Adrianus Hitijahubessy, Co-founder & CEO of Julo
Clairine Runtung, Senior Investment Associate of Convergence Ventures
Early Career & Background
In 2006, after studying robotics and artificial intelligence, Adrianus joined credit card company Capital One where he was part of the analytics team utilizing data to inform managerial decisions regarding risk management, credit and fraud recoveries. At Capital One, Adrianus learned how great companies remained competitive yet prudent in their lending practices through the great recession that was happening in the US. From there Adrianus then moved to Ebay and lead the team who’s function was to test all of the E-commerce website’s A/B testing. After Ebay, he moved to a startup called Signify, focused on providing unsecured SME loans.
Adrianus was strongly influenced by his experiences working in large companies, which built the backbone of his understanding of prudent credit assessment and how to manage testing at scale. At Signify he was exposed to the difficulties of implementing fintech lending in nascent markets but also the tremendous value that could be generated if executed properly. Successfully launching these products eventually inspired him to try to bring these products back home to Indonesia.
Fintech Lending Market Opportunity
Indonesia’s financial services authority, OJK claimed that there was USD 74 billion in 2016 loan gap that was unable to be serviced by banks and/or multi-finance companies mainly due to lack of data. Consequently, many individuals and SMEs turn to predatory lenders or loan sharks to gain access to capital. This gap represents the current opportunity however as the types of loan products increase and consumers become more aware of them, this opportunity will grow tremendously.
Fintech Lending Competitive Landscape
Based on his competitive study, Adrianus believes there are 50-55 companies that are in the Indonesian fintech lending space. He believes this is a good thing because consumer awareness is one of the biggest challenges and more players means educating the public is a shared responsibility. There’s many ways to slice and dice the opportunities in the space and each player’s strategy is typically defined by some of the following considerations: SME vs Personal, Secured vs Unsecured, Payday vs Installment, Cash Loan vs Product Financing. Secured SME loans and Payday products are probably the most popular product types at the moment.
Comparable Business Models
For Julo, from the product offering perspective (from the angle of the borrower), the closest comparables in developed markets would be Lending Club and Social Finance. They are comparable in the sense that they both offer unsecure loans, very low interest rates and also focus on the underserved segment (typically sub-600 FICO scores). That being said, these companies have access to much more robust data that we don’t have here in Indonesia, which is where both the problems and opportunities exist for us.
We try to be creative in our underwriting process and invest in technology that help us determine the credit worthiness of borrowers. For Julo, we look at the most available touchpoints in Indonesia which are mobile data and social media data; from these sources we focus on specific parameters which over a sufficient amount of time is able to extract patterns that have a significant correlation to borrowing behavior.
Role of Technology
The lack of financial history data for the majority of consumer presents a massive challenge and opportunity for players like us. Two very prevalent data that most people have is mobile data and social media data – Indonesian are known to be very active on these platforms. The premise of our approach is how someone uses these platforms is not random. Through several years of looking at this type of data, our machine learning algorithms can extract specific behaviors that correlate highly to positive credit worthiness.
Consumer awareness and human capital availability are big challenges for the industry as a whole but the most critical issue that all players need to be invested in is credit risk. It takes many companies to create a sustainable lending environment but it only takes one company to completely contaminate it; you can easily imagine a player being very risky giving discounted interested rates or even giving incentives to consumers resulting in a very negative consumer behavior. The last thing we want is for a credit bubble to pop in Indonesia.
Adrianus thinks the regulatory climate is very stable thanks to OJKs early anticipation of the market growth. OJK is watching the space closely but have decided that the first few years will be treated as a regulatory sandbox period. They are flexible and accommodating while still making sure no one player is going crazy with their lending practices.