Hong Kong-based fintech WeLab Group announced in on December 7 it was taking control of an Indonesian bank in order to launch a purely digital bank there.
This would make WeLab the operator of two Asian virtual banks, following the launch of WeLab Bank in 2020 in Hong Kong.
Regional lenders such as DBS, UOB and CIMB operate all-digital banks in other markets. Ant Group has virtual-bank licenses in both Hong Kong and Singapore.
But this is the first time a “virtual native” bank has jumped into a second market.
It’s a fast expansion given WeLab Bank has only been operating for about two years in Hong Kong.
Is the move, involving the acquisition of Indonesia’s Bank Jasa Jakarta, a template for other virtual banks? It’s a question every VB CEO must ponder: whether in Hong Kong, Singapore, Australia, or the Philippines, cross-border growth is one way to scale – a necessity for most of these businesses to survive.
Jessica Lam, chief strategy officer at WeLab Group, says the company has had a presence in Indonesia for three years, through a joint venture struck in 2018 with Astra International, Indonesia’s largest conglomerate (and controlled by Hong Kong group Jardine Matheson.)
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That was the same year the Hong Kong Monetary Authority announced it would license eight virtual banks.
She says the decision to partner with Astra and to apply for the Hong Kong license were separate – but they did dovetail.
While WeLab Bank was finding its footing in Hong Kong, the Indonesian business, Awda (for Astra WeLab Digital Arta), built a local team that began to funnel insights to WeLab’s executives.
“We were learning the market, proving the demographic story and the customer needs,” Lam told DigFin. “We were waiting for when the time was right.”
Awda now has about 3 million users of its Maucash financing app. (WeLab also operates fintech and lending businesses in Hong Kong and mainland China.)
Pulling the trigger
By the end of 2020, she said the team felt it had enough user data, as well the capacity to handle an acquisition. The local team played a bigger-than-expected role in relationship building and due diligence with the onset of COVID-19, since the leading executives in Hong Kong couldn’t travel to Jakarta.
Other events made the acquisition of a local bank even more compelling. For instance, one of WeLab’s shareholders and strategic partners is Allianz. In July, Allianz Global Investors acquired the $480 million Indonesia asset-management business of RHB Bank.
That will enable a more compelling wealth- and insurance offering that WeLab can provide in Indonesia, Lam said.
Because Indonesia does not have a licensing regime specific to all-digital banks, and with the WeLab executives determined to have operating control, the best path lay in acquiring a local bank and transforming it.
Bank Jasa Jakarat (or “Jakarta Service Bank”) was established in 1984 and relies on lending off current and savings account deposits. It is small but profitable, with plenty of experience of lending to consumers and small businesses.
WeLab put together a consortium called WeLab Sky to acquire shares from all of BJJ’s equity owners with the intent to become the sole controlling shareholder. The financial regulator, Otoritas Jasa Keuangan, has already greenlit a 24 percent investment, with the rest pending OJK and other regulatory approvals.
New and existing WeLab investors stumped up $240 million for the acquisition; no valuation was given.
Integration and innovation
Lam declined to say who will run BJJ or how it will be rebranded, or what might become of BJJ’s branches. The business is currently headed by its president director, Handrie Wirawan.
But the plan is to combine WeLab’s technological chops with BJJ’s customer relationships and local market knowledge. For example, WeLab is already reviewing cloud vendors to support the transformation of BJJ’s tech stack, as its core banking system can’t support the volumes of transactions a digital bank will process.
WeLab intends to launch the Indonesian digital bank in the second half of 2022.
Lam says WeLab will rely on BJJ’s team for customer relationships and local knowhow.
WeLab CEO Simon Loong said in a statement the acquisition is part of the group’s intention “to build one of the first pan-Asian digital banking platforms”. For the time being, however, the Hong Kong and Indonesia banks will operate separately. They are regulated locally, for one thing. JJB and WeLab Bank will operate as independent companies under WeLab Group.
The markets are also different. Although the HKMA mandated its VBs to pursue financial inclusion, the fact is that SMEs in Hong Kong can get a bank, even if the service isn’t great. Hong Kong is a wealthy city.
Indonesia is a true financial-inclusion play, with up to 77 percent of its 270 million people unbanked or underbanked. Most of these people are young and mobile-savvy, and they include plenty of urbanites that WeLab can target digitally.
“These are university-educated professionals who can’t get a credit card,” Lam said. “We will use alternative data and analytics to convert BJJ customers into WeLab customers, as well as go after new ones.”
But they can share technology and partners, and perhaps look at referrals. WeLab will be eager to replicate its tech stack as much as possible. Lam says the group is working with consultants to identify how much of WeLab’s tech setup is compliant in Indonesia.
Lam demurred on whether the acquisition of a profitable lender was meant to bolster the finances of the group, given WeLab Bank, like its peers, doesn’t make a profit.
“BJJ represents a massive investment for us, in terms of capital, time, and people,” Lam said. “The bigger group picture is that we are a pan-Asian fintech and we are now going big in Indonesia.”