Banking and Finance Issue 01 - 2022 MAGAZINE

How this Indonesian fintech firm made it to the top

Xendit achieved unicorn status in 2021 with its Series C fundraising via venture capital investment firms like Tiger Global, Accel.

Established in the year 2014, Xendit was developed on the lines of WhatsApp instant messaging service by Moses Lo, an alumnus of the University of New South Wales business school. Lo serves as CEO of the company. But now the company has become a significant player in the digital payments sector in Indonesia as a Peer-to-Peer (P2P) payment platform. The idea to move to the fintech space came from the hassles faced by a friend of Moses Lo, who was trying to move money from Australia to his home country of Indonesia, which was a costly thing.

Despite being incorporated just in 2014, it has catapulted itself as not only a major national entity but also as a leader in the Southeast Asian fintech ecosystem. The company provides payment infrastructure services and related solutions across Indonesia and the Philippines. The company focuses on providing services related to payment processes, financial marketplaces, disbursing payroll, and loans, among other related offerings. Xendit also comes with a homegrown fraud detection service known as Xenshield, which combines fraud management tools with risk scoring to review payments for fraud risk.

This establishes itself as a low-cost alternative for clients and helps them grow exponentially by providing them with a suite of world-class application programming Interfaces (APIs) and a dashboard user interface that simplifies their work processes. The company’s primary function is to make payments in Indonesia simple, secure, and easy for all, including SMEs, tech start-ups, and even MNCs. It is backed by some of the most prominent venture capitalists in the world.

While the company forayed into the financial space as a payment gateway, initially, It has now extended its services to facilitate invoicing, risk management, fraud prevention, tax payment, and even organize finance for merchants if they cannot do so through the traditional route from banks.

The growth story
The patronage of the platform has been unparalleled, clocking more than 65 million transactions per year. The company saw its user base grow by over 500% in 2020. The sharp increase in its user base has been primarily attributed to growth in demand for digital and e-commerce products such as video prescriptions and online games. This can also be because most people were confined to their homes during Covid-19 lockdowns and were looking for ways and means to keep themselves busy in the confines of their homes. The value of total transactions was a whopping US$ 6.5 billion in 2021. The company collects its revenues via charges fixed or percentage-based fees from user merchants. After paying the fees, merchants can use the platform to send and receive payments.

Building on its surging user base, the firm is expected to register handsome growth in revenue in the coming years as it consistently introduces new products that facilitate secured e-payments, such as fraud protection and the KYC process. The company’s revenues are expected to be fuelled further as it associates with significant players in other areas to facilitate Buy Now Pay Later payment options. Currently placed at number two as a payment gateway company in Indonesia, the company is expected to continue its forays into newer areas related to payment.

The coveted unicorn status
Xendit achieved unicorn status in September 2021 with its Series C fundraising via venture capital investment firms like Tiger Global and Accel. They had earlier pumped in US$ 64.6-million in Series B fundraising in March 2021. The massive user base coupled with sustained growth in revenues has resulted in Xendit getting more funding and a greater valuation. With US$ 200 million funding by Coatue Management, Insight Partners is expected to raise the valuation of Xendit from the current US$ 1 billion to US$ 2.7 billion. The company has also registered more than 200% Year-on-Year (YoY) increase in total payment volume handled and has recorded a Total Payment Volume (TPV) of US$ 9 billion per annum.

Xendit is expected to use these additional funds to expand its reach into new geographical areas and develop and launch new products. The company, banking on its focus on creating efficient digital infrastructure, is expected to use the funding to strive towards becoming a market leader in the banking and financial sector not just in Indonesia and the Philippines but also in other Southeast Asian nations. The next phase of expansion is likely to be in Malaysia, Thailand, and Vietnam in the next few years helping businesses to verify and manage their end-user customers.

Xendit seeks to become a one-stop shop for merchants who want to jump onto the digital transformation bandwagon, link, automate, and simplify their payment-related activities as per the requirement in their country on its platform with transaction methods such as digital wallets and credit cards.

Using the pandemic as a springboard
For a region like Southeast Asia that mainly relies on cash for payment, the Covid-19 pandemic has been a boon for adopting digital payment methods, and Xendit has been quick to seize the opportunity. Xendit saw a sharp increase in its user base, primarily attributed to growth in demand for digital and e-commerce products.

This was necessitated because most people confined to their homes due to the Covid–19 induced lockdown were looking for means to keep themselves busy and for digital options for online purchases.

Also, the region is rife with over 100 languages, and people live in various islands scattered over thousands of miles. This makes the problem of the inaccessibility of monetary transactions, especially during a pandemic. As a fintech service provider, Xendit is working towards making the region’s electronic wallet payments system the most accessible and affordable. Also, as brick-and-mortar stores were forced to shut shop due to the pandemic, going online allowed them to reach out to customers in geographic locations that were not possible earlier, and the company helped make it possible for them to execute online transactions.

