Why is BNPL resilient in Indonesia?

Written by Kapronasia || May 10 2023

It’s all about financial inclusion: That’s why buy now, pay later (BNPL) is continuing to grow briskly in Indonesia, why regulators are maintaining a light touch, why venture capitalists and others keep pouring money into the country’s BNPL firms. Indonesia has an unbanked population of 181 million that is larger than the populations of most countries and many more underbanked people. Interest-free (if you pay on time) installment payments seamlessly integrated into e-wallets could become a dominant form of de facto credit in the country.

BNPL bears will point to the regulatory travails the service is encountering in mature markets like the U.S., UK and Australia. We do not deny BNPL firms could face an uphill battle in those countries if they are ultimately regulated the same way credit cards are. But regulators in rich economies have different concerns than those in developing ones. BNPL is not a credit lifeline for most Americans, Brits and Australians.

Japanese megabanks have been steadily stepping up investments in Indonesia’s fintech sector, with BNPL an area of focus. In December 2022, MUFG said it would invest US$200 million in Alibaba-backed Akulaku – for which BNPL is an increasingly important part of its business. By mid-2024, Akulaku aims to serve 10,000 online merchants and over 100,000 offline stores with BNPL.

In March, Mizuho Bank said it would invest US$128 million in high-flying Indonesian deferred payment provider Kredivo, which is best known for its BNPL product. Kredivo has about 6 million customers and is accepted on about 90% of Indonesia’s major e-commerce sites.

Some Indonesian BNPL firms focus on the country’s massive underserved MSME segment. For instance, Singapore-based Fairbanc raised US$4.8 million in a pre-Series A funding round last year. It allows small businesses to take out short-term credit to purchase fast-moving consumer goods inventory. Fairbanc has partnerships with 13 consumer brands, including Unilever, Nestle, Coca-Cola and Danone. In the 12 months to July 2022, Fairbanc onboarded over 350,000 merchants, according to Tech Crunch. 

The use of BNPL as a payment method is increasingly mainstream in Indonesia, especially for e-commerce. A recent survey by local media outlet Tirto and online research of 1,500 respondents  showed that more than 60% of consumers have used BNPL at least once, while 30% said they use it regularly. Electronic products and gadgets were the most popular category for BNPL purchases, followed by household appliances, internet and data top-up, as well as fashion and accessories. Indonesians use BNPL primarily for convenience. 

By at least one estimate, BNPL growth will remain brisk in Indonesia through the end of the decade. A report by ResearchAndMarkets finds that BNPL payments in Indonesia are expected to grow 22.9% on an annual basis to reach US$4.28 billion in 2023 and at a CAGR of 12.6% from 2023 to 2028.