Julo on alternative data in Indonesia’s consumer lending game

Published on September 29, 2023

Indonesia-based consumer lending platform Julo harnesses customer data in novel ways to provide financial solutions to underbanked consumers whose needs are frequently overlooked by traditional financial institutions and the Buy Now Pay Later (BNPL) sector. 

With a focus on productive and constructive financing, Julo operates in a market expected to reach ⁠US$254 billion⁠ by 2025. On a recent episode of Indonesia Digital Deconstructed by AC Ventures, Adrianus Hitijahubessy⁠, Co-founder and CEO of ⁠Julo, and ⁠Adrian Li⁠, Founder and Managing Partner at ACV, discuss with host Leighton Cosseboom⁠ how Julo strategically fills gaps in the market and offers consumers peace of mind in the long run. 

Alternative data

Indonesia is the fourth-largest country in the world, with a population of more than 270 million. However, to date, over two-thirds of its citizens do not have access to traditional financial services. Banks are hesitant to enter the consumer lending segment due to a lack of data on each individual’s creditworthiness and the complexity of acquiring such information.

Julo addresses this issue by profiling customers using alternative data sources, such as their online purchase history, the types of apps installed on their smartphones, and other seemingly unrelated behavior stats. 

Through data science and predictive analytics, these diverse numbers prove valuable in forecasting specific consumer behaviors, particularly in determining whether a person will repay a loan. “I do believe that this has enabled us to crack into this space to tap into the millions of customers,” Adrianus said.

He explained that in the lending business, there are three types of scores. An A score, or application score, is assigned to a person applying for a loan for the first time. The B score, or behavioral score, relates to their transaction behavior under a certain credit limit, as well as other behavioral details. For example, how a person interacts with Julo’s app. Finally, the C score stands for collection strategy. 

Another option for a lending company is to use a less scientific approach by disbursing the money and making further decisions based on whether a customer repaid a loan or not. However, this approach has two major drawbacks. First, the elevated costs of unpaid loans, and second, the lack of accuracy in predicting customers’ behavior, as people tend to act differently depending on the size of the loan. 

“Typically, companies would offer a very low ticket size here, like US$50 or US$100 at most. Someone performing well with a US$50 credit limit will likely behave differently with a US$500 to US$1,000 limit,” Adrianus said. This is why Julo prefers to invest in gathering data before issuing a loan decision. 

Constructive financing

With more than 60% of its population in the working-age category, Indonesia boasts strong economic prospects. This sizable demographic has the potential to significantly boost Indonesia’s GDP through increased consumer spending and local production capabilities. However, access to financing is a key prerequisite to unlocking this potential.

Julo stands out by focusing on constructive financing options, which are rarely offered by other types of lending businesses, such as BNPL or payday lenders. Approximately 75% of the loans issued by the company serve four primary purposes. The first is financing for local businesses, such as selling products through online platforms, operating a small store, or offering home catering services. The second is education, and the other two are home renovation and healthcare.

“If you need to pay for your kid’s tuition tomorrow, BNPL solutions or payday loan products are not going to cover that. The limit may be too low, and the interest rate too high,” Adrianus pointed out. However, he emphasized that Julo does not discriminate against other types of consumers, such as those who want to upgrade their phones. “It is in the hands of each customer to decide what is best for them.”

Sense of security

Julo assigns each customer a credit limit, eliminating the need for them to go through a lengthy application process for each loan. A customer applies once, and the company conducts an underwriting assessment. Subsequently, Julo updates the scoring of customers every month to ensure that their creditworthiness remains up to date. In practice, this means that whenever a customer needs financing, there is a pre-approved credit limit in place, similar to a credit card.

“What’s even better is that the use of this limit is much more versatile,” he explained. In Indonesia, fewer than 3% of the population has a credit card, and their usage is mostly limited to shops and restaurants with credit card swipe machines. In contrast, Julo’s financing allows customers to make payments to local businesses through bank transfers or in cash.

Finally, he pointed out that having access to credit provides customers with a sense of security. The entrepreneur said, “Whether you need it today or not, having this available means that when unexpected life events happen, you won’t have to worry.”

Get the full episode for free on Spotify, Apple, and Google.