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FinTech Energises Indonesian SMEs

Small and medium enterprises (SMEs) are the backbone of Indonesia’s economy, absorbing 97% of the workforce, not to mention informal SMEs. Now, a fintech start-up that provides earned wage access (EWA) and other services for workers in Indonesia recently expanded beyond the enterprise space with a new employee management system for SMEs and micro-SMEs.

The tech firm is part of a new wave of start-ups focused on digitising the 60 million small businesses in Indonesia. Others include digital bookkeeping apps for very small businesses, including neighbourhood stores that focus on B2B businesses.

The app is aimed at businesses with between five to 100 workers and has gained more than 50,000 active users since it was launched in mid-March. The tech intends to give workers an alternative to payday and other high-interest lenders by allowing them to access their earned wages immediately, instead of waiting for semi-monthly or monthly paychecks.

The app does not charge interest rates or require collateral, as users are pre-approved by their employers. Instead, companies can decide to charge fees or offer the platform as part of a benefits package. When a worker withdraws money, the app asks why they are using the Earned Wage Access feature and presents that data to companies in an anonymised and aggregated format.

This feature allows employers to see what needs their work base has and potentially develop new benefits. For example, one of the top three reasons workers use EWA is to pay medical bills. This is a strong signal to an employer that if you are trying to retain employees, especially a blue-collar employee, even a basic insurance product might be very attractive for the family.

The tech firm also discovered that many workers, especially in Tier 2 to Tier 3 cities, use its EWA to fund family businesses instead of taking out loans for working capital. A lot of families in Indonesia often have one member working in a factory with fixed salaries, and they have micro-industries at home, for example making wafers or stickers to sell in their communities or online, said the tech developer. They were going to loan sharks previously or private lenders for very expensive rates so they can run their business, and now the family member who is working in a factory can withdraw capital to support the family business so they don’t need to go to loan sharks, they added.

The tech was launched because the developers saw many inbound inquiries from SMEs, like restaurants, small factories and general stores, that have a lot of part-time workers. These businesses often rely on paper systems, including punch timecards, to track working hours and calculate paychecks. But this often results in disputes, so having an app that counts working hours and earned wages in real-time gives workers more transparency and helps companies save time, the developers said.

As reported by OpenGov Asia, people in Indonesia are turning to digital services during the COVID-19 pandemic, one of which is non-cash payments. Financial technology (fintech) payments companies saw a 267% increase in the number of users.

Growth marketing experts of these companies said the number of users in Indonesia was more than 10 million per month during the fourth quarter of 2020. Companies recorded an increase in the number of users. According to them, there is a substantial addition of new users throughout 2020.

In total, the application for a specific fintech service is already used on 115 million devices. They believed that the number of users increased because people switched to digital services during the pandemic. They also recorded an increase in the number of partner merchants by 95% on an annual basis (year on year/YOY) last year.

As digital payment platforms, these fintech companies encourage MSME players to digitise, especially adopting digital payment methods. They said that their companies saw that there was a great potential for MSME players to enter the digital realm.

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