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Tackling SME payments and bank transfer fees in Indonesia

Published on April 4, 2023

In a recent MindShare episode of AC Ventures’ signature podcast Indonesia Digital Deconstructed, host Leighton Cosseboom was joined by two fintech leaders on the bleeding edge of the nation’s vibrant payments sector. 

Tessa Wijaya is the co-founder and COO of Xendit, one of the nation’s newly minted unicorns and a company sometimes referred to as the Stripe of Indonesia. Gita Prihanto is the COO at Flip, a fintech company that enables users to make payments, transfer money, pay bills, and purchase goods and services from their mobile devices.

The group explored fintech’s impact on economic inclusion in Indonesia. As many locals live on less than US$1 per day, the emerging market is a place where consumers can sometimes buy a full meal for the same price they would pay for a simple interbank transfer. This has historically been a major pain point but change is afoot, as fintech startups create competition and the government is also doing its part to lower costs with rollouts like BI-FAST and others.

No credit card, no problem for SMEs

When asked about Xendit’s early days, Tessa reached back to 2015 and noted that credit card penetration at the time was low. 

According to data from Indonesia’s Central Bank, the number of credit cards in circulation in Indonesia in 2015 was approximately 16.7 million. This indicates that credit card penetration was around 6.6% of the population, as the country’s population was around 255 million in that year. It’s worth noting, however, that this figure may not accurately reflect the number of credit card users in Indonesia, as many people may hold multiple credit cards, and some holders may be non-Indonesian residents or foreigners. At the time, Tessa believed credit card penetration was closer to 3%, a percentage that has not moved much in the subsequent years.  

Further, modes of payment were ‘manual,’ meaning seamless automated payments in real-time were nearly unheard of as the required infrastructure did not exist. This allowed fast-moving Xendit to quickly grab market share by giving businesses of all shapes and sizes a platform for automating payments. 

“We were the first to roll out world-class APIs, a new way of making payments for a new kind of era. We were the first to be able to deliver fully automated payments. So if you need to do a refund, for example, you didn’t need to pick up the phone and have somebody type in the background and do the transfer manually,” explained Tessa.

Easing transfer fees for consumers

Flip got its start trying to solve a very simple pain point in Indonesian consumer banking: costly interbank transfers. 

Until recently, it cost Rp6,500 (approximately US$0.50) to send money from one bank to another inside the country. That may not sound like a lot, but in an emerging market like Indonesia, it is indeed a problem, as it represents nearly half a day’s discretionary budget for many locals. 

Gita unpacks the extent of this pain point when she recounts the story of Flip’s inception. The startup’s co-founders – three university students at the time – built a manual proof of concept for bank transfers using Google Forms and Excel sheets. An hour after disseminating the Google Form to friends and family they noticed a stranger had transferred them Rp2,000,000 (US$135) — just to save US$0.50 in fees. Gita’s anecdote illustrates the demand for lower interbank transfer costs in the country.

Today, Flip is filling this gap in the market and aims to be the most customer-centric fintech company that enables users to do fair financial transactions from anywhere to anyone. Gita says Flip is all about fairness in doing business because it wants to help users execute various financial transactions at reasonable or low transfer costs in a simple app. 

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

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