Technology / March 2018

Disrupting the Credit Market in Indonesia

By Eko Sulistyo

Kredivo has triggered a new wave of disruption in Indonesia within the non-banking credit line, in the form of a digital credit card for the specific e-commerce market. Broadly, it aims to provide digital credit in a very convenient way for a large number of credit-starved Indonesian millennials.

GlobeAsia sat down with Kredivo’s CEO and co-founder Akhsay Garg to discuss its growth and target market, the development of credit access in Indonesia, as well as the market’s disruptions.

Kredivo’s target market is the millennial generation, Garg said, as they are digital-savvy and more comfortable with online application processes. It is the segment of the population in Indonesia which despite being educated, urban and working in a formal work environment, is the most credit-starved segment in the country.

“Nine out of 10 millennials who applied for any kind of credit products were rejected,” Garg said. “Given that they were rejected despite being credit-worthy, and they are very digital-savvy, this made them our target market.”

In terms of growth, Kredivo started with a private-beta version in April 2016 and went live in operation with only several merchants. In July the same year, the company went out to the market and worked with more merchants.

“First of all, we never grow fast by design. We grow because things happen. We have targeted a really large market opportunity, because nine out of 10 Indonesian millennials are not getting access to credit cards,” Garg said.

Kredivo has included other factors as its support, including the automation of processes. “Within two minutes after you apply, you will find that you have a credit limit of anywhere from Rp3 million to Rp20 million.”

The company has achieved strong distribution within only 18 months, managing to partner with some top e-commerce merchants. “We are now available on four out of the five biggest e-commerce merchants in Indonesia, including Lazada, Shopee, Bukalapak, Blibli,, and that creates a very strong market,” said Garg, adding that 80% of the e-commerce market in Indonesia is focused on the top 10 merchants.

Another reason is the quality of Kredivo’s marketing and pricing, where it is focused on helping people understand how they can use credit positively. “I think we view credit — and I say this very seriously — not as a way for the company to create a revenue generation opportunity. The fact of the matter is borrowing responsibly can be good, as it allows you to smoothen your cash needs and you do not have to pay everything overnight,” Garg said. “We are probably the only consumer credit card in the country which is not a bank product, but the pricing is exactly like that of a bank.”

From the perspective of average percentage rate (APR), Kredivo charges 2.95% interest per month, around 41% annually, while other consumer finance companies in the country are charging 80% to 90%.

Garg added that Kredivo’s marketing system has also helped people to understand the competitive pricing, fast-application process. “But at the end of the day, we would not grow so fast if it weren’t for the word of mouth. Nearly 60% of all our applications from people who apply for Kredivo did not come by advertising. All of these were organic. I think this could only happen through the word of mouth if you have a strong product. In general, I would say it is probably the advertising, the word of mouth and the distribution by e-commerce merchants that led to that exponential growth.”

E-commerce growth and credit access

The challenge is to create an ecosystem that is conducive to the industry. In other countries, according to Garg, the ecosystem has been well prepared with logistics and supply chains, in addition to the existence of very strong internet connectivity. “In Indonesia, the problem lies in every element of this ecosystem.

However, (improvements) can be done. But Indonesia is going to face a bumpy road ahead,” he said. In the long term, however, he expects to see e-commerce grow. Currently, it enjoys a mere 1-2% of the retail industry, while in five to six years it may reach up to 10% if everyone is willing to participate.

“We are hopefully going through one of the biggest disruptions in the history of the world. Everything is changing. Now, we are doing everything online. So, I believe the digital disruption is here to stay. For us, we are building a digital product and e-commerce is a digital industry. It is a perfect fit,” Garg said.

Such growth, in his opinion, will add to credit access for Indonesians, especially the millennial generation, despite various issues regarding credit scoring methods and data.

“We are pioneering a new form of credit scoring, called ultimate database credit scoring. Traditionally, a bank used to locate bank and repayment data of loans in order to qualify someone. Now what we are looking at is your digital data. If you apply, the more online and social media data you give us access to will create a higher chance we are going to approve you and provide you with a credit limit,” said Garg.

The idea is to mine everything from mobile phone data to social media, e-commerce, bank accounts and environmental data, allowing the service to predict — with a very high degree of confidence—whether a person is high or low risk.

“We pay very close attention to risks, as two-thirds of our users’ applications had been rejected. Even if you were approved, we also have a fraud score that when we find very suspicious behavior we can actually block you. Because we manage risks very carefully, it provides confidence to lenders to keep on lending more and more.”

However, without a functioning credit bureau like India and China, where are strong and robust credit bureaux and coverage, there is a crucial need to score users before lending them any funds.

“In China, you can simply login with your national identity card number, pay the equivalent of S$15 and get a credit score, which is a direct proxy of your ability to borrow. But you cannot do it in Indonesia yet,” said Garg.

Funding growth and future innovations

Within the first six to nine months of operation, Kredivo was lending small amounts every month. It ramped up to a point where it constantly increased its available funds under a partnership with BFI Finance. The finance company has become very excited about Kredivo’s growth and risk numbers, while adding more credit lines to its portfolio and book-lending contracts in line with Financial Services Authority (OJK) regulations.

“We do not have any exclusive partnership with BFI, as we can work with anyone. These other institutions are combined from local and international funds,” said Garg, adding that his operation has secured a total credit line of between S$15-20 million.

The company also raised funds in a seed round in December 2016, and a Series A round of funding in January 2017.

“We were press-shy about this, but I can tell you that these two rounds were probably the biggest investment rounds in Southeast Asia. We cannot disclose the numbers, but we can say that our Series A fundraising was a double-digit million dollar round. We were one of only two companies that were able to raise that amount of funds.”

To complement this, he said Kredivo’s growth has been closely correlated with the e-commerce world, but not dependent on it, as it has continued to create more innovations. One of Kredivo’s inventions is its payment method, which represents the simplest and fastest checkout in an e-commerce platform.

“We are 20 years ahead of the current payment experience that people are using, as simple as two clicks,” Garg said, adding that, “It is not just about providing credit, but it enables people to buy and conduct transactions in a way that is simpler, faster and better.”

Some other features are to be launched within short- and long-term timetables. “In the short term, which is this quarter, we are trying to provide what the users want, in terms of inside-app purchases for bill payments. We will launch the bill payments by the end of February.

“Another feature is the launch of our personal finance management product, but it would be under a different brand but still related to Kredivo, under the brand ‘LIME’.”

LIME is a personal finance management app, where you can connect your bank accounts and the company will automatically categorize all expenses in real time, in order to allow better management of available funds. “The whole idea about Kredivo is for people to borrow responsibly,” added Garg.

Kredivo will also be available offline in six months, using EDC machines and mobile phone numbers. “In the long run, we want to provide loans as well, which is letting people take cash advances within their credit limits, as it is something they have asked for,” he said, adding that the aim is to cater to many more than the current 500,000 users conducting transactions in Kredivo.