Surabaya, across from the prosperous Indonesian capital city of Jakarta in East Java, is the hometown of Sukarno, Indonesia’s first president.

Farida Masrurin is the proprietor of a small grocery store in town. A little over a year ago, she applied to become a licensed agent for Indonesia’s BTPN Bank, allowing customers to deposit and withdraw funds with her without having to go out of their way to find a bank branch or ATM.

Now in addition to the grocery store, Farida augments her income with service fees from BTPN. “The application process is simple. All you need is a mobile phone, even if you don’t get a good signal. Plus, I’m also a social worker, and on my visits I encourage low-income families to save money,” Farida relates.

Founded in 1958, BTPN’s business for decades was straightforward: to serve pensioners exclusively. However, in the wake of the financial crisis of 2008, BTPN began transitioning, targeting the mass market, expanding business, and introducing two consecutive new digital financial platforms in 2015 and 2016.

The platform that Farida joined is called BTPN Wow! Utilizing mobile online banking over a tight distributor agent network, it allows customers to open accounts, conduct transactions, deposit and withdraw funds, and make electronic bank transfers, replacing physical bank branches and covering financial services for the majority of the population previously without access to them.

For over two years, the bank has licensed over 200,000 distributor agents like Farida over the more than 17,000 islands in the Indonesian archipelago. So impressive has the success of BTPN Wow! been that it was named by Fortune magazine as one of the 50 companies changing the world in 2016.

“Most Indonesian banks serve the middle class market, or even the upper middle class, and no one wants to get into the mass market. We saw an opportunity there,” says BTPN president director Jerry Ng. According to statistics, six out of every 10 Indonesian adults have never opened a bank account.

Ng joined BTPN before the financial crisis, having previously worked at a private equity firm, and as president of Citibank’s consumer finance department. After joining BTPN, he successively expanded operations, from serving retired pensioners to micro finance, helping thousands of women in remote island villages start businesses.

Minimizing Bad Account Risk

The most aggravating issue about lending money to mom and pop grocery stores and women’s workshops is the lack of credit information, clouding risk assessment and raising fears of soaring bad accounts ratios. How does BTPN overcome these issues? The answer lies in psychological testing.

Ng elaborates, giving the example of a popular activity among Indonesian elementary and middle school students involving riddles in magazines. Readers playing the game must guess the differences between two nearly identical pictures inside the magazine. BTPN uses similar methods to test customers’ honesty and integrity. “We’re not looking to see if they get the right answer, but how likely they are to practice deception,” Ng says.

With great relish, Ng relates that BTPN’s non-performing loans ratio has never exceeded one percent over the past decade, significantly lower than the three-percent collective average across Indonesian banks.

In a survey conducted by PwC early this year, over half of those surveyed agreed that technology is a key factor affecting bank reforms in Indonesia over the next three to five years. And BTPN is leading the field in this area. BTPN’s investment in digital ventures has increased every year since 2014, reaching over 610 billion Indonesian rupiah (around NT$1.34 billion), or 27 percent of net profits in 2016.

“When you look around, you see that our lives have become digitized. As a part of modern lives, financial services are naturally influenced by the digital trend,” observes Ng. Fortunately, the bank’s largest shareholder, Sumitomo Mitsui Banking Corporation, is fully supportive of BTPN’s digital transformation strategy.

Last year, BTPN introduced a new app on the heels of the BTPN Wow! program. Using an app called Jenius, customers can split payments, remit funds, and use its most unusual function, called Dream Saver. Dream Saver lets users set short-term plans, record how much money they’d like to save, and the system helps automatically save money towards realizing their dreams.

Focusing on its digital development strategy, BTPN is also successively shutting down brick and mortar branches, paring them down from over a thousand branches two years ago to less than 400 at present. And while the number of branches dwindles, the amount of customers’ fixed savings and loans continues to grow steadily.

“The Taiwanese market is already quite mature, so the need for financial technology doesn’t feel especially urgent. But in Indonesia, covering thousands of islands, there is a desperate need for inclusive finance,” observes Li Ming-hsien, deputy chairman of China Trust Commercial Bank.

As other Indonesian banks prepare to set sail, BTPN is already out of the harbor in mobile finance, far ahead of the pack with a stiff tailwind.

Translated from the Chinese article by David Toman

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