The Strategic Steps Taken by LinkAja to Strengthen the Service to Accelerate Financial Inclusion in Indonesia

The development of technology and digitization in the financial service, especially in the micro and medium business sector, is a part of digital financial inclusion that demands the role of financial technology. LinkAja together with DealStreetAsia initiated an international panel discussion of “Indonesia Private Equity Venture Capital (PE-VC) Summit 2022” under the title “The Financial Inclusion Opportunity in the Digitalization of MSMEs” earlier this month. Wibawa Prasetyawan, the Acting CEO of LinkAja pointed out some of the opportunities in attaining financial inclusivity in the times of MSME digitization along with some other experts, Pandu Sjahrir - Chairman of the Indonesian Fintech  Association (AFTECH), Eddi Danusaputro - Chief of Executive Officer Mandiri Capital Indonesia, and Aldi Haryopratomo - Board of Commissioner Halodoc, Efishery, & Mapan.

Euromonitor International, through its study and analysis, uncovered that the domination of unorganized trades in a number of Southeast Asian countries is still high and is a significant employment driver. It absorbs 27.8% of the total population, including Indonesia, whose MSMEs are relatively huge and in the majority are owned and run by families. LinkAja understands this condition and sees a good opportunity to simplify the inefficiency within supply chains, especially in terms of digital-based financial services.

During the panel discussion, Deal Street Asia's research on 1,000 MSMEs in a number of provinces in Indonesia was also discussed. It shows that currently e-wallet are the second most popular payment method, after cash, by consumers of MSME businesses with each accounted for 25% and 72%. Meanwhile, these MSMEs regard the use of digital wallets as a more convenient transaction tool compared to traditional banking services. The main reason is that the e-wallet makes it easier to procure goods, handle transactions with customers, and transfer money at a more efficient cost than using bank services.

Recognizing the increasing potential for the use of digital financial services drives LinkAja to further facilitate the needs of both sides at once, i.e. merchants and consumers, in a supply chain ecosystem that are LinkAja’s business partners. Currently, LinkAja is digitally facilitating financial transactions in the supply chain ecosystem of businesses such as DigiPOS (Telkomsel), Sampoerna Retail Community (SRC), and will further replicate it to a number of other strategic partner ecosystems, especially the SOE supply chain. Furthermore, Wibawa Prasetyawan explained, “By focusing on the ecosystem, we believe we can create a good economic unit. In the last few months alone, we have seen an increase in CLV (customer lifetime value) and a decrease in CAC (customer acquisition cost). Then, by becoming the liaison between merchants and customers, LinkAja not only facilitates transaction activities but also allows the principals to discover more about their merchants, such as KYC and their financial capabilities. This will allow LinkAja to expand its service facilities in the form of financing.”

The financing services designed by LinkAja will be realized first in the supply chain ecosystems run by SOE businesses, especially at the MSME level. These ecosystems pose a lower risk pertaining to the visibility of payment transaction data and a strong affiliation with the SOE as the principal. The scheme is in line with the business strategy and LinkAja's focus to continue to realize the vision of accelerating financial inclusion in Indonesia through financial services powered by digital technology. With this big vision and LinkAja's focus on improving business fundamentals, it will make the path to profitability clearer and produce a bigger impact.

In regards to the development of electronic payments since it was first regulated by the Central Bank (Bank Indonesia) more than a decade ago, Eddi Danusaputro shared his view as a professional in the financial service sector, “The speed of electronic transaction adoption among Indonesians living in tier 1 cities is incomparable with those in other regions. The technology and infrastructure weigh in, for example in terms of ownership and usage of smartphones.” Furthermore, he outlined an investor's perspective that the amount of profit obtained from payment services is very small or even nearly zero, but understands that this service is a daily necessity, it is the right step to grow the customer base.

Regarding investment trends, Pandu Sjahrir, who is also the Board Member of the Indonesia Stock Exchange, said that there was an increasing trend of investing. In the last 18 months, the Indonesia Stock Exchange (IDX) recorded a significant increase in the number of retail investors, especially in the youth segment. This specific segment possesses more insights on what to invest in, including stocks. What Indonesia needs now is more companies to be listed on the stock exchange, with quality performance and good profitability.

Furthermore, the panel also discussed how wider access to digital financial services is realized through the use of QRIS as facilitated by Bank Indonesia. The goal is to further increase the efficiency of digital transactions since 2019. Until now, the number of users has increased to more than 10 million and this accessibility of QRIS transactions is also enabled by LinkAja.

Aldi Haryopratomo uttered his sentiment that this ease of access has allowed people of the lower-income segment to participate in using QRIS. “The presence of QRIS connects financial service providers, be it investors, insurance, or asset management, with MSMEs,” he added, “the transaction history data of merchants is now recorded and it eases insurance institutions to assess the risks of MSMEs using them.”

In reaching more consumers and micro and ultra-micro businesses, it is compulsory for LinkAja to be more observant in recognizing the potential which is widespread in the community who live in tier 2 and tier 3 areas. One of the uniqueness of this community group is their high interest in sharia finance services, hence LinkAja took the initiative to offer LinkAja Syariah services and at the same time making it the first of its kind in Indonesia.

Until the final quarter of 2021, LinkAja Syariah demonstrated healthy and promising growth. “We see a much higher CLV for the LinkAja Syariah service, even more than the regular LinkAja service. This fact shows that users of the LinkAja Syariah service do not emphasize their preference for usage based on promos or discounts, but rather on the peace of mind because this financial service fulfills their belief that this service is managed according to sharia principles. LinkAja sees great potential and opportunities, therefore LinkAja Syariah is actively digitizing and collaborating with the NU and Muhammadiyah communities which are two of the largest Muslim organizations in Indonesia," said Wibawa Prasetyawan.

This mission is in line with the ongoing efforts conducted by AFTECH. Pandu Sjahrir said, “The advocacy on policies, community collaboration, financial education, as well as intelligence and knowledge centers are the 4 things that AFTECH continues to strive for to realize the digitization of financial services. Another thing that needs to be realized is digital infrastructure, one of which is a data center. Significant investment is needed to be sovereign in data management.”