Here are three themes: the rise of digital banking; growing financial literacy and smartphone access in rural Indonesia; and the transformation of the gig economy there as a result of the Covid-19 pandemic. Bank Raya sits where these three themes meet.
Bank Raya’s story begins as BRI Agro, a subsidiary of Bank Rakyat Indonesia (BRI), Indonesia’s largest bank by assets. For 30 years BRI Agro was mainly a corporate bank for the agricultural sector.
In 2016, BRI’s president director Sunarso Sunarso set about a transformation plan for the overall bank on two fronts: culture and digital. He appointed Kaspar Situmorang as executive vice-president for digital and between them they set about preparing people, processes and technology. In 2020, Sunarso asked Situmorang a question: are we ready?
BRI Group has always been at the forefront of serving the ultra-micro and micro customers: that’s our core skill and our core customers
The plan was to take the agricultural subsidiary, dominated by lending to the plantations sector, and turn it into a digital bank. On April 9, 2021, they did just that, renaming it Bank Raya on September 27 that year. “So it won’t taste like corporate banking anymore,” says Situmorang. “We flipped it from corporate lending to the plantations to become a digital bank.”
Situmorang had a priority that worked out well with the shifting needs of customers. “As bankers, we need to stick with our knowledge tree,” he says. “In banking, we always think about managing the assets and liabilities.” As a corporate bank, BRI Agro had conducted long-term lending and short-term monthly funding, with an unmatched maturity profile. So having flipped the nature of the bank itself, he wanted to flip the funding profile, too.
He did so by maintaining the monthly funding, but dramatically shifting the loan tenors from long-term plantation needs to the short-term requirements of modern digitally savvy Indonesians – and that’s where Covid and the gig economy come in to the story.
“The gig economy is a fancy name for the guys on the street, the informal workers,” says Situmorang. “These are the workers who don’t have a paycheck. They have a salary, but they don’t have a salary slip.”
This is a growing part of the Indonesian economy, but one which the banking sector – and the fintech companies that are making incursions into it – is belatedly paying attention to.
“When the pandemic happened, there were lots of layoffs in Indonesia,” says Situmorang. “Those workers were not degrading their status into unemployment, but they became informal workers: downloading apps and becoming ride-hailing drivers, merchants of e-commerce, members of edutech, sellers of warung.” Warung is a term for a small mom-and-pop store. It has been estimated that as much as 60% of Indonesia’s GDP goes through warungs.
That group has a problem. “They don’t have a paycheck or a salary slip and, without that, they cannot upgrade themselves into more complex financial products like mortgages or car loans or motorbike loans,” says Situmorang. Bank Raya concluded that these people needed only short-term loans – in Indonesia they’re called kasbon, or in international parlance, buy now pay later – and so has created a new product called Pinang Paylater.
Agent network
The ecosystem through which this product will be distributed is the 600,000-strong agent network of BRILink. Agents in Indonesia are sort of unofficial bankers – very often operating through the warung small-shop network – reaching into rural communities in a way that bank branch networks cannot. Those agents are useful for basic transactional services, but have not previously had much capacity for lending. The new product allows agents to access up to Rp25 million ($1,700) over repayment periods of five, 15 and 30 days.
By the end of 2022, Bank Raya aims to increase its total small-loan disbursement through this network to Rp7.7 trillion. Initially, this won’t be through the whole 600,000-agent force, but those who have a seniority that within the BRILink network is designated ‘champion’ or ‘skipper’, covering about 50,000 agents.
The idea is that the product brings a liquidity boost to small borrowers that “has sweeping implications for millions of freelancers, solopreneurs and MSMEs across the nation”, Bank Raya says. “These are business owners and companies that need working capital immediately to grow today and thrive tomorrow.”
Situmorang also suggests that defaults are less likely on short-term loans than longer ones. “If you provide these seven-day loans or less, your NPLs [non-performing loans] will be OK,” he says.
In some ways, this is an extension of what the BRI Group has always been about. “BRI Group has always been at the forefront of serving the ultra-micro and micro customers: that’s our core skill and our core customers,” says Situmorang. But continuing to serve that client group through the usual methods was problematic. “If we continued to build new offices across Indonesia, the fixed cost was going to be killing us by the end of 2025,” he says.
The Indonesian financial regulator OJK set about enabling agent banking in 2015 and BRI’s embrace of that opportunity is what has led to the BRILink network today. “Agents of BRILink are not our employees, they work for themselves,” Situmorang says. “It’s like a franchise, like a McDonald’s.
“And we believe this is the future of BRI’s networks. Now we are focusing on improving and increasing their transactions, their revenues and their profitability.”
So, what happened to BRI Agro’s old agricultural customers? Their loans have been sold to BRI itself and by the end of 2024 all legacy loans will have been transferred and Raya will be left with only digital assets. More than 70 people have already joined Bank Raya from the old digital division of BRI and the focus now is on product development and reach. The model should also fix the previous funding challenge. “With seven-day loans and 30-day minimums of funding, we should be covered very nicely,” Situmorang says.
However, there is a tough competitive environment to navigate. Situmorang divides the field into four: digital banks that have come out of existing banks, such as Bank Raya and the digital arms of Mandiri and Bank Central Asia; digital banks that have emerged from non-financial conglomerates, such as Allo Bank, controlled by tycoon Chairul Tanjung; digital banks emerging from fintechs, such as Alibaba-backed Akulaku; and those that come from technology companies, such as Bank Jago, which is backed by GoTo (itself a merger of GoJek and Tokopedia).
“So the name of the game now is how fast you can exploit your own ecosystems with your parent company or shareholders,” says Situmorang. “We are trying to explore and exploit our own ecosystems very, very fast.”
