Bukalapak, Indonesia sees small stores propelling digital banking

E-commerce company Bukalapak’s close ties with Indonesian small and medium-sized family businesses war retail stores will be a force in the country’s increasingly competitive digital banking sector, its chairman told Nikkei Asia.

The company’s Mitra business focuses on helping war operators to digitize operations. The service allows stores, which stock a variety of daily necessities, to perform centralized purchasing of goods with an app and also to sell digital items, including phone credit and data plans.

In a recent interview, Bukalapak Chairman Teddy Oetomo said that since most banking in Indonesia is still done offline, “we can leverage our Mitra, leverage our traffic, leverage of our infrastructure, leveraging our online-offline existence, to mediate and transition cash into digital banking.

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

Oetomo said the breadth of Bukalapak’s ecosystem will be key to its success. The hope is that eventually, through the Mitra network, “we could reach every corner of Indonesia…. [with] true digital banking,” he said.

Bukalapak last year became the first Indonesian unicorn – a private company valued at $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 warungsand more than 110 million customers throughout Indonesia, who mainly do business outside of major cities like Jakarta.

“We’ll never know how long it would take for digital payment to penetrate Indonesia, whether it’s three years, five years, 10 years, 20 years, for it to be a big part of payment.[s]said Oetomo.

“So we want to be proactive in that regard,” he added, pointing out 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 industry is attracting strong interest from businesses ranging from incumbent banks and regional tech firms to conglomerates.

It is therefore trying to attract consumers who are unfamiliar with digital banking by offering advantages such as opening a savings account in just five minutes and with no application fees.

Highlighting the competitive environment, Bukalapak said in presentation materials submitted to the Indonesian Stock Exchange in June that it expects adjusted EBITDA [earnings before interest, taxes, depreciation, and amortization] a loss of up to 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 it’s also on plan,” Oetomo said. “As for Adjusted EBITDA, we will strive to get that number better than 1.4. [trillion]which is the better end of the range.

Global food and energy inflation has become a concern since Russia invaded Ukraine. In Indonesia earlier this month, the government raised fuel prices by around 30%, sparking protests outside parliament and central government offices.

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

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

“I think it’s very macro-focused,” Oetomo said, citing inflation, rising commodity prices and rising US interest rates. And the resulting cash crunch means startups probably can’t “get as much funding as they originally expected,” he added.

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

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

This article was first published on Nikkei Asia. It was reposted here as part of the ongoing 36Kr partnership with Nikkei.