Startup and Digital Bank Collaboration to Strengthen Financial Innovation and Inclusion

There was a time when corporations considered the existence of a startup as a challenge. However, from year to year, this assumption is getting blurred when the two parties are now collaborating with each other, complementing each other to win the market.

In the banking sector, a new phenomenon that occurs is that large startups begin to invest and become majority shareholders in banks that have just transformed into digital banks. For example, Akulaku Enter Bank Neo Commerce (BNC), then Gojek invest in Bank Jagoand Sea Group, the parent company of Shopee, which reportedly goes to the Economic Welfare Bank (BKE).

Currently Akulaku, through PT Akulaku Silvrr Indonesia is currently trying to increase its shareholding in BNC through a scheme rights issue. With this action, possession Akulaku will increase from 24,98% to 27,25%. As for Akulaku has been a BNC shareholder since 2019.

Then, in mid-December 2020, Gojek The Group, through its subsidiary GoPay (PT Dompet Anak Karya Bangsa) injected investment into Bank Jago in the form of a 22% share investment at the end of 2020.

Meanwhile, there has been no confirmation regarding Sea Group's involvement in BKE. However, there is strong evidence based on information from the recruitment page which states that there is a new placement at "Sea Money-Bank BKE".

Abroad, the dynamics of digital banking are already running fast. Take for example, the Monetary Authority of Singapore (MAS) has issued digital bank operating permits to four groups of companies. The four licensee companies are (1) Ant Group, a subsidiary of Alibaba Group, (2) consortium Grab-Singapore Telecommunication Limited (Singtel), (3) Sea Group, the parent of Shopee, and (4) a consortium consisting of companies from China, including Greenland Financial Holdings.

So, what is the meaning of this synergy between startups and digital banks? How can the synergy between the two be mutually beneficial without breaking existing regulations? The banking sector is highly regulated sector which has high risk management when it comes to product and service development.

Strong capital and innovation development

Even though the digital bank terminology and supporting regulations are unclear, the forerunner to a digital bank actually emerged when BTPN launched Jenius. This step was then followed by DBS via Digibank. It's just that Jenius and Digibank are not yet valid as digital banks because their business processes are still under the roof of the company that owns them.

For this reason, digital banks such as Bank Jago and BNC are carrying out massive transformations by changing faces and Branding new in order to strengthen its position as a digital bank. Bank Jago is a new identity from the previous name Bank Artos, while BNC was previously called Bank Yudha Bhakti (BYB).

Bank Jago's name change in June 2020 followed its acquisition by an investor group led by Jerry Ng and Patrick Waluyo through PT Metamorfosis Indonesia (MEI) and Wealth Track Technology (WTT). Jerry Ng is the former President Director of BTPN for a decade and is also the person behind the development of Jenius innovation, while Patrick Waluyo is the Co-Founder of Northstar Group, one of the former owners of BTPN.

Then, Akulaku became a shareholder in BNC for the first time in March 2019 with ownership of 8,9% from the controlling shareholder at that time PT Gozco Capital. This fintech platform continues to increase its share ownership to become the controlling shareholder.

In previous reports, President Director of Bank Yudha Bhakti Tjandra Gunawan has emphasized that his party is shifting the entire work process and business model as a conventional bank to digital, including the existence of branch offices, the number of which will be limited.

To strengthen internal human resources, BNC even recruited many talent in the technology sector and is also assisted by collaboration by two giant technology companies, namely Huawei and Sunline.

Contacted DailySocial recently, Tjandra reiterated that BNC is trying to be present with positioning different things through his collaboration with Akulaku. His party will target the retail and MSME segments through a number of products digital banking.

"Akulaku as one of the shareholders in BNC is a fintech company that focuses on e-commerce, B2B financing and other digital financing, so that in the future BNC and Akulaku "will combine market segments," said Tjandra.

Meanwhile, it is not yet known why Sea Group entered through BKE. If this is true, it could be that BKE will suffer the same fate as the two examples of banks above, namely coming up with a new identity. Apparently, it will be difficult to move forward without a new identity for the company legacy who want to carry out a major transformation.

Product development and integration into service ecosystems

Involvement Gojek, Akulaku, and Shopee (Sea Group) have the same common thread, namely efforts to combine innovation in the digital service ecosystem for people who are still not exposed to banking services.

Banks are a trust business, while digital platforms have the power of technological innovation. In this case, banks can push financial services into a wider platform service ecosystem with a large customer base.

Gojek already has a service ecosystem from A to Z. Likewise, Shopee, which according to iPrice data, is the e-commerce with the largest monthly visitors in Indonesia in the first quarter of 2020. Meanwhile Akulaku aiming for a comprehensive financial ecosystem, starting from marketplace, P2P lending, to financing.

Quoting Krasia, CEO Akulaku William Li said that the potential for digital banking in Southeast Asia is very large. "We see that there are 400 million workers, but only 5%-10% use digital banking services. This means we have 300 million potential customers," said Li. According to him, if Akulaku can capture around 5%-10% of this market share, the company can potentially achieve greater achievements.

From a technological perspective, Tjandra also said that his party would optimize technological development and digitalization of loan origination systems and online financing related to granting approval and distribution of credit. In the future, this coordination and integration can become a pilot ecosystem that can be replicated in other countries marketplace other.

In addition, BNC will develop open banking in the payment system through the formulation of Open API Standards so that transaction and identification processes will be more efficient seamless. "This is pilot project digital products on the platform Akulaku as well as for the use of BNC Virtual Accounts to make it easier for customers to make payments," added Tjandra.

Meanwhile, Chief Corporate Affairs Gojek Nila Marita revealed that Gojek and Bank Jago is currently preparing a synergy of digital banking services. This is in line with the company's efforts to increase financial inclusion at all levels of society.

Based on reports from Google, Temasek, and Bain & Company, as many as 52% or around 95 million adults in Indonesia do not have a bank account and more than 47 million adults do not have adequate access to credit, investment and insurance. On the other hand, smartphone penetration in Indonesia has reached up to 70%-80%. This indicates that Indonesian people are ready to receive digital banking services.

"The number of people who do not have a bank account is still very large in Indonesia. Therefore, Gojek together with Bank Jago will provide digital banking services on the platform Gojek to facilitate access to financial services," he said DailySocial.

Referring to this, collaboration between startups and digital banks can encourage financial inclusion penetration. One of use casehis is a digital platform can be front-end channels for opening an online account. This is what is being prepared Gojek and Bank Jago as their initial synergy plan. A similar concept has actually been implemented by a number of banks in Indonesia, such as opening a BRI online account on the platform Grab.

By utilizing the platform as an entry point, people can be exposed to an integrated ecosystem of platform services. Bank Jago can take advantage of the service ecosystem Gojek to increase penetration of its services, this also applies to BNC-Akulaku and Sea Group-BKE. This means that the government's efforts to encourage financial inclusion at all levels of society can be realized more quickly.

The next step is technology transfer. This is a heavy price to pay toleverage technological innovation that has been built by Gojek, Shopee, and Akulaku. There will be more freedom to develop innovation rather than synergize without investment commitment.

However, considering the current regulations not yet accommodating digital banks, a financial innovation player still wait and see about limitations and potential for future business development.