If there’s a need for a way to connect financial services to the unbanked, it’s in Indonesia.
Indonesia had 92 unbanked adults and 47 million underbanked (they have an account but no access to credit, insurance, or investments), according to a 2019 report by Google, Temasek and Bain.
That’s a little more than 50 percent of the country’s entire population, including kids.
“There’s a divide between the growing digital economy, and the lack of banking rails,” said Smita Aggarwal, India-based global investments advisor at Flourish Ventures. “Embedded finance is key to closing that gap.”
Flouish, the VC arm of the investment office of eBay founder Pierre Omidyar, has a mandate to back fintechs driving financial inclusion. Her latest deal was to lead a $8.5 million seed round for Brick, an Indonesian fintech building a single API layer for open finance.
VCs Antler, Trihill Capital, Better Tomorrow Ventures, Rally Cap Ventures and fintech angels also participated.
Connecting fintechs to third parties
Its Singaporean CEO and co-founder, Gavin Tan, previously worked at OOjiBO, a startup helping the unbanked in Myanmar make mobile payments, and Aspire, a digital bank for SMEs.
“I’ve experienced the pain of fintech innovators lacking APIs in Southeast Asia,” he said.
He launched Brick in 2020 in Jakarta to help connect fintechs to third parties, be they merchants, e-commerce companies, or financial institutions.
Brick isn’t touching consumers directly, although Tan says he will use some of the seed proceeds to develop an SME-facing service.
Rather it’s trying to serve Indonesia’s growing ranks of fintechs, by giving them the tools to pursue open-banking business models.
Banks signing up
“The Southeast Asia fintech wave is five years old now,” Tan said. “There are now hundreds of fintechs, not just in Indonesia but in other Southeast Asian markets too. Banks and regulators are starting to follow the open-banking movement that began in the West. The major banks now have API portals, and regulators are introducing standards.”
This is happening despite regulatory mandates. Tan does say right now dealing with banks is difficult because they still prefer data flow in one direction: towards themselves.
“It might take regulation to change that,” he said.
But more banks are lining up to connect their systems to fintechs and consumer tech giants such as Grab, GoTo, OVO and Lazada.
Open banking roles
Tan says open finance providers can do three things.
First, they can help with data aggregation, to support services such as a holistic view of a customer account.
Second, they provide payments connectivity.
Third, they offer core banking-as-a-service infrastructure.
Brick is not at this third level – that’s more for regional or global tech companies like Nium or Railsbank.
But since going live in March 2021, it has built up market share in piping data, so users can sync bank accounts to various apps and websites, and has recently expanded into facilitating payments directly among bank accounts or wallets.
“They are by far the market leader in API data coverage,” Aggarwal said.
Brick’s clients include conglomerates such as Sinarmas Group and Astra Financial, and its APIs support 1 million consumers. The company says it now has more than 50 paying clients, including many local fintechs.
Reaching new customers
Tan says banks are keen to engage with open-banking models in order to reach those unbanked in an economic way. Technology makes it possible to serve poorer customer segments – if the banks accept that the customer will belong to a partner organization.
“Banks face limits on the number of people they can reach,” Tan said. “With embedded finance, they meet the customer where they are. They can provide a seamless digital payment, credit, or insurance policy in the moment. There are a lot of platforms and fintechs in Southeast Asia working on this idea.”
Making it happen requires a lot of plumbing, to ensure the seamless flow of data in real time. Hence the experience and the permissions must be “in the moment”, where the consumer is making a digital decision.
Data and UX
Brick’s role is not only to provide the connectivity, but to safeguard consumer data.
“The consumer may not know where the data or the financial product comes from,” Tan said. “Otherwise it gets clunky. You can’t ask the user to upload their bank-account history or KYC documents.”
Brick keeps the infrastructure out of the consumer’s sight but lets them explicitly agree to sharing a specific datum for a specific reason.
“It’s not serving a long terms-and-condition form that people consent to without having any idea of what’s happening with their data,” Aggarwal said. “With Brick it’s a specific assent for a specific transaction. They make it clear to users that they’re likely to get a better credit score if they agree to share that information.
Tan acknowledges the user interface is a work in progress, with plans to build a dashboard feature for users to have a better view of their information.
Expansion plans
Brick is using its proceeds to double down in Indonesia, but also to look at the Philippines and Singapore as potential targets of expansion – markets with a fast-growing fintech industry, friendly regulators, and enough banks willing to participate. Later it will develop direct links for small businesses.
Although Brick is off to a rapid start in Indonesia, Tan says the environment is still difficult.
“The concept of open banking is still new,” he said. “Especially for local companies that don’t have an international outlook. They need help to understand how to use a plug-in for a better user experience, how to leverage the data.”
Regulations are not a hindrance but they’re also unclear – Indonesia is more a case of benign neglect, which can leave doubts about what authorities might do later. Indonesia’s large population makes it attractive, but there are other markets where the regulators are actively encouraging open banking – such as the Philippines, as we’ll see in the next installment of this series.
