BNPL has become a popular payment option in Indonesia due to its convenience and flexibility. With relatively low financial inclusion and even lower credit card penetration, BNPL offers the Indonesian public an alternative to pay a lower upfront amount for instant gratifications at lower or sometimes zero interest. 

The findings of a report showed that BNPL’s consumer search interest grew 16 times in the ASEAN market, predominantly driven by Indonesia.

The country’s BNPL gross merchandise value (GMV) is expected to reach US$25.3 billion by 2028, according to the Q3 2022 update by Indonesia BNPL Business and Investment Opportunities.

Source: Indonesia BNPL Business and Investment Opportunities

This trend of digital lending is due to large numbers of underbanked consumers lacking access to credit and payment platforms, resulting in consumers turning to alternatives such as BNPL to fund their purchases. 

A growing market: BNPL in Indonesia

According to the Q3 report, the payment adoption of BNPL is expected to chart a compound annual growth rate (CAGR) of 32.5 percent during 2022 to 2028, a slight drop from the 44.4 percent estimated in the Q1 report. The BNPL GMV is, however, expected to reach US$25.3 billion by 2028, an increase from the initial forecast of US$ 24.2 billion in the Q1 report.

The report also expects BNPL usage to increase along with the rising internet penetration rate in Indonesia, which is 68 percent in 2021 and the highest across the Southeast Asian region and is expected to reach 79 percent by 2025.

UOB Bank’s report found that Indonesians are more inclined to try BNPL because of sign-up promotions and promotion referrals (51 percent), competitive interest rates compared to credit cards (51 percent), and no credit cards (28 percent). The quick approval of applications (less than an hour) and the zero-interest loans also contributed to the popularity of BNPL amongst Indonesian consumers.

Reasons Indonesians are more inclined to try BNPL. Source: UOB

Meanwhile, 2C2P expects Indonesia to be the largest BNPL market in Southeast Asia by 2025, with the total BNPL spend on e-commerce projected to increase 8.7 times compared to 2020. 

Muhammad Arifin Adi Nugroho

Country Head of 2C2P Indonesia, Muhammad Arifin Adi Nugroho, said, “The presence of new options such as e-wallet and BNPL provides access to people who have not previously been touched by conventional financial services. These millions of new users are a new customer segment that local businesses need to accommodate.” 

Saturated B2C sector? Target the B2B sector 

The report highlighted that with the increasingly competitive B2C BNPL market, firms are shifting their focus to the B2B sectors to gain more shares in Indonesia’s BNPL market.

GoTo’s recent movement in the market illustrates the competitiveness of the B2C BNPL market. A merger between Indonesia’s two most valuable start-ups, ride-hailing giant Gojek and e-commerce firm Tokopedia, the firm is expanding its BNPL lending products to cater to Indonesia’s significant population of consumers who lack access to traditional credit. 

Patrick Cao, President of GoTo

Patrick Cao, President of GoTo, explains that the firm is expanding its credit lending services to enable payments in installments for high-value items such as mobile phones, due to the low credit card penetration of the country at 3 percent to 6 percent, and also the potential for growth of financial inclusion in the country.

As for the B2B market, Fairbanc, an Indonesian and Silicon Valley-based technology platform, enables B2B BNPL services for Indonesian MSMEs to purchase inventory on BNPL credit in partnership with large consumer brands with many merchants in the ecosystem. The platform offers credit to unbanked merchants without requiring smartphones or digital literacy.

With a recent securing of funds totalling US$4.8 million from ventures and start-ups, Fairbanc has over 350,000 merchants, of which 75,000 merchants are already purchasing inventories on BNPL, and has partnerships with major multinational consumer brands with large merchant ecosystems such as Unilever, Nestle, and Coca Cola.

Strengthening in-store network

As the BNPL market grows, the service providers are looking to expand and strengthen their usages in stores across the country.

Akulaku is expanding its offerings on its BNPL platform Akulaku PayLater and partnering with over 4,000 platforms and stores across Southeast Asia, including Bukalapak and JD.ID. 

Available in over 40,000 offline stores throughout Indonesia, including convenience stores and cinemas, amongst others, Akulaku PayLater offers a convenient payment option for both online and in-person purchases. It also rolled out a new instant checkout feature that provides a seamless consumer experience and continues to attract more customers to the BNPL platform.

Akulaku has recently landed a US$200 million investment from Japanese megabank Mitsubishi UFJ Financial Group (MUFG). This follows after the US$100m in funding closed from Siam Commercial Bank (“SCB”), Thailand’s leading full-service bank.

Fan Zhang

Akulaku’s CFO, Fan Zhang, said, “As countries in Southeast Asia continue to recover post-COVID-19 lockdowns, the overall credit market will continue to grow at an expedited rate. Akulaku is committed to innovation by enhancing our core tech and risk capabilities and developing additional technological and financial products and services. We plan to expand our partnerships with merchants both online and offline in the coming years.”

Open-loop payments products to drive adoption and transaction volume 

BNPL firms are also exploring partnerships with merchants to allow their customers to shop from merchant partners to increase the usage of their services.

Kredivo, one of the leading digital credit platforms for retail customers in Indonesia, launched the Infinite Card in collaboration with Mastercard to open up access to millions of Mastercard-enabled online merchants. The card allows Kredivo’s customers to use Kredivo’s credit limit across all of Mastercard’s online merchant networks.

AsiaPay Indonesia, a subsidiary of the AsiaPay Group, and Indodana announce a joint partnership that allows consumers to make payment at the checkout using its PayLater services with instalment payment options at online, mobile, and offline retail units across Indonesia. 

Joseph Chan

AsiaPay CEO Joseph Chan said, “BNPL is developing rapidly around the world, playing a positive role in alleviating economic pressure, promoting consumption, and boosting the digital economy. We are pleased to partner with Indodana to allow our BimoPay merchants to achieve a higher sales conversion and offer their customers a more convenient payment experience during the current difficult time.”

The flip side of using BNPL in Indonesia

When asked about the potential of leaving consumers in debt that they could not repay, Cao, President of GoTo, said the company’s data on its customers will help the whitelist consumers and generate better credit scores. In a credit lending application where users can get theirs approved with just a simple selfie and personal details, BNPL has come under the microscope due to the potential of leaving consumers drowning in debt.

Ligwina Hananto

Ligwina Hananto, founder and CEO of QM Financials said, “The lack of financial literacy among Indonesians, especially those living in rural areas, may put many in vulnerable positions. Particularly when it comes to unsecured loans with high-interest rates.” Hananto added, “Now, people can get loans from various fintech applications. Without understanding the actual risks and consequences, the cultural shame associated with having debts can quickly wear off.”

Sekar Putih Djarot, a spokesperson for the Indonesian Financial Services Authority, also highlighted the flipside of using BNPL and asked consumers to be more informed and aware of the nature of BNPL services. “…people need to understand that BNPL is a form of debt, so they must be able to measure their financial ability before deciding to use it,” said Djarot.

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• Source: https://fintechnews.sg/67961/lending/indonesia-expected-to-be-south-east-asias-biggest-bnpl-market-by-2025/