June 18 2024

Fintech funding in Indonesia is down, but not out

While Indonesia is one of Asia’s most important fintech markets, it has not been able to escape unfavorable macroeconomic trends. Amid high interest rates, stubborn inflation and less investor patience for unsustainable business models, funding in the fintech sector of Southeast Asia’s largest economy has fallen sharply in the past few years. Data compiled by Tech In Asia show that in 2023, deal count dropped by about 50% while total deal value fell by 53% to US$850 million. Though funding has yet to pick up significantly, there have been a few notable transactions thus far this year.

On June 13, Indonesian B2B payments fintech Paper.id (it provides a platform for businesses to create invoices and manage accounts) announced that it had secured an undisclosed amount of Series B funding to expand its solutions. The round was led by Australian VC firm Square Peg, with participation from Sumitomo Mitsui Banking Corporation (SMBC) Asia Rising Fund and Argor Capital, an existing investor.

There are a few interesting aspects to Paper.id. First, it has been around since 2017, gradually growing its market share. The company says it currently serves 600,000 customers and that from 2021-2023, the value of transactions it processed rose thirtyfold to US$2 billion. Second, the participation of SMBC is yet another example of Japanese incumbent financial firms investing in Indonesia’s fintech sector, which remains relatively open to foreign investors provided they know how to structure deals. Japan’s largest financial institutions have limited growth opportunities at home. Though Japan has gradually been increasing financial sector digitization, the pace is slow compared to Indonesia and financial inclusion needs are limited given the country’s advanced stage of development and high per-capita GDP.

Paper.id’s Series B round follows several notable investments in March. For instance, Jakarta-based AwanTunai, point-of-sale financing solutions, raised US$27.5 million in its Series B round, exceeding its initial goal of US$25 million. Once again, a Japanese megabank was involved – this time MUFG Innovation Partners – while other key investors included Norfund, the Norwegian government’s investment fund focused on developing countries and OP FinnFund, a Finnish impact investment firm.

In an interview with DealStreetAsia earlier this year, AwanTunai CEO and founder Dino Setiawan struck a bullish tone. He said that the funding round might be expanded given ongoing interest from large private equity firms and global investors. Setiawan also highlighted the startup’s robust business model and its trajectory towards profitability, noting that AwanTunai is EBITDA positive and on track to achieve positive profit after tax by the end of the year.

Also in March, the Jakarta-based financial wellness app Wagely raised US$23 million in a mix of equity and debt financing to fuel its growth across Southeast Asia. Wagely provides businesses with an earned-wage access (EWA) solution that enables employees to access their pay after each workday. Wagely says that in 2023, it dispersed over $25 million in salaries and served nearly 500,000 workers in Indonesia and Bangladesh.