In Kuningan City, a scruffy mall in central Jakarta, adjacent signs from Ovo's and Gojek’s payments arm Go-Pay each offer shoppers 20% cashback on their purchases.
In the ring also, fighting hard for the attention of Indonesian consumers, is LinkAja, the mobile wallet and payment service launched in March by state-owned enterprises, plus privately owned latecomers including Ant Financial-backed startup Dana.
Rival payments applications are mushrooming across Indonesia and are engaged in a brutal subsidy war to attract consumers to use their apps.
From the get-go, Ovo’s strategy was to be an open ecosystem. It partnered with other companies such as mall operator Lippo Group, Singapore-headquartered ride-hailing app Grab, as well as local ecommerce unicorn Tokopedia to bring in users and pool data.
Unlike Gojek’s Go-Pay, it has developed an independent app that can sit nestled within Grab's or Tokopedia’s app on consumers’ smartphones.
“Rather than being a closed ecosystem where you’ve got one organisation invested in everything, we’re all investing to grow our ecosystem in different directions,” Ovo chief executive Jason Thompson told FinanceAsia in an interview in Jakarta.
Ovo’s trove of data is expanding rapidly. About 115 million Indonesians already have the app on their phones after Ovo launched in September 2017. It hit 1 billion transactions by December 2018.
And as of July 2019, Ovo’s app was accepted in 319 cities and regencies, an administrative division in Indonesia, out of more than 500 in Indonesia.
But the margins on the industry players' core payments business are slim to non-existent, such is the intensity of the competition.
So Ovo's path to profitability rests more on its ability to triangulate the data gathered across different platforms to find the most creditworthy group of consumers for financial service companies to target.
Just over half of Indonesian’s 260 million citizens don’t have a bank account, according to the latest data from the World Bank, versus 6.9% in the US and 0.3% in Sweden.
However, that figure is shrinking rapidly as payment providers such as Ovo bring more people into the financial system. In 2011, the number of unbanked Indonesians topped 80% of the population.
"Financial institutions can’t lend money without data. And an institution can’t suddenly ingest data that doesn’t exist," Thompson said.
To be sure, cash in circulation continues to grow in Indonesia, keeping pace with the expanding economy, analysts at Wall Street research and brokerage firm Bernstein wrote in a report in August. But new forms of payments are catching on fast.
In the first seven months of 2019, the number of e-transactions hit 2.736 billion – on a par with the whole of last year and well ahead of the 100.6 million registered back in 2012, data from state-owned Bank Negara Indonesia shows.
“It’s about being a first mover, building the right ecosystem, and having the right partnerships,” John Riady, chief executive of Lippo Karawaci, told FinanceAsia in a separate interview.
The following transcript of FinanceAsia's interview with Jason Thompson has been edited for brevity and clarity
Q Where is the best investment opportunity in payments globally?
A The world’s large economies are already heavily carded. You need to go somewhere that is really starting a new cycle of financial inclusion and that has scalability. Ten years ago, everybody talked about Brazil, Russia, India and China. Now, I’m hearing everyone talking about Indonesia.
In China, things are changing, the regulation is changing and the power is shifting back to the financial institutions and the banks.
Then the other problem is, of course, getting the money out of China. It's very difficult.
So China to a large degree is done and it's very, very hard now to come into that ecosystem.
Q Most analysts say Indonesia is behind China by 5-10 years. Do you agree?
A China has accelerated very quickly in the last five years, and Indonesia is rapidly changing as well.
If you take the daily active users (DAU) as a percentage of the population, then Indonesia today is similar to China in 2008 or 2009. It’s hard to accurately measure DAU as a percentage of the populace, but that would put us around 11 years ago.
[In Indonesia] about 2.1% or 2.3% of real money transactions are e-money transactions.
Q What are the advantages of an open ecosystem versus a closed-loop business?
A Being in an open ecosystem, the investment is somewhat leveraged. Rather than being a closed ecosystem where you’ve got one organisation invested in everything, we’re all investing to grow our ecosystem in different directions.
Tokopedia is investing to win the online marketplace. Grab is investing in food and transport. John Riady [chief executive of Lippo Karawaci] is heavily invested in professional retail. I’m interested in three things: payments, partner rewards, and financial inclusion.
The point is to unify payments and become more open and inclusive. We don’t try to build closed ecosystems, because that will slow down financial inclusion.
And so when we're lending on Tokopedia the customer there is allowing us to look at all that history on Tokopedia and then we look at all our history of Ovo. Now we can go back to the customer and make a more educated decision.
So it becomes a lot more informed because you're looking at behaviours on multiple platforms.
We have to ask the customer for their permission to do this, which we do.
Q Who needs your data analytics?
A Traditional financial institutions are struggling to bring the data in.
Financial institutions can’t lend money without data. And an institution can’t suddenly ingest data that doesn’t exist. The middle economy is highly invisible – there isn't really any data that would allow any logical scoring for traditional financial institutions.
Payments are really important because they bring you the Big Data and then you can use it to help financial institutions understand their customers and give them appropriate products.
What we're trying to do is run the payments growth and financial inclusion together. So you can't do this immediately at scale but as the business scales, the services have to be ready. So we've launched Ovo Pay later. We've got a very low [non-performing loan ratio]. We acquired Taralite to accelerate online lending.
Working in conjunction with Tokopedia and ... Grab and ... ourselves and adding platform scoring to each one of them, we can really optimise lending, which also benefits their business, benefits the merchant and finally the consumer.
What we're working on now with Bareksa is how does asset management come into this. We're now working with Bareksa to launch a product, which we’ll do later this quarter. 0.3% of Indonesians have a traditional savings policy of some kind.
Finally, we’re working with Prudential to bring subsidised insurance to the masses. We want to make sure that you can protect yourself when you’re borrowing money; whether it be income protection, life insurance or payment protection.
Q What is your path to profitability?
A All of our shareholders and employees want this business to be sustainable. Payments in Indonesia are never going to be a high-value investment, not in Indonesia, not globally.
But there is a path to neutrality – maybe not profitability for payments – but neutrality. So we’ve focused on our unit economics. Our cost of funds is around 0.4%, and if you look globally at the cost of funds in the high cash market, that’s amazing.
[Subsidised business growth] is not something that's sustainable business growth, but you do have to kick start, you have to invest in establishing a business.
Then our future upside comes from the provision of financial services, be that savings, be that lending, be that insurance. This can be a 10-year investment thesis. We have to get to profitability and we have to get it within two to three years maximum.
Q Could Linkaja become the default payments system as UPI has become in India?
A It could be for the future but I actually think the way I'd look at this with Linkaja at the moment is, I think Linkaja is helping the state-owned enterprises to accelerate their digital presence.
Q How will the Indonesian government’s new rules on interoperability, dubbed QRIS, impact Ovo? Will you continue to subsidise bringing merchants on board?
A First of all, the adoption of standardised QR [a Mondrian-esque barcode] so early in the development of regulation here is great. [But] QR codes are not for all merchants. For a lot of the bigger merchants, it’s a ... more technical development in terms of the way you integrate.
You can't subsidise 30% of your transaction value. There's not a business here that can do it. So you're subsidising specific customers in specific environments, and specific usage models. And what that allows us to do is drive behaviour, drive education.
At this stage, with single-digit penetration of e-money, I think it’s a super important phase we’re going through.