WeLab enters Indonesia’s digibank space via an acquisition

Hong Kong-based WeLab has acquired a small Indonesian bank called Bank Jasa Jakarta to enter the country’s digital banking space.

To pull off the deal, the fintech firm raised US$240 million through a consortium called WeLab Sky. The amount is the largest fintech funding in Indonesia this year, WeLab says.

WeLab founder and Group CEO Simon Loong / Photo credit: WeLab

The company said that both new and existing investors joined the fundraise but didn’t disclose their names.

WeLab’s current backers include Allianz, China Construction Bank International, World Bank’s International Finance Corporation, CK Hutchison’s TOM Group, Sequoia Capital China, Siam Commercial Bank, Alibaba, Horizons Ventures, Alpha JWC Ventures, Insignia Ventures Partners, and Malaysian sovereign wealth fund Khazanah Nasional.

WeLab, which plans to launch the digital bank app by the second half of 2022, will enter a market already populated by tech startups. For instance, Indonesian super app Gojek has entered the space with Bank Jago. Sea Group has launched SeaBank Indonesia while Akulaku has established Bank Neo Commerce. Other companies such as Kredivo, Emtek, and Ajaib are also ramping up their plans to launch digital banks.

However, WeLab believes that it has an advantage over its competitors: It has been operating a digital bank called WeLab Bank in Hong Kong since 2019.

“The costs must be cheaper because we don’t need to build it from scratch,” Simon Loong, founder and group CEO of WeLab, told Tech in Asia.

Becoming a regional bank

The company plans to use the US$240 million fund for three objectives: inject more capital into Bank Jasa Jakarta to meet the requirements of Indonesia’s Financial Services Authority (OJK); acquire the controlling stakes from the bank’s previous shareholders; and bankroll technology and marketing initiatives.

Loong said that non-performing loans (NPL) are not a big issue for WeLab right now. “Bank Jasa Jakarta has a good reputation of being a commercial bank for the last 40 years. Hence, we picked them,” he shares.

Under OJK guidelines, commercial banks must have 2 trillion rupiah (around US$138.5 million) in core capital by the end of 2021. According to the latest financial data, Bank Jasa Jakarta is US$27.7 million away from the required amount. However, it will need another 1 trillion rupiah (around US$69.3 million) by the end of 2022 to stay in operation as a commercial bank.

Based on other past transactions, acquiring a controlling stake in a small bank won’t force WeLab to dig too deeply into its pockets. The current management of Gojek-backed Bank Jago, for example, spent around US$16.8 million to acquire Bank Artos – the bank’s old name – in 2020.

Head start in a “red ocean” market

Profitability in sight