While working with Southeast Asian ecommerce companies at an adtech company he co-founded, Akshay Garg discovered the problem of “cart abandonment,” which refers to how online shoppers add products to their shopping cart but eventually don’t complete the transaction.

“Cart abandonment in a market like Indonesia is as high as 80 percent,” said Garg. “People are on their mobile phones, and [they think] doing this payment right now is a pain in the ass, so they plan to do it later. But then they just don’t do it.”

There were two problems behind this: a lack of credit access – a whopping 96 percent of Indonesians don’t own credit cards, according to a KPMG report – and the high friction of credit card payments, especially for users who are accustomed to cash.

<img data-fr-image-pasted="true" src="https://cdn.techinasia.com/wp-content/uploads/2019/01/FinAccel-founders.jpg" alt="" width="5050" height="2614" class="fr-fic fr-dii">

(L-R) FinAccel founders Umang Rustagi, Akshay Garg, and Alie Tan. Photo credit: FinAccel

Garg and his co-founders found that both of these problems can be solved with a single unique solution: a combination of instant credit approval and a two-click checkout process.

Thus, Kredivo was born. Its parent company, FinAccel, raised seed funding in June 2016 from the likes of Jungle Ventures and 500 Startups. Most recently, the company bagged US$30 million in a series B funding round led by Australia’s Square Peg Capital.

How Kredivo works

At its core, Kredivo is a digital credit card that allows Indonesian shoppers to buy now and pay later. The basic account allows users to repay online purchases of up to IDR 3.5 million (US$250) within 30 days at zero interest.

Unlike the usual credit card applications, those signing up for Kredivo only need to submit requirements: a photo their government-issued identity card, an ecommerce account with transaction history, and their Facebook account (for verification purposes).

Once people join via the iOS or Android app, Kredivo assesses their creditworthiness through a variety of digital data points, such as mobile app permissions, ecommerce, and social media accounts, and even websites they’ve visited.

The data is used to uncover three things: users’ real identity, their credit score, and an estimate of their income. Afterwards, the data gets stored, cleansed, and processed in real time.

Approval can happen immediately, after which users can start shopping at one of Kredivo’s 200+ merchant partners, which include ecommerce giants Shopee, Lazada, Tokopedia, and Bukalapak.

Kredivo lets users buy now and pay later.

In 2018, the company also branched out into offline transactions – with point-of-sale systems where users can pay with their Kredivo app, currently in beta – and personal loans.

“The number one request that we have received from customers in the past year is personal loans,” says Garg. “The thinking there was fulfilling a really big consumer need, and doing it with incredible user experience.”

For personal loans, users can sign up for a more advanced account type that enables them to make purchases and take loans of up to IDR 30 million (US$2,138). Instead of the basic 30-day period, they can be repaid in three- to 12-month installments at competitive interest rates. Users will also need to link their bank accounts.

Kredivo’s personal loans have an interest rate of 2.95 percent per month – the cheapest in the market and second only to credit cards, according to the startup. The response has been “fantastic,” shares Garg, and he claims that it has since represented a double-digit share of their business.

Another product is Lime, a personal finance app that links to users’ bank account and gives them a real-time breakdown of their budgets. Kredivo is also looking to expand beyond personal loans.

“[We’re looking at] loans that are specifically tailored to education or emergency medical expenses,” notes Garg. “We’re also looking at ancillary products like insurance and seller financing.”

Indonesia’s fintech scene is getting increasingly crowded, especially in the P2P lending space. One of Kredivo’s main competitors is Akulaku, which offers similar installment and unsecured loan products, but with an ecommerce twist – it also sells electronic gadgets, like mobile phones, directly to consumers.

But Garg doesn’t consider Akulaku and similar platforms as direct competitors. Most lending companies in Southeast Asia are basically payday lenders – the kind that offer unsecured personal loans at high interest rates – targeting the likes of Go-Jek or Grab drivers, which is a very different segment of the population, he points out.

Most lending companies in the region are payday lenders.

“Our target segment is millennials who are educated, working in office buildings, getting a salary into a bank account with a tax deduction,” Garg adds. “No one is really targeting that particular segment with a focus as deep as ours.”

Some of the country’s ecommerce giants have also expressed interest in providing similar services to their customers. Tokopedia, which is a Kredivo merchant partner, recently beta-launched a virtual credit card called TokoSwipe. Bukalapak, also a Kredivo merchant partner, has teamed up with Akulaku to provide installment plans to customers.

That aside, there is one advantage that fintech players like Kredivo and Akulaku have over these ecommerce platforms: the elusive license from Indonesia’s Financial Services Authority. Plus, the market is big enough to make room for multiple products.

“The customer base is big,” observes Garg. “There are so many different customer segments with different kinds of needs.”

Looking ahead

Kredivo’s founding team consists of Garg, chief operating officer Umang Rustagi, and chief technology officer Alie Tan. Both Garg and Rustagi are Indian nationals, while Tan is Indonesian.

Garg, in particular, has a colorful CV. Before co-founding Kredivo, he taught English in the southern Chinese province of Yunnan and later on operated an Indian restaurant in Kunming. He also did economics research for the International Labour Organization and was an angel investor through the Kauffman Fellows program.

Rustagi, meanwhile, is a veteran of management consulting firm McKinsey & Company, while Tan had a 15-year engineering career across Jakarta and Singapore.

Three years since its founding, Kredivo has grown to about 200 employees in total. The company claims that it’s the largest and fastest growing credit-based payment method in Indonesia – it has almost 1 million approved users and disburses tens of millions in USD per month, with 80 to 100 transactions a day.

“Millennials are the ones worst off in terms of access to credit. They are also most open to newer and better payment methods,” explains Garg. “As a payments product, you want to work with the demographic with the biggest need and inherent bias towards experimentation and adoption of new technologies.”

Indeed, millennials are a huge market. In the Philippines and Vietnam – which have Southeast Asia’s second- and third-largest populations – they account for about 30 percent of the total. Both countries also have large unbanked populations.

Sure enough, the company is evaluating both the Philippines and Vietnam, along with Thailand, for geographical expansion. Competitor Akulaku is already present in the Philippines and Vietnam, along with Malaysia.

For Kredivo, the Philippines seems to be the most realistic place to start, owing to the country’s linguistic and cultural advantage as an English-speaking market with a Latin script.

“It’s a really good way for us to validate a few assumptions around our international expansion,” says Garg. “We’ll then use those learnings, fine-tune them, and then go after more markets.”

The Philippines seems to be the most realistic place for Kredivo to expand.

Nonetheless, Indonesia remains Kredivo’s core market. Other than setting up shop in second-tier cities like Makassar and Yogyakarta, the company plans to broaden its product offerings.

This could include the likes of higher credit limits, employee loans, or seller financing.

“We’re just going deeper and deeper [into Indonesia],” said Garg. “You can’t buy a motorcycle with Kredivo today, but we’d love to be able to make that happen. There’s just a lot to be done in terms of tapping into the need in Indonesia.”

And, as Garg emphasized, this is just the start.

“I think of 1 million users as a starting point,” he says. “Everyone wants credit. There are 7 million credit card-holding customers in this country, and there are nearly 70 million people in the middle class. Out of that, there’s probably about 10 million people who are potential Kredivo customers.”

And while Garg knows that “there’s a lot more work to be done,” he seems keen to take it on. “What keeps me up at night is, are we building something that customers love? That never goes away.”