Indonesia’s Akulaku rides the digital banking wave in Southeast Asia

One of the most tangible impacts of the coronavirus is how the global health crisis spurred consumers in Asia Pacific to more fully embrace services, including banking.

As the largest economy in Southeast Asia possessing a significant rural population, new registrations for digital banking accounts are on the rise in Indonesia. The country is primed for a digital banking overhaul as it goes through a boom in local fintech startups, with approximately two-thirds, or 66% of Indonesian residents either under-served by traditional banks, or unbanked entirely.

When it comes to the wider Southeast Asian region, reports indicate the number of unbanked adults hovers at over 70% of the population. Most of the people living in Southeast Asia also don’t have an established credit history, but the demand for credit is strong. The potential in the region’s consumer finance space is what is driving Indonesian fintech to aggressively expand its online credit loan and digital banking services to the rest of the country.

Since its inception around four years ago, Akulaku has been creating virtual finance products for the Indonesian market. Starting with offering installment payment facilities for goods on e-commerce platforms, Akulaku then diversified into the massive personal loans sector within the archipelago, providing unsecured loans on everything from salary advances to vehicle loans.

A realization by company founder William Li on the broader potential within Southeast Asia set the burgeoning fintech firm on a new path: “As our market experience deepened, we realized there was huge income disparity in Southeast Asia,” said Li.

“While many young people make US$283 a month, we also find a sizeable middle-class segment that makes more than USD$1,415. There is strong demand for wealth management among these high-income individuals,” he added.

Since 2019, Akulaku has quickly advanced its online wealth management platform, which has more than 100,000 monthly active users in Indonesia. The high cost of consumer banking in Indonesia has caused a large, unfulfilled space that digital banking operations like Akulaku are now occupying, and the firm is capitalizing on the potential in the rest of Southeast Asia.

“The potential for digital banking in Southeast Asia is enormous,” observed Li. “Just in personal banking alone, we are looking at 400 million workers. Only 5 to 10% are using digital banking services, so we have 300 million potential customers.”

Akulaku has already expanded into the Philippines, Vietnam, and Malaysia, with over 6 million users in total and an annual transaction value of over US$1.5 billion. For the next stage of its growth trajectory, the fintech will be relying heavily on technology as it looks to overcome additional risks, like increased loan defaulters, amid the response to the ongoing pandemic.

Akulaku scaled back its online lending operations due to the pandemic, while its risk control system driven by artificial intelligence (AI) helped to navigate the murky loan approvals process. Li says AI in risk control is a frequent topic he discusses with regional banks and financial institutes.

“They asked if we could assist with technical and risk control solutions,” he elaborated. “Coincidentally, we have incubated our existing risk control systems and models into service outputs, which can be released as ready-made financial technology products.”

COVID-19 might have pushed back its targets momentarily, but Akulaku’s long-term goals are still intact: The company wants to harness AI and machine algorithms to solve accelerate digital banking needs in the region, including services in online account transfers, Know-Your-Customer (KYC) and risk assessment protocols, and even anti-fraud and anti-money laundering processes.

“Suppose you have 10 million customers. Each customer performs two transactions every month, totaling 20 million transactions per month,” Li calculates. “Every transaction involves risk control, KYC, and anti-fraud– such calculations are simply beyond human capacity. We must rely on technology, which is why our investment in research and development exceeds USD 28million every year.”

With the reliance on cutting-edge risk and financial tech, Akulaku hopes to serve upwards of 50 million customers by 2025, and to continue growing its digital banking presence to at least ten markets in the next five years.

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