Indonesia's Kredivo plans SE Asia expansion as instalment payment becomes popular

30, Aug. 2021

Pay-later payments have become increasingly popular with consumers especially when shopping online. (Photo: Kredivo)
Pay-later payments have become increasingly popular with consumers especially when shopping online. (Photo: Kredivo)

By Celine Chen

JAKARTA, NNA - Having achieved early success in Indonesia, fintech startup Kredivo plans to launch its buy-now-pay-later (BNPL or PayLater) service in other Southeast Asia countries like Thailand, Vietnam and the Philippines where the potential is huge as access to ready credit for the man in the street is also limited.

Providing instant credit financing to 4 million customers, it offers payment services including instalment options with low interest for e-commerce and offline transactions as well as personal loans.

Funding Kredivo's expansion in Indonesia as well as the region will be facilitated by gains from a merger of its Singapore-based parent company FinAccel with VPC Impact Acquisition Holdings II (VPCB), a special purpose acquisition company listed on global marketplace Nasdaq and sponsored by Victory Park Capital (VPC) in Chicago.

The fast-route backdoor listing, which is expected to take place in the first quarter of 2022, means Kredivo will be the first Southeast Asian fintech firm to list in the US and gain an enviable spot on Wall Street.

The valuation of the merger company is $2.5 billion, and the transaction will deliver more than $430 million of cash to its balance sheet, said Kredivo in a press release.

Payment platforms like AI-enabled Kredivo have started a digital disruption in Indonesia and other emerging markets in Southeast Asia with their buy-now-pay-later services offering consumers choices in the number of instalments.

BNPL has become increasingly popular with consumers as more e-commerce platforms and fintech players such as Tokopedia, Grab, GoJek, Razer, Alibaba, and Traveloka launched the payment method.

Founded in 2016, Kredivo is looking at potential growth areas such as education and motorcycle loans, and digital banking for its expansion in Indonesia where it hopes to garner 15 to 20 million customers in future.

The increasing popularity of BNPL platforms amid financial uncertainty during the COVID-19 pandemic, coupled with the growth of the e-commerce industry, is expected to create growth opportunities for the market, said Grand View Research, Inc.

The global BNPL market size is expected to hit $20.4 billion by 2028, rapidly growing by 22.4 percent yearly from 2021 to 2028, according to the latest report by Grand View, adding that it is considered a convenient payment method for smaller purchases when shopping online.

Shoppers also prefer buying products from sellers that allow them to make payments in instalments without having to pay any interest, said the market research company.

"As a result, merchants can increase their conversion rates with BNPL services. These services also offer other benefits to merchants, such as full and upfront payments, higher average transaction value, larger customer base, and repeat purchases, among others. These factors are expected to create growth opportunities for the market over the forecast period," said Grand View.

During the 2020 pandemic, digital payments accelerated in Southeast Asia and the wider Asia-Pacific region.

The region is the world leader in cashless transactions, with a predicted average annual growth rate of 16 percent from 2020 to 2025, said Research and Markets.

Countries in Southeast Asia seeing a surge in digital payments include Malaysia where e-money transactions jumped over 60 percent from 2019 to 2020. For Indonesia, the growth was more than 40 percent.

Akshay Garg, CEO and co-founder of FinAccel, said, "We believe that credit is very important and drives economic growth anywhere in the world. Savings does not, credit does. Savings translates into credit. That's what translates into economic growth. And there is a very, very large need in Indonesia for more credit in the ecosystem to drive more and more economic growth."

Using primary data from 10 million sample transactions made at Indonesia's six largest e-commerce platforms in 2020, Kredivo found that BNPL users increased during the pandemic with 55 percent of them using the payment method, which offers settlement within 30 days or instalments up to 12months.

"BNPL has the potential to become the preferred payment option due to its convenience, security, and speed. Almost 90 percent of consumers are aware of BNPL. Of those who have used BNPL, 50 percent say they plan to use it more frequently in the future," said Kredivo in its report in July.

It said 41 percent of consumers used BNPL to manage cash flow for their monthly expenses while noting that there was significant increase for product categories such as household appliances, phone credit reloads and vouchers, as well as food.

Bima Laga, general chairperson of the Indonesian E-Commerce Association (idEA), said, "The pandemic has brought many changes in people's daily lives. It is important to be able to understand the online consumer trends and behavior, not only for e-commerce industry players but also for digital service providers that support the e-commerce ecosystem such as the fintech industry."

With only 8 million credit card holders in Indonesia, Kredivo is able to fill a gap to provide consumers with low-cost credit.

Akshay said, "We intend to consolidate our position there and are also very keen to expand our buy-now-pay-later business across the region, since there are other countries, such as Vietnam, Philippines, Thailand, that also suffer from, to varying degrees, the lack of credit access that we actually see in Indonesia today."