In current Indonesian context, when somebody talk about fintech they mostly refer to lending. In DailySocial surveys, more than half of respondent associated fintech with online lending services with payment as a close second. Number of fintech funding activities also skewed toward this direction with 60% of total 14 deals in 2018 went to P2P lending startups. If you browse through fintech list in OJK website, only P2P lending are listed even though insurance and investment fintech falls under OJK supervision. There are currently 113 registered lending fintech as of June, far more than any other types of fintech combined.
Two things from this: Indonesian fintech growth so far still contributed by lending thus other financial services is underutilized. This leaves lots of room to grow for fintech ecosystem going forward. Second, with lending companies already reach hundreds, fintech players need to think hard what will be the next play.
So what could be the next phase for Indonesian fintech ? my take is on investing. Of all the financial services, it is the least inclusive with less than 1% registered investors in a 270 million population. Number of investors has been growing double digits for four years straight and most of the growth are contributed from younger segments.
In this article, i wrote overview on investing landscape in Indonesia, challenges and how this sector has big potential to drive further fintech growth going forward.
Investment Overview in Indonesia
Capital market is in growth stage in Indonesia. Jakarta Stock Exchange (IDX) is one of the fastest growing markets in the world and it has been outperforming other markets in ASEAN and APAC in the last decade. From 2015, market capitalization grew almost double from 4.5 up to 7.5 thousand IDR trillion. However despite the growth, challenges still lies in penetration and access for general population. Registered investor in the stock market is still 1.6 million, less than 1% of population. Investing in capital market is still a luxury for majority of Indonesian.
There is a positive trend in this last four years. Number of investors are steadily growing double digits since 2015. Last year there were nearly 500 thousands new investor registered which is a new record. Growth also contributed by younger segment which signal that millenials are apparently potential segment for investment product. My assumption that this might be contributed by the rise of millenial-focused financial consultant business such as Jouska and BigAlpha which primarily use social media. Jouska is very big in Instagram with half millions follower while BigAlpha is building their 25 thousand follower base in Twitter.
Major barrier for investment in Indonesia is literacy, its is not an easy product to understand. Before investing, one should have understanding of financial terms (inflation, value of money), know the concept of risk and have basic business knowledge. All of this require university-level education which only 20% of Indonesians have access to.
To tackle this barrier, IDX have been actively pushing investment literacy using Yuk Nabung Saham (Lets Save in Stock) online campaign. Apart from that, IDX also held regular offline short course called Sekolah Pasar Modal (SPM). Its a two days intro to stock or mutual funds investment course which include registration to stock broker. IDX held SPM not only in Jakarta but also in other cities as well. To further drive investment literacy, program like SPM need to be delivered to wider audience in a more scalable way.
Players in Investing Fintech Space
I divide players this space into three big categories : Stock, Mutual Funds and Gold. Even though they are all investment instruments, each have distinct players and user experience. However, there are also two Indonesian unicorns, Tokopedia and Bukalapak which aggregated multiple investment instruments in their platform
First one is Stock Investing, chart below are overview of top 3 stock brokers based on their 2018 performance.
As we can see, dominating players in this space are investment brokers and conventional banks. Old guards in finance business which recently starting to build their digital footprints. Mandiri Sekuritas, subsidiaries of one of the nation biggest bank, dominated on two fronts : Amount and Transactions. The only startup operated in this area is Stockbit. They are backed by East Ventures and recently they ventures into mutual fund by acquiring other local startup, Bibit.
What surprise is most of brokerage app are still requiring to send paper document for registration. Archaic in this day and age. The only app that offer fully digital registration process is Indopremier’s IPOTGO hence they are gaining significant grounds this past year.
Next one is Mutual Funds or reksadana. Startups are more prevalent in this area compared to stock investing. Leading in this space is Bareksa which have been operated since 2013 and just recently acquired by OVO. Bareksa powered both Bukalapak and Tokopedia reksadana platform. Not a small feat to have both Indonesian unicorns integrated with their platform. Another prominent players in this space is Tanamduit which also powered Tokped’s reksadana platform. Tanamduit is backed by RND Capital and was injected 3 USD mio funding in late 2018. There are also new entrants which building popularity recently : Stockbit’s Bibit and Ajaib. Ajaib was Y Combinator alumnae and recently got funding from Softbank.
