Not content in simply fitting in with the burgeoning Baltic fintech space, Markus Prommik, Co-Founder and CEO of tech infrastructure service Finfra, spoke to Payment Expert on his journey of bringing his company to Southeast Asia.
Payment Expert: Firstly Markus, what made the Southeast Asia market so appealing to set up operations for Finfra?
Markus Prommik: Countries like Indonesia, the Philippines, and Vietnam share similar traits that make them attractive for business. Take Indonesia, for example, with its staggering population of 280 million individuals and 65 million MSMEs. The country has experienced a transformative period of digitisation in the late 2010s and early 2020s, fueled by a significant influx of VC investment in e-commerce, logistics, and financial services.
The rise of unicorns, such as Tokopedia, Lazada, Gojek, and Grab, has made people increasingly comfortable with online shopping, mobile app usage and online financial services. As a result, Indonesia’s internet economy has experienced remarkable growth. Since 2015, it has expanded tenfold, reaching an impressive annual gross merchandise value (GMV) of US$77 billion. The COVID-19 pandemic has further accelerated this trend, leading to a surge in new digital platforms that enable Indonesian entrepreneurs to launch asset-light business models.
However, despite the thriving digital landscape, credit access remains low for businesses and individuals. Only 3% of the population possesses a credit card, in stark contrast to the 40-60% credit card penetration in the United States and even higher figures in Europe. We can help boost user adoption, increase per-customer spend, deepen customer loyalty, and improve retention rates.
It’s worth noting that banks in the region often show limited interest in serving retail clients, as observed with the exits of Citibank and HSBC from markets like India and Indonesia. The banking sector’s existing structure is set up to serve prime customers only and it is not profitable for them to target the underserved segment.
PE: With Lithuania and other Baltic countries flourishing in the fintech sector, was it challenging to move away from that market into a new one and what were the challenges you faced once arriving in Southeast Asia?
MP: I embarked on my first business venture, B2C consumer lending provider Danabijak, in Indonesia seven years ago when I was 22, with less than a year of experience and total funding of around US$25,000.
Having fallen in love with the region during my exchange semester in Hong Kong, I saw immense potential in the local market. Looking back now, I recognise the numerous challenges I faced along the way, but I have never regretted taking that leap of faith.
One of the primary hurdles was understanding the local business culture and navigating the regulatory landscape. In 2017, when I started my business, Indonesia’s regulator, the Financial Services Authority (OJK), had recently split from Bank Indonesia, resulting in conflicting monetary policies. However, there were already a couple of competitors in the same space, which indicated that there might be a regulatory solution, although it remained uncertain. As it turned out, it wasn’t a smooth path.
I vividly recall our first meeting with the director of the regulator, who insisted on meeting someone of his level next time, hinting that our young age and eyes full of motivation wasn’t an advantage for him. Nevertheless, we persevered and tackled each problem step by step, beginning with organising our operations and team.
Until 2021, we had no full licence, and at any point during the registration phase, the regulator had the authority to halt our operations. Once we finally obtained the full licence, it became permanent and could not be revoked.
With streamlined processes amidst the pandemic and having secured a sandbox licence, we started receiving numerous inquiries from other startups and international lenders interested in collaborating with us. They had heard about our successful pilot with Bank Negara Indonesia (BNI) and our partnership with Aspire and wished to create a similar loan product.
We possessed a robust internal system that could be easily adapted to their requirements. Initially, we tailored everything to each partner’s specific needs, but eventually, we streamlined the process and connected multiple partners through API connections. This marked the turning point for Finfra’s business model and helped us find our niche in the market.
PE: What have been some of the challenges customers have voiced when it pertains to the early beginnings of becoming a financial service, and how has Finfra helped find the solutions?
MP: Starting, building, and scaling a lending business can be complex and costly. We address these challenges by providing comprehensive white-labelled services such as regulatory compliance, an end-to-end loan management system, scoring capabilities, portfolio analytics, and access to debt capital.
By leveraging Finfra, non-financial digital platforms can seamlessly incorporate financial products and services, particularly credit lending, into their existing distribution channels. Our holistic approach ensures strict adherence to regulatory requirements while providing a complete suite of tools, including loan management, scoring, portfolio analysis, and access to capital.
We go where traditional banks may hesitate, offering sophisticated and business-friendly fintech solutions that promote financial inclusion. This becomes even more crucial in light of recent initiatives by the Indonesian Financial Services Authority (OJK) to achieve a 90% financial inclusion target by 2024, compared to 75% in 2019, and enhance access to sustainable and transparent financial services.
PE: Can you speak to us on how you are helping buy now, pay later companies with their payment infrastructure, and will BNPL regulation see further adoption in the payment method?
MP: We don’t specifically help buy now, pay later companies themselves. Instead, we support digital b2b commerce, agritech or logistics platforms to launch their own, white-labelled BNPL products to increase the purchasing power of their end-users and improve the platforms own margins. What concerns the regulation of BNPL as a payment method, I am confident that it continues to develop.
For example, in Singapore the local Singapore Fintech Association together with the 8 leading market players developed a code of conduct under Monetary Authority of Singapore guidelines. We believe that this is a smart approach to tackle it proactively!
PE: Have you observed the rise of the Super App in the embedded finance space and do you believe large companies such as Apple are hindering or helping the sector?
MP: We are indeed witnessing a significant shift where customer relationships and trust are transitioning from banks to brands like Tokopedia, Shopee, Gojek, Grab who have strong connections with users who interact with them daily. These brands can leverage these relationships, unique datasets, and brand recognition to offer financial products and monetise with better terms and value propositions.
I think this is a positive trend in distributing financial services to underbanked people. While banks are not becoming obsolete, increasing regulations and compliance requirements push them to focus more on corporate lending and deposits. Profitably serving underbanked segments becomes challenging for banks.
Embedded lending has a positive impact, reducing acquisition, data, and underwriting costs while improving performance through relationship-building. These are significant cost factors in lending, and embedded finance can enhance these aspects. Banks are also more interested in funding portfolios or utilising platforms like Finfra rather than building their own operational and technical capabilities.
While there are regulatory challenges like white labelling and data sharing, we don’t consider them major concerns in the next one to two years, particularly in Southeast Asia, where data flexibility is relatively high. Adding financial services to super apps in Asia presents a strong value proposition.
Notably, even Elon Musk has shown interest in the diverse Chinese app examples and is exploring similar directions with SpaceX or Twitter. Our focus is not on developing a super app but rather a background service that seamlessly integrates into any consumer-facing app. We aim to be the best background service for super apps.
In the US, minorities may lack strong FICO scores or other credit scores, and embedded lending could provide them with better access to credit. This aligns with our commitment to serving underserved markets, and we will continue to brainstorm how to approach this opportunity.
PE: Lastly Markus, and thank you for your time, having recently raised $1m in funding what does this mean for Finfra in terms of your evolution and growth?
This funding round was a collaborative effort by DSX Ventures and Seedstars International Ventures, regional fintech experts Cento Ventures and Fintech Nation, Baltic-based startup support incubators FirstPick and BADideas Fund, and Silicon Valley-based Hustle Fund.
We plan to accelerate product development and grow its engineering, data, and finance teams in an effort to boost revenue and further establish the Finfra brand as a market leader within the Southeast Asian embedded lending industry.
