Hong Kong-based fintech unicorn WeLab has raised $240m to pave the way for its expansion into Indonesia. The startup will use the money to acquire PT Bank Jasa Jakarta (BJJ), an Indonesian bank, with the aim of growing its digital banking services into the nation. This makes WeLab the latest company attempting to ride the wave of the emerging fintech industry in Indonesia.

WeLab was founded in 2013 as an online credit company. It has since expanded to also provide virtual banking services via its challenger bank WeLab Bank. In those years, it has also raised $471m, according to GlobalData’s Technology Intelligence Centre. WeLab most recently raised $75m in March 2021. With the new raise, that puts the grand total injected into the company at $711m.

Nikkei Asia reported in April that the unicorn would seek an initial public offering (IPO) later this year that would value it at between $1.5bn and $2bn.

WeLab claims the $240m funding round is the biggest fintech funding round in Indonesia in 2021. However, it’s dwarfed by ecommerce giant Bukalapak’s $400m pre-IPO raise in April. It seems clear that WeLab wouldn’t count Bukalapak as a fintech. However the Indonesian firm did launch a pure fintech business unit and mutual funds selling agent, Buka Investasi Bersama, in October 2020.

Another contender for Indonesia’s biggest fintech round this year is would-be “super app” GoTo Group, the result of a merger between Tokopedia and Gojek. The GoTo Group operates Indonesia’s largest e-wallet GoPay and picked up a $1.3bn pre-IPO round in November. It also operates several other services, which might mean it isn’t a pure fintech – but it might, indeed, emulate super apps such as China’s WeChat (with which it has no relationship, despite the name).

No matter how you count it, WeLab will use the capital from the round not only to buy BJJ but also to open its second digital bank in the second half of 2022. It has already opened WeLab Bank in its native Hong Kong.

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“We continue the journey that we started in 2018 to build one of the first pan-Asian digital banking platforms, first in Hong Kong and now in Indonesia,” says Simon Loong, founder and group CEO of WeLab. “WeLab combines its advanced digital banking technology with the BJJ network to further grow the Bank’s business towards a bright digital future.”

WeLab and the fintech opportunities in Indonesia

WeLab has reason to want to get a foothold in Indonesia – its economy is expected to grow enormously in the decades to come. PwC expects it to become the fourth largest economy in the world by 2050. Yes, that means it’s expected to overtake nations like the UK and France.

The fintech industry in Indonesia has indeed grown a lot over the years. Both domestic and foreign investors have injected cash into the nation’s ecosystem. Tencent, Google and Temasek all backed the GoTo Group’s previously mentioned pre-IPO round, for example. Tencent also launched its first data centre in Indonesia in April, underlining the the opportunities in the country.

Fintech News Singapore estimates that there are 322 fintech companies in the country.  E-money digital wallets and peer-to-peer lending are currently the two leading fintech segments in Indonesia.

“WeLab’s entry into Indonesia is a testimony to the massive potential for fintech in this nation,” Arief Fahruri, Indonesia country director for ethical investment fintech Wahed, tells Verdict.

Indonesia’s fintech sector has thrived because of a big governmental push to bring the unbanked population – the third largest unbanked population in the world according to the US International Trade Administration – into the formal economy.

“The regulatory environment has been very welcoming over the last months and years, and they’ve laid a good foundation,” Jakob Rost, co-founder and CEO Indonesian open-banking company Ayoconnect, tells Verdict. “They opened up some of the licences to fintechs and basically see fintechs as helping. They see them as a helpful element towards financial and social inclusion and improving the economy overall.”

The governmental push alongside a growing middle class means Indonesia is rife with opportunities for fintechs like WeLab.

“It is the largest economy in SouthEast Asia and one of the most exciting emerging market economies in the world – but it still has very low financial literacy and inclusion,” says Fahruri. “This can be addressed with new fintechs coming into the market with their expertise and customer first approach to developing services.”

One of the things that could hold back the adoption of neobanking opportunities – like those soon to be offered by WeLab in Indonesia – is the nation’s low level of internet penetration. However, the fintech stakeholders Verdict has spoken with are bullish about the nation’s ability to solve this issue as well.

“The internet penetration rate is also growing super fast, so the digital network is available to launch new services to the masses – and to increase financial accessibility for all Indonesians,” Fahruri says.

The numbers back him up. According to a recent GlobalData report and forecast into Mobile Broadband in Indonesia, the population is rapidly getting onto the mobile network. The data shows that in 2020, 60% of the population had access to 4G. By 2025, this number is expected to grow to 88%. The percentage with 5G access is predicted to grow from zero to 13% in the next five years.

New infrastructure investments in undersea cables are instrumental to Indonesia’s ability to grow its internet coverage and several projects along those lines are on the way.

“[We] believe the country is moving in a positive direction, thanks to new legislation and an openness to innovation,” Fahruri concludes. “If we get this balance right, we will see higher levels of financial literacy and inclusion in Indonesia and a nation that can lead the region.”

On Tuesday, Indonesia announced a new regulation that will allow tech companies to issue multiple voting shares when conducting an IPO on the country’s stock exchange, further paving the way for local tech companies to grow.

A dual class shares framework gives certain shares more voting rights than others. This allows holders – typically corporate founders – to retain directional control over their company, a framework that is common practice among US startups.

Indonesia’s new Financial Services Authority regulation, which came into effect on December 2, aims to nudge the country’s fast-growing tech companies to list on the domestic stock exchange. Newly established behemoth GoTo is seeking to go public soon. Indonesia amending its laws is likely an attempt to woo the giant to float on its native market.