[Recast on Monday, Nov, 28, 2016 at 08:02 p.m. to revise the story and correct some inaccuracies; incorporate clarification from FinAccel]
Jakarta. FinAccel, a Jakarta-based financial technology company, plans to expand its Kredivo online payment and credit scoring service to most major cities in the country next year to give more Indonesians access to financing, an executive told the Jakarta Globe on Thursday (24/11).
FinAccel launched Kredivo in February after seeing a gap in seamless payment method for booming e-commerce market in Indonesia, where only one in 15 people have credit cards. While 36 percent of country's 120 million adults have bank accounts and debit cards, only 13 percent borrow from formal financial institution, according to World Bank data.
"We want to help Indonesian people access credit in a way that is also convenient to them," FinAccel co-founder and chief operating officer Umang Rustagi said.
The Kredivo service is currently only available for residents of Greater Jakarta, Bandung and Surabaya, but the company has set a target to cover all major cities by the end of next year.
Rustagi said Krevido has facilitated 60,000 transactions so far, usually for buying smartphones, with the service growing at a staggering 20 percent per month in terms of transaction and loan value. As a comparison, Bank Indonesia, the central bank, only expects total loan growth of 9 percent this year.
Also, FinAccel is looking for more financing partners in Indonesia and other countries in the region to expand its service.
"We are seeing ourselves as a complement to the existing banking business, not as their competitors," Rustagi said. "Our target is basically that we want to disburse over $1 billion regionally in the next five years."
He added that Indonesia would account for the lion's share of the target.
Kredivo allows any customers aged between 18 and 60 to make payments on e-commerce websites and convert the purchase in installment without a credit card or even a bank account. The latter option is made possible as Kredivo calculates customers' credit scores from thousands of data points from their online histories and then submit loan applications on their behalf to its financing partner.
Rustagi believes the company's technology can bridge lenders and new customers, often the young and those who do not have a credit history.
FinAccel estimates that there are between 70 million and 80 million banked, urban middle-class people and least half of them are connected to mobile, or internet banking.
"However, only 6 million to 7 million have access to credit. So our target market is the huge gap between these numbers," he said.
Any Indonesian citizens aged between 18 and 60 years, who live in Jakarta; Bogor, Depok, Tangerang, Bekasi, Bandung or Surabaya; and earn at least Rp 3 million ($222) per month, are eligible for Kredivo's installment plan, which provides up to Rp 20 million in loans.
Lower Interest Rates, Eventually
To use Kredivo, users only need to download the app or log in to Kredivo's website, fill in some personal information and allow the service to access the user's social media account. The more data customers consent to provide, the better the credit assessment, and theoretically the cheaper the loan, Rustagi said.
Kredivo uses its own algorithm to assess loan applicants' likelihood of paying back debt by looking at their online habits. For example, an applicant who frequents gambling sites will most likely be turned down.
The novel credit scoring method promises a shorter processing time at significantly lower cost, compared to the tedious paper-based system still being used by traditional lenders, which in turn could benefit customers in terms of paying lower interest rates, Rustagi said.
However, Kredivo's impact in bringing down interest rates is yet to be seen. Loans offered through the service bear interest rates of 2.95 percent per month for installment periods of up to 12 months, similar to any other credit card in Indonesia.
For one thing, Kredivo's proportion of bad loans is no different from any large bank in the country; a factor that may have forced BFI Finance Indonesia — currently Kredivo's only financing partner — to keep such a high interest rate to cover the risk.
FinAccel said its credit risk model's maturity or predictive power, as measured by the Gini coefficient, "is as good, or even better, as other large banks in Indonesia. We are not mining traditional data, but alternative data."
"At this point in time, the NPL that we see is no different from any large bank in the country," FinAccel said.
Kredivo's payment method is currently accessible at 60 online merchants, including one of Indonesia's oldest online stores, Bhinneka.com. The service has evaluated the credit scores of around 100,000 customers; mostly young males in their late 20's.
Correction: The previous version of this stories contained several mistakes, which are corrected as follows: the company name is spelled FinAccel; Kredivo's target market consists of banked urban middle-class people, not the unbanked; its non-performing loan ratio is comparable to any large bank in the country, not higher; the service has evaluated the credit scores of nearly 100,000 people to date, not 10,000 people. The Jakarta Globe regrets the errors.