As digibanks rise, will Indonesia’s online lenders become obsolete?

Over the past year, many peer-to-peer and online lenders or digital lending-only platforms in Indonesia have dipped their toes into digital banking.

This is not in any way unexpected. Profits for any bank – digital or not – primarily come from financial services like lending. With digibanks still in their infancy and building up their offerings, there’s incentive to work with existing online lenders.

Linking up with digibanks offers many benefits for P2P lenders, but one stands out: getting a steady stream of funds through the former’s bank deposits.

The Bank Neo Commerce app / Photo credit: Bank Neo Commerce

In fact, without the help of digital banking, it will be difficult for online lenders to scale up because “they are dependent on external funding to fuel their lending propositions,” points out Yinglan Tan, founding managing partner of Insignia Ventures Partners.

“As P2P lenders start out, it may not be as much of an issue. But in order to continue sustainably expanding their offerings, greater weight is placed on ensuring that the funding does come in to fuel the loans,” Tan tells Tech in Asia.

As the lines continue to blur, the question may be whether digibanks would ultimately render online lenders obsolete. But if Indonesia’s multifinance companies are any indication, there is likely enough room for coexistence.

Blurring lines

It’s not a shocking discovery that the majority of online lenders have made moves toward digital banking. Even those that haven’t invested in digibanks are also exploring the space through partnerships.

Akulaku and Kredivo began as buy now, pay later (BNPL) services before eventually taking on lending. Both have also made moves into digital banking: Akulaku has become a shareholder in Bank Neo Commerce (BNC), while Kredivo has acquired a controlling stake in Bank Bisnis Internasional.

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

“Akulaku is strong on the asset side, and expanding to digital banking becomes a natural thing to do to expand our user base,” says chief financial officer Fan Zhang. The company aims to do so through an “enriched” product offering and by boosting “confidence in monetization” from credit underwriting.

However, Zhang acknowledges that being in the banking business comes with many additional challenges, such as increased capital requirements as well as more regulatory oversight and disclosure requirements, especially for publicly traded companies like BNC.

“It took BNC about 18 months of preparation to get to a place where the bank was comfortable enough to launch the Neobank app, and that’s excluding the share purchase process,” he adds.

Subprime demand will always exist