Financial APIs are reshaping the financial sector as we know it. By allowing different systems to essentially talk to each other, financial APIs are driving new business models and partnerships in an industry that is traditionally considered resistant to change.
In this TechNode Global Q&A with Jakob Rost, Founder and Chief Executive Officer of Ayoconnect, we learn how Southeast Asia’s largest API platform enables developers to choose from a wide range of financial white-label products on Ayoconnect’s API platform and quickly launch them to their users. Founded in 2016, Ayoconnect’s API stack has seen rapid adoption. It is trusted by more than 1,000 Indonesian companies, including leading banks, retailers, e-commerce, fintech, and e-wallets such as Bank Mandiri, DANA, Indomaret, and Bukalapak. Ayoconnect processes more than 300 million API hits annually.
A winner at the Startup Award – FinTech & RegTech category in the 2021 ORIGIN Innovation Awards, Ayoconnect has raised a total of $15 million (IDR 214.5 billion) from institutional venture capital firms, private equity funds, and strategic investors.
Jakob has close to 10 years of experience in the Indonesian tech landscape. His experience includes e-commerce, fintech, and financial services. He witnessed and has shaped first-hand the development of the Southeast Asian startup ecosystem.
Previously, Jakob was the Managing Director of Lazada Indonesia, South-East Asia’s largest E-commerce group which was acquired by Alibaba for $4 billion. He started his career as a Consultant at the Boston Consulting Group (BCG), based in their Berlin office, where he focused on financial services, banking, and corporate finance.
Jakob is an active angel investor and speaker at industry conferences, a startup mentor for well-known incubators in Indonesia such as MDI Ventures’ Indigo and Startup Studio Indonesia, as well as an Advisor for early-stage companies. He lives with his wife and two children in Jakarta.
What are the trends driving FinTech and RegTech innovation in the Asia Pacific region?
M&A transactions in Southeast Asia’s tech sector have been relatively constant at approximately $20 billion of value annually, but this figure is expected to reach $75 billion in 2021. M&A deals in the private technology sector in Southeast Asia–driven primarily by acquisitions of major companies such as Grab, GoTo, and SeaGroup– reached $19 billion in the first half of 2021. The 114 percent increase of M&A exits in Southeast Asia between 2020 to 2021 reflects great enthusiasm for the region as one of the fastest-growing internet economies in the world (source).
Early 2019, The Monetary Authority of Singapore (MAS) announced the digital bank framework that gives Digital Full Bank or Digital Wholesale Bank licenses. These digital bank licenses will allow entities, including non-bank players, to conduct digital banking business in Singapore. A similar regulatory framework is being laid down in Indonesia. The Financial Services Authority (OJK) has released a new regulation that defines a digital bank as a banking company with an Indonesian legal entity that provides and carries out business activities primarily through electronic channels.
With the regulatory foundation that is being developed across the region, the rapidly growing internet population, and rising digital financial services adoption, we can expect a trend towards healthier competition among the players and better protection of consumers’ rights.
What are three key challenges that you are trying to address, and how are you addressing these through tech solutions?
First, Indonesia is a country of 270 million with an approximately 50 percent unbanked population. Despite the growing internet population and e-commerce transaction volumes, card penetration remains low at 0.64 debit cards per capita and just 0.06 credit cards per capita, creating a large gap in its financial inclusion rate.
With the regulatory foundation that is being developed across the region, the rapidly growing internet population, and rising digital financial services adoption, we can expect a trend towards healthier competition among the players and better protection of consumers’ rights.
Secondly, the complex geography has also resulted in a weak financial infrastructure and standardization that cannot keep pace with the rapid growth of its population and digital economy. Consequently, service providers must go through a convoluted process of integrating with one another that is not only expensive but also time-consuming.
The third challenge lies in how consumer-facing businesses in Indonesia need to provide their end customers with high-quality financial services to boost their retail transactions. However, these companies may not always have the capabilities to launch the features quickly, and they still have their core business to focus on
Ayoconnect aims to solve these challenges through our open finance solutions where we create an ecosystem to enable synergies between traditional financial institutions, digital banks and neo banks, fintech, as well as government offices can be leveraged seamlessly so that high-quality financial products and services will be easily accessible by Indonesia’s entire population. Some of our solutions include:
- Bill APIs: API stacks that integrate 1,000+ bill providers and 100+ consumer-facing businesses to enable seamless and automated bill payment transactions for 50M+ end customers.
- Insight APIs: API to provide account verification and identification for both banked and unbanked consumers with 1. Access to proprietary data sets; 2. Access to behavioral data on spending
- Open Finance APIs: Opening access to customers’ bank transaction data, account balance, assets, and liabilities (under the customers’ consent) for consumer-facing businesses to allow a safer, quicker, and more seamless account opening, auto deduction, and cross-platform integrations.
How important are regulations in the success of technology solutions, for instance, DeFi or FinTech platforms?
Regulations are developed to protect citizens, enable healthy competition, and create an environment that empowers innovations and economic growth. That makes them crucial to the success of fintech platforms.
The regulatory environment in Indonesia has been very welcoming over the last months and years, and they’ve laid a good foundation. Our regulators see fintech as one of the helpful elements to improve financial inclusion and grow our economy.
Regulations are developed to protect citizens, enable healthy competition, and create an environment that empowers innovations and economic growth. That makes them crucial to the success of fintech platforms.
What are your bold predictions for the FinTech sector in the medium term? How about the long-term?
Open Finance is predicted to be the future of the financial services industry in Indonesia. Based on Accenture research in 2021, 76 percent of banks worldwide predict that API usage for Open Finance will increase by 50 percent or more in the next three to five years. The same research also states that the implementation of Open Finance can also unlock potential revenues of up to $416 billion for the global financial services industry.
Going forward, we can expect to see more collaborations between established companies and financial institutions with fintech, or even collaborations among fintechs themselves, rather than a winner-takes-all or a zero-sum game.
Can you share some interesting data or case studies from your portfolio or partners that are a good example of how technology can bring about impactful change amid today’s business environment?
Bukalapak is one of Indonesia’s leading e-commerce and O2O platform that is backed by Microsoft, GIC, Ant Group, & Standard Chartered. They managed to raise IDR 21.9 trillion ($1.5 billion) from selling 25 percent of its enlarged capital in an IPO that was oversubscribed by roughly 8.7 times. Bukalapak’s $ 1.5 billion IPO is the largest throughout the history of the Indonesian capital market.
Bukalapak discovered in 2020 that the COVID-19 pandemic has encouraged more MSME players to find income alternatives, such as by selling digital products (such as telco data, prepaid electricity tokens, game vouchers, e-wallet top-up services) in their stores. Additionally, MSME in Indonesia plays an important role in getting the economy back on its track. The Ministry of Cooperatives and SMEs of Indonesia reported that Indonesia has 64 million MSMEs that can employ as many as 120 million workers. Moreover, MSMEs also contribute IDR 7.304 trillion ($509.78 million) to the National Gross Domestic Product (GDP).
Having access to Ayoconnect’s network helped Bukalapak expand to 500 cities and reach 7 million MSME partners with lower acquisition costs and higher retention rates. Bukalapak recently announced itself as the first all-commerce platform in Indonesia, an achievement that is empowered by its adoption of Ayoconnect’s open finance solutions.