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Indonesia’s Bukalapak sees small shops powering digital banking

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E-commerce company Bukalapak’s close ties with Indonesia’s ubiquitous small and midsize family-owned warung retail shops will be a strength in the country’s increasingly competitive digital banking sector, its president told Nikkei Asia.

The company’s Mitra business focuses on helping warung operators to digitalize operations. The service enables the shops, which stock a variety of daily necessities, to carry out one-stop procurement of goods with an app and also sell digital items, including phone credits and data plans.

In a recent interview, Bukalapak President Teddy Oetomo said given that most banking in Indonesia is still done offline, “we can leverage our Mitra, leverage our traffic, leverage our infrastructure, leverage our online-offline existence, to be the intermediary and transition from the cash-based into digital banking.”

The company formed a partnership with Standard Chartered last year, and this month it launched a digital banking service called BukaTabungan (“open savings”) targeting Bukalapak platform users and people who have trouble accessing financial services, known in the industry as the “underbanked.”

Oetomo said the breadth of Bukalapak’s ecosystem will be the key to its success. The hope is that, ultimately, through the Mitra network, “We would be able to reach all corners of Indonesia …. [with] truly digital banking services,” he said.

Bukalapak last year became Indonesia’s first unicorn—a private company valued at USD 1 billion or more—to go public. It serves 6.8 million online merchants as of this month through its marketplace, 14.2 million businesses, including warungs, and more than 110 million customers throughout Indonesia, who mostly do business outside big cities like Jakarta.

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“We will never know how long it would take for digital payment penetration to take place in Indonesia, whether that be three years, five years, 10 years, 20 years, for it to be a significant component of payment[s],” Oetomo said.

“So, we want to be proactive in that sense,” he added, stressing that when users have their first interaction with digital payments, “hopefully it will be through us.”

Despite its advantages, Bukalapak faces growing competition, and the digital payments sector is drawing strong interest from companies ranging from incumbent banks and regional tech companies to conglomerates.

It is therefore trying to attract consumers unfamiliar with digital banking by offering benefits such as opening a savings account in as little as five minutes with no administrative fees.

Underscoring the competitive environment, Bukalapak said in presentation materials submitted to the Indonesia Stock Exchange in June that it expects an adjusted EBITDA [earnings before interest, taxes, depreciation, and amortization] loss of as much as IDR 1.5 trillion (USD 101 million) in 2022, which would be larger than the previous year.

“Our contribution margin should be positive in [the] third quarter and that’s also according to plan,” Oetomo said. “With regard to the adjusted EBITDA, we will strive to have that number be better than 1.4 [trillion], which is the better end of the range.”

Global food and energy inflation have become a concern since Russia’s invasion of Ukraine. In Indonesia, the government early this month raised fuel prices by about 30%, triggering demonstrations outside parliament and central government offices.

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Bukalapak believes it is well placed, given rising prices, as consumers may seek out products in the smaller packages sold by warungs. “Typically, in Indonesian history, whenever food and energy inflation took place, people tend to switch to the sachet base. So maybe that’s what we’ll see,” Oetomo said, referring to individually packaged items.

Meanwhile, layoffs at tech startups around the world have surged as many unicorns have become weighed down by high costs.

“I think that’s very macro-driven,” Oetomo said, citing inflation, rising commodity prices, and higher U.S. interest rates. And resulting tighter liquidity means startups probably can’t “secure as much funding compared to what they initially expected,” he added.

Finding talent in such an environment is thus a key challenge, and Bukalapak has a strategy to cultivate it.

“Indonesia has a lot of young talent, by population,” Oetomo said, though it lacks experience. The company has opened offices in Singapore, Sydney, and Melbourne in recent years to tap into more seasoned overseas tech talent as a way to mentor people and transfer knowledge to younger Indonesian employees. “And so far, it has worked pretty well,” he said.

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.

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