Brands are embracing the E-commerce segment to enhance productivity, capture more marketplaces and reduce costs. To keep up with the trend and to assist their loyal customers, banks have to expand their business models on the digital front. Financial institutions offer innovative products to facilitate the E-commerce market like ‘Buy now, Pay later’, 6-month or 9-month EMI options, and they also provide credit points with every purchase, which can be redeemed at the time of the next purchase. The more digitally integrated the banking services, the higher the operational risks for the banks.
Let us take a look at how Kredivo designs its products, how they minimize risks through strategies and technology, and how banks can embrace this shift from a traditional to a digital landscape.
Kredivo is a ‘Buy now, Pay later’ platform that offers instant credit for online and offline purchases and personal loans even to underbanked consumers. Kredivo relies on digital technology to provide credit in markets with scanty access to credit bureau data.
In a panel discussion, Umang Rastogi, co-founder and Deputy CEO of FinAccel (Kredivo), talked about launching the product, its current market position, and future aspirations.
Co-founder Umang Rastogi, having worked with banks in Southeast Asia assisting in digital transformations, realized that banks could not offer credit to consumers due to the absence of credit data and technology.
Rastogi joined hands with his co-founders, who were experienced in the tech space and aware of how digital data and mobile technology brought a revolution to every industry. They came together with the vision of offering credit to worthy but unbankable consumers.
Kredivo was their first product- a ‘Buy now, Pay later’ platform, an automated credit financing program. This product was a response to the emerging middle-class, booming E-commerce markets, and the lack of access to credit. A product can only work when there is a demand for it.
Emphasizing the importance of creating a product to solve a problem, Umang Rastogi said, “We want to solve the problem of E-commerce payment friction, and we want to do that by providing credit at the checkout.” The team of FinAccel recognized the need, leveraged technology and data, and created a successful product that has solved a massive problem for communities across Indonesia. As a result, Kredivo is now the leading E-commerce financing platform in Indonesia.
Kredivo has so far served over 4 million customers; yet, millions of middle-class consumers are still creditworthy. Hence, the potential for growth in Indonesia is immense. However, Kredivo is growing beyond Indonesia, and their next step is to expand into other markets of South East Asia like Vietnam, which they have already entered.
Kredivo started as a simple 30-day ‘Buy now, Pay later’ platform. Then they added features like installments to solve the problem of affordability. Kredivo also offers personal loans and has expanded into the offline marketplace. Their vision is to develop into multiple credit use cases that customers need, like educational or healthcare loans. Kredivo is a customer-centric platform, as articulated by Rastogi, “The idea is to serve these customers over their lifecycles as they go through their journey.”
There are differences and similarities between Indonesia and other markets. The macro trend of lack of credit access is present everywhere. So, they focus on building smooth digital experiences and leveraging data to build credit scores and provide a real-time and automated experience. However, there are differences, too, in terms of customer behavior and regulations. Indonesia is ahead of the curve in terms of investment in E-commerce. But markets like Vietnam and Thailand are going through a similar journey now. So Kredivo is looking to launch their product here and localize it to the customers’ needs.
Within a digital space, the needs and demands of credit are changing swiftly, which is recognized by panelist Anna Green, “There are so many different ways that millennials, in particular, want to be able to use credit, not simply at the cash register, but other ways.” The modern API of Kredivo makes it suitable to leverage multiple use cases. For example, a person starting their job needs micro credits for basic needs, and that’s where Krevido can help. Kredivo also finances entrepreneurs and SMEs. On the other hand, consumers buying assets also need funding; hence, this digital credit platform offers a motorcycle or car loan.
This platform is built around customer relationships and behavior. As the markets are growing, Kredivo may offer home loans in a few years. Consumers are now comfortable making expensive online purchases, and Kredivo is thinking ahead to cater to every digital financing need of their clients.
Regulations are evolving to accommodate this wave of digitization. For example, in Indonesia, it was necessary to have a written signature for loan contracts earlier. But now, digital signatures are also allowed. In addition, authorities now understand how to regulate data to control data sharing. Thus, customers can also share data with platforms like Kredivo to access credit.
Post-Covid, there has been a surge in the digital landscape. Digital licenses have also been implemented in Indonesia and other markets, permitting digital banks to operate. So, a wind of change is blowing in banking and E-commerce, and Kredivo is the flag-bearer of this change.
Kredivo is a regulated institution in Indonesia. In Vietnam, they have a joint venture with consumer finance companies. In any other markets they launch, they plan to do it in a thoroughly regulated manner. Customers want a digital experience with their finances. Kredivo ensures regulatory compliance and, at the same time, looks after the customers’ needs.
Co-founder Umang Rastogi identifies this issue of credit score as the “chicken and egg problem.” When there is no data about customers, how do you lend?” Rastogi explains that when they started about five years back, “there was only credit bureau data available. We know credit bureau penetration in these markets is poor, so banks could not scale up”.
Traditional banks have failed to offer credit to unbankable yet creditworthy consumers. Since there is no credit history for these customers, there is no data to test their creditworthiness, making it difficult to lend to such people.
Kredivo aimed to solve this problem with the launch of the 30-day ‘Buy now, Pay later’ program. Even though they did not have any credit history for customers, giving them a small loan for 30 days could build their credit score quickly through this program. So, for almost a year, they lent small amounts to consumers. They considered the defaults as experience cost. In turn, they collected the data of customers to analyze their behavior. Finally, they layered all the data and used that to build risk models, and over time, they increased credit limits for those who were punctual with payments.
Kredivo’s 30-day ‘Buy now, Pay later’ program was free to use as there was no interest. Any loss was considered an opportunity to collect data. This 30-day feature was a way to learn about the market. The brand’s revenue mainly comes from installments and personal loans. Kredivo is used as a credit card by customers.
Umang Rastogi says, “We started Kredivo and FinAccel with the vision of how to address credit access. Now I think our vision has expanded into how we serve tens of millions of customers by providing access to fast, affordable, and convenient financial services beyond credit”.