API Business Models

How Open Finance APIs change the digital landscape in SEA


This article will discuss how we see open finance developing in Southeast Asia, particularly Indonesia.

At ayoconnect, we have a wide range of APIs that power embedded financial solutions and data solutions that enable our customers to launch anything from payments to banking services on their platforms. The most exciting part is that this can now be done in a matter of weeks versus previously having to spend months or even years building it in-house. 

“Every company will be a FinTech company.” That’s a famous quote. It has been around for a while. But we do believe this is the guiding principle of open finance as a whole. New FinTechs need to make use of plug-and-play and better financial solutions. Existing ecosystems and traditional companies are realizing they want to monetize the customer base and launch financial products for their customers. That’s the trend we’ve seen globally and is now starting to happen in Southeast Asia.

First-generation unicorns have set the path there. We see many more, even smaller companies following that trend. Terms like open finance and open banking get easily thrown around, but in our opinion, we realize that it’s all about use cases. Open finance is just a means to an end. What’s more exciting is to have real, tangible use cases behind it. To give a brief snapshot of some of the real solutions in other parts of the world, if you go to Walmart today and check out, there’s a firm one of the final pay later unicorns behind that takes care of this. If you’re a Shopify merchant, you can push a button, and it creates a bank account within minutes. A bar card comes from an insurance binder. A personal finance manager asks you to tap into your credit card spending and various bank accounts to pull the information and give you an overview of where your money goes. Those are the use cases we at ayoconnect are very excited about. Those are the use cases we want to see built in Southeast Asia. But we’re not launching them ourselves. We stay in the background; we focus on building the relevant infrastructure for those kinds of use cases so that any FinTech can launch them in the near future. 

If you look at open finance, particularly open banking, it’s a global success story. Starting all the way in the US with the likes of Plaid, who are the pioneer of sorts. I do think they started even before the term open banking was around. Then it spread successfully across Europe with the likes of tink. We have a lot of companies that we see coming up in Latin America. We’re very excited to bring this to Southeast Asia; we feel they’re still a big player missing in this world. So, we have the ambition to become this player. 

Having said that, it would be easy to say that open banking is a concept that works similarly in all the markets. Southeast Asia is a unique market in its own right. Things work differently down here. So we spend a large part of our time customizing and localizing open finance solutions to meet the demands of the local market and try to figure out what makes sense, given the circumstances of the local market and then the condition down here.

How do APIs power embedded finance?

We like to stay in the background. An end-consumer would never know that they’re using services or solutions powered by ayoconnect. Our job is to make our partners successful and help them monetize and drive retention on their platforms. 

For example, if you go to a mom-and-pop shop in Indonesia and do a phone pop-up, there’s a good chance that ayoconnect APIs are behind it. If you go to any of the large e-wallets or mobile banking apps and do a water, gas, or electricity payment, that’s powered by ayoconnect APIs. If you opt-in for a subscription payment with the largest banks in Indonesia, then that’s our tech stack behind it. 

We like to be the technology infrastructure provider, but we can stay in the background and let our customers get the shine of launching the products. 

We’re humbled to say that we have more than 200 API customers today in Indonesia alone. These include most large banks, financial institutions, lenders, peer-to-peer companies, multi-finance companies, and insurance companies. Almost every consumer-facing tech unicorn is using either ayoconnect APIs today, one way or another.

Many Series A, B, and C companies need to move very fast, focusing on their core business model and want access to financial products in the process.

Much good progress has been made in the digital ecosystem and economy as a whole. Southeast Asia, particularly Indonesia, is the largest market leading the pack. Structural entry barriers we had to deal with in the past, such as internet usage, smartphone penetration, etc., have been ticked off. There’s a very young population; more than 50% of Indonesians are under 30. So there’s a high interest from a very curious consumer base to try out new things, use embedded financial solutions on third-party platforms, etc. And we have also seen record investment rounds going into the second end of the sector here, where annual funding rounds have surpassed the previous year’s funding. All of this is good news for the ecosystem. But having said that, there are still a lot of challenges that remain. There’s still a big learning gap. A $60 billion number is famously quoted in reports and conferences. On the payment side, large challenges remain, with more than half of the population being unbanked. Cash economy is a big part of the GDP of Indonesia. So I think, while those numbers are known, what’s more, interesting for us is, what are the key takeaways here? 

There are two learnings for us. 