The company also became the first Indonesian company to be accepted into the Y Combinator accelerator program. Xendit receives funds on one island and delivers funds on behalf of its client merchants, both big and small, on another island, allowing them to complete an online transaction.

In Indonesia, regulators want to push QR code payments because most people make payments via e-wallets. In the Philippines, however, it’s slightly different. Xendit intends to educate the market and global MNCs who want to sell products in South East Asia to help increase the increased use of technology-based payment solutions.

Foraying into newer markets
The company which mainly focused on clients that provided travel-related services is now shifting its focus. It is now trying to combine a global approach with localization. The company intends to make it a point to build partnerships as it approaches newer market segments. The company is also investing in dedicated customer success teams for every region to boost interaction can help increase its reach.

Besides providing a reliable and secure payment gateway, the company also plans to launch value-added services. Focusing on technology, the company has highlighted the benefits of the digital economy for businesses across the region.

So far the company has maximized its focus on customers primarily from SMEs and telecom companies, who mainly operate through retail outlets in shopping malls. Due to pandemic-induced lockdowns, the shopping malls were closed, so they found it challenging to communicate with customers and execute financial transactions like bill payment phone recharge and other value-added services. Now Xendit, through its technology platform, is helping telecom companies to service their customers.

Besides them, the company is also tying up with prominent technology players like Traveloka, Wish, Wise, and Grab. Digital payments in most Southeast Asian markets are highly fragmented. Consumers use various services like digital wallets, Buy Now Pay Later (BNPL), virtual accounts to traditional debit and credit cards. The company now intends to provide a single platform that can be integrated with any service allowing customers to make payments easily.

Acting as an intermediary, Xendit, through its technology solutions, allows businesses to accept payments from any methods customers use. The services include live URLs which allow sellers to message customers for payment, web and mobile checkouts that work with e-commerce platform plug-ins and APIs.

The company is also focusing on diversifying its business. It intends to expand its portfolio by tying up with financial institutions to provide working capital loans for merchants, and issue credit cards, which has enormous potential as credit card usage is still shallow in countries like Indonesia and the Philippines.

Helping women do business
In Indonesia, many small and micro-businesses are run by women who don’t have a good credit rating or any property ownership that can be used as collateral to access loans from banks. Faced with inherent challenges that created obstacles in their path to access banking and financial services, women in Indonesia were looking for alternative solutions that the company introduced. This proved to be crucial for women who owned small and micro-businesses to get out of the vicious cycle of capital-starved businesses that could not otherwise grow.
It has enabled these female small and micro-business owners to bypass existing rules and regulations regarding executing large numbers of financial transactions through its payment platform. Using the payment gateway and other services, women entrepreneurs are now sending and receiving money more affordably and flexibly. Most importantly, it has allowed them to get the much-needed financial backing they need in the form of a loan on their terms to grow their business wherever and whenever they want to.

Positioning as a market leader
By building hyper-localised products ideally suited for a geographically fractured region of Southeast Asia with over 23,000 islands, Xendit has tried to meet all types of customer needs. Xendit, building on its reach, has been able to milk the advantage of being the first mover to develop first-in-market products that provide unparalleled customer service by adapting to their dynamic requirements.

This is all the more important since electronic wallet payments that clocked over US$ 22 billion in 2019 are expected to touch US$ 114 billion in 2025 according to analysts. E-commerce players are already burdened with building a whole new platform to promote online payment and figure out an algorithm to ensure that the right products are in place or that the right merchants are there. Devoting time to facilitate online payment can be distracting for e-commerce businesses.

The payment solutions are known for their reliability. And the company has crossed many technologies and infrastructure-related hurdles to provide end-users access to a level playing field, enabling them to do business in an unrestricted manner and thrive. After success in Indonesia, it entered the Philippines and established itself as one of the largest payments solutions providers in the country.

Xendit’s digital payments are quickly becoming the standard for financial operations in Southeast Asia. It created a solution that allowed not just big businesses, but also small and micro business owners access to the digital economy across the region. The company can be termed the precursor of digital payments infrastructure in Southeast Asia.

Building on its expertise in digital transformation, the company has devised quick-fire solutions to challenges arising out of operational requirements. Case in point, when the company was designing digital payment solutions infrastructure set up for a bank in Jakarta, capital of Indonesia, a bulldozer involved in road construction on main roads severed communication lines of the bank to Xendit’s data center. As a solution, the company now builds localized data centers inside the banks themselves.

The ability to thrive in markets despite many challenges has allowed the company to edge out others and emerge as a market leader providing payment solutions to end-user customers and businesses across the region. The burgeoning demand for digital payment solutions and access to financial services is set to put the company on a path of explosive growth in the coming years. This will happen as the market evolves and digital payment infrastructure is further improved, allowing for more and more acceptance from end-use customers.

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