10 trillion rupiah (US$687 million) for a newly established bank,” Tamma Febrian, director in Fitch Ratings’ Asia-Pacific Financial Institutions team, tells Tech in Asia. Previously, the required amount to set up a bank in the archipelago was 3 trillion rupiah (US$205 million).

Besides tech firms, Indonesia’s digital banks are also seeing keen interest from regional and global VCs as well as traditional lenders:

• US-based Ribbit Capital, whose portfolio companies include American online brokerage firm Robinhood and Brazil-based neobank Nubank, has stakes in both Bank Jago and Ajaib, which owns 40% of Bank Bumi Arta.
• Three VCs – Hong Kong-based Horizons Ventures, Singapore’s Insignia Ventures Partners, and Indonesia-focused Alpha JWC Ventures – have invested in both WeLab and Ajaib. WeLab formed a consortium to acquire Bank Jasa Jakarta in December 2021. (As we found previously, some VCs have a tendency to co-invest.) 
• Siam Commercial Bank has stakes in WeLab, Gojek, and Akulaku, which operate Bank Jasa Jakarta, Bank Jago, and Bank Neo Commerce, respectively. This might give the Thailand-based lender an edge when its home country issues digital banking guidelines in the near future.

A merging of minds

Bank Jago offers a good example of how an alliance between tech companies and traditional banks works. Founded in Bandung as a conventional bank called Bank Artos in 1992, Bank Jago has since become a digital platform integrated with Gojek’s offerings. Users of the ride-hailing platform can open bank accounts and access other banking services directly on the Gojek app.

Its turnaround has been stunning: At the end of last year, Bank Jago hit a profitability milestone after seven years in the red.

Many of the archipelago’s lenders from WeLab to Sea Group have since followed a similar playbook. In October 2021, online lender Akulaku took a 24.98% stake in Bank Neo Commerce, and in April this year, fintech firm FinAccel became a majority stakeholder in Bank Bisnis Internasional.

For super apps, ecommerce platforms, and fintech firms, investing in a local bank can fast-track financial services plans. Traditional banks, on the other hand, can benefit from a new base of digitally savvy and credit-hungry users, access to investors’ tech know-how, and perhaps most critically, a chance to reinvent themselves.

Banks vs tech companies

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