  1. There will not be one company in Indonesia that can solve this. We have seen Cuban banks being in the marketplace for four decades. And we’ve also seen a wave of new digital or FinTech players, especially, for instance, in the B2B space, coming into the marketplace over the last years, but yet, those numbers have remained relatively stable or haven’t changed on a large scale. In the future, we will see multiple companies with diverse dimensions, focusing on a specific target audience. We have companies that build great tools for SMEs, and they go to market and can sign up large ecosystems of SME players. So there’s always a different value proposition on your core model behind it. But by being able to nail this, you manage to build your ecosystem and then offer financial products that will reduce those shortcomings. 
  2. We’re seeing a new generation of companies building their businesses very differently than the first generation of unicorns. They had to build a lot of infrastructure technology themselves, which took years and a lot of resources. We cannot expect the next generation of companies to acquire companies or businesses or license anything they want to launch as a feature on their platform. Through the progression of open finance, the platform, and the infrastructure we have built, we will see companies moving much faster by just being able to plug and play into financial products and launch them on their ecosystem quickly. That’s ultimately what we want to power, drive and see, and where we’ve worked hard to drive those changes in the marketplace. 

We see Neo Insurers that have been built over the last few months and years; they’re claiming to have acquired more than half a million agents processing more than 90 million transactions per month—so very good traction on that side. Wealth Tech is extremely exciting. There’s a large space of many people doing stock trading, crypto trading, and so on. So Companies like ACAI have acquired more than 10 million customers, and it’s still growing very fast. A whole set of social commerce is expected to surpass the traditional e-commerce sector. There are a lot of enablers there. Every company will be a FinTech company over time. But all of them will need digital account opening; they will want to give lending products, whether in the form of a consumer loan, a working capital loan, factoring in financing, supply chain financing, and so on. We see a lot of the demand coming from this. We are approached by newly founded startups where the founders are looking for solutions. Tech unicorns are also trying to optimize how they do things and reduce the resources they’re putting into non-core products. 

We see a profound change in how the value chain has been reshaped.

For example, if you’re a bank, traditionally, you’re focused on your own distribution channels. You have branches, relationship managers, etc. Now those channels will be complemented by large ecosystem players, tech players that partner directly, or through platforms like ayoconnect. We see the demand coming from both sides, not just from new FinTech players and companies that want to embed financial services on their platform, but also from banks and financial institutions looking for new ways to expand their market share.

On the data side, you’re trying to work with traditional financial services, data, credit scores, and so on. Even today, there is a shift in partnering with ecosystem platforms where the data or consumer behavior and customer insights generated on the third party are tremendously helpful in gaining new insights, new perspectives of customer behavior, customer cash flows, incomes, and so on.

On the balance sheet, we don’t see too much or expect too much change. So financial services being the license holder and dispersing loans on the balance sheet is most likely to continue. A big value proposition of embedded finance is not having to deal with this and being able to focus on your core platform. In contrast, financial institutions can focus on what they’re traditionally good at by keeping loans and underwriting on balance sheets on the platform itself. We see a shift where financial institutions are more open to using SAS solutions and more cloud-enabled products, whether on the back-end or front-end.

To wrap up, how we see open finance API has changed the digital landscape in the near term. Big demand from both sides of the value chain. If you’re a bank, you realize that customers might currently interact twice or thrice on an average per month, but on financial platforms, it might be as much as once daily. We also see that in ecosystems in Indonesia, some lodging tech players already have 30 to 50% of the country’s population on board. Unbanked is overall still a big problem. Partnering with a bank through the likes of ayoconnect is helping them monetize the user base more. A lot of the revenues we see for platforms come from those added financial solutions and products on their platform. It drives volumes and creates more stickiness for customers, especially in Southeast Asia.

Jakob Rost
STARTUP & FINTECH ENTHUSIAST of the INDONESIAN TECH LANDSCAPE: ~10 years experience in the Indonesian Tech Ecosystem e.g. E-commerce, Fintech, and Financial Services - Particular interest in Open Banking, Payments, Embedded Finance, the API Economy, Lending & Digital Banking CEO & FOUNDER of AYOCONNECT- Indonesia's largest Financial API Platform: - Clients include Tier 1 Banks, E-commerce, E-Wallets, and traditional companies - Raised 20m US$ from institutional VC & PE funds and strategic investors - Active Angel investor - Speaker at Industry Conferences - Startup Mentor (MDI Indigo, Startup Studio Indonesia) - Advisor for early-stage companies Previously: - Managing Director for Lazada Indonesia, South-East Asia's largest E-commerce group which was acquired by Alibaba for 4bn US$. - The Boston Consulting Group (BCG) focusing on financial services, banking and corporate finance. Based in Jakarta, Indonesia.

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