Investment experience in mutual funds are much better than stock. You can open account and transact in 10 minutes by downloading any of the app from players mentioned above. Mutual funds also have lower barrier to entry. Both Tokopedia and Bukalapak offer reksadana product starting from 10 thousand IDR compared to most stock investment app which required mandatory deposit ranging from 500k up to 10 mio. On top of that, Indonesian government charge 0% tax on mutual funds.
Last one is Gold-based investment app. According to Jakpat Survey, Gold is investment instruments of choice by Indonesian millenials. It it the easiest instrument to get into. it doesnt require finance and business understanding to invest in gold. You just have to mind the price difference. Gold is also shariah-compliant which is compelling for moslem-majority country like Indonesia.
Top incumbent in this space is Pegadaian, state-owned enterprise whose core business is pawning. With 5000 retail offline presence and 10 million users, Pegadaian in recent years shifting their business to gold-based finance product. Bukalapak and Tokopedia is also selling in this space. Tokopedia powered by Pegadaian while Bukalapak is partnering with Indogold. On startup side, there are Tamasia, E-mas and also Pluang.
In my opinion, Top 3 challenges in investment landscape: literacy, high cost to entry and complex UI / UX. Here are some ideas to overcome these and hopefully useful to drive investment inclusion.
Sekolah Pasar Modal Online
As discussed above, IDX Sekolah Pasar Modal (Capital Market School) is good avenue for would-be investor to understand investment 101. Registration fee is also automatically deposited to investor account. Hence after completing the course, participant can start buying stocks immediately. The challenge however is to make this highly scalable since right now its only available in-person.
E-learning Platform like RuangGuru can do wonder to push this to wider audience. People can participate from their smartphone and on their own pace. It also needs to integrate with online broker app, hence all the KYC and registration forms is embedded into the course material.
Spare Change Investing
The concept is made popular by US-based fintech, Acorns. The app help you invest by rounding up transactions and automatically invest that in various investment instruments. This significantly reduce cost to entry while also tricking yourself to subconsciously invest.
Tokopedia has similar feature where they prompt to round up purchase with micro-gold transactions as low as 1000 rupiah. Personally i think this is a great feature which could significantly change how people dip into investing. Since Tokopedia also offer mutual funds from 10 thousand IDR, this mechanism could grow into full-fledge investment platform. Hundred millions Tokped users could be nudged into investing without them realizing about it.
Beginner-friendly UI / UX
Take a look at these sample screenshots from two online stock app, IPOTGO and Stockbit :
Imagine if you are a beginner in investment or just curious, IPOTGO UI will be very intimidating because you suddenly shoved bunch of stock codes in a spreadsheet format. Stockbit have better design because at least you get info on what the ticker means in the same view. The problem is most stock apps are designed for expert traders hence there are almost no hand-holding for newbie investors to get into.
Mutual funds app has better beginner experience. Bibit app for example has investment portfolio recommendation based on your risk profile. This make the app more welcoming and drive register-to-purchase conversion higher.
Investing from Mobile Banking App
From all three mobile banking app that i use (Mandiri, Jenius and DBS), i cannot buy investment product from any of them. Is it such a crazy ideas that i want to invest from the same account that i use to receive my monthly salary ?. Closest to this is Jenius who can seamlessly transfer current account to fixed deposit but they didnt offer stock, mutual fund or gold product. Even Mandiri which is market leader in stock trading does not offer investment in their Mandiri Online app.
From m-banking apps, i can pay bills, top-up my phone balance and register for new account. But somehow to invest is still not possible using these.
Investment is the most un-inclusive financial service in Indonesia. Potential is huge but most app experience is still tailored to seasoned investors rather than newbie masses. With better economic growth, investment fintech might be the next growth market in the near future.