Fintech Evolution: Scalability and Regulatory Understanding Are Now Core Focuses

Several panelists represented sectors fintech and venture capitalists talked a lot about past and present developments in the financial technology industry at the Indonesia PE-VC Summit 2024 conference by DealStreetAsia, Thursday (25/1). This annual conference brings together investors and digital technology industry players.

DailySocial.id summarizes the session "Fintech in Indonesia: The models in the spotlight" from C-level LinkAja and DANA, as well as venture capitalist ATM Capital relating to:

• The evolution of digital wallets past and present
• Pivot B2C to B2B for business scalability and profitability
• Fintech players need to really understand regulations

The evolution of digital wallets

Opening this session, Chief Operating Officer DANA Dean Krstevski shares his views on evolution fintech, especially digital wallet platforms (e-wallet) past to present. DANA is one of them e-wallet who was born in the early generation of the Indonesian digital industry.

There were three significant changes that he discovered. First, a significant increase in digital services penetration, driven by usage e-wallets. According to him, before 2018, bank transfers or virtual accounts were the most widely used payment methods for shopping online, or cash (COD) for users who do not have an account.

Second, the increase in digital payments is getting bigger in line with the launch of QR until it is standardized into QRIS. Third, players e-wallet As time goes by, they start to focus on their business and reduce incentives (promo or cashback) to improve the unit economics of the business.

"And we have seen this change significantly over the years. In fact, more and more merchants have digital wallets as the main payment method for online transactions. Although cashback reduced, still there growth. "We're headed in the right direction," Dean said.

Pivot for scalability

In LinkAja's case, the company decided to shift its business model to B2B to increase its business scale to achieve profitability, as is also being pursued by other startup players. Pivot It's also not just about operational efficiency.

LinkAja pivot since 2022, a significant step considering that the digital wallet business model in Indonesia is dominated by the B2C model. According to LinkAja Chief Finance & Strategy Officer Reza Ari Wibowo, pivot this able to reduce Opex up to 50%, driven by cuts in marketing costs and infrastructure costs of around 40%-50%, for two consecutive years.

In implementing the B2B model, LinkAja utilizes the ecosystem and assets owned by the parent company, Telkomsel, as well as entering the BUMN ecosystem. For example, LinkAja facilitates transactions for credit products or data packages worth hundreds of thousands reseller Telkomsel.

"We believe this strategy will help us reach a large number of customers and increase our profitability. LinkAja's average net revenue per user has now increased 8x. Our retention rate has shot up from 55% to 275%. Our profitability has also increased to positive quarterly EBITDA ."

You need to understand the regulations

Founding Partner of ATM Capital Minjung Liang admitted that he had witnessed the development of the industry fintech in the last six years. He said, when he first set foot in Indonesia, fintech still just a concept. Investors are not sure this concept can succeed and develop in Indonesia or other countries in Southeast Asia.

However, after 6 years, he has seen many perpetrators fintech develop significantly and have a major impact on people's lives; prove that fintech not just a concept on paper.

Apart from that, the fact is that there is still a large population unbanked and underbanked the percentages respectively reach 40% and 20%. This will be an opportunity and homework for financial startups to solve this problem.

"Any [startup] in this industry must have a strong understanding of regulations. They must know that the financial industry has a huge social impact on the world economy as a whole. They must understand the future social development of this country. For the financial sector, the biggest problem is how can they survive the cycle. In the beginning, they can generate revenue, but can they get through the tech winter situation?"

ATM Capital is a VC from China that has invested in a number of Indonesian startups, such as J&T Express, Tomoro Coffee, Kargo, and Jumpstart.