Insignia sees Payfazz going places with boots-on-the-ground solution to Indonesia's unbanked

THERE has been a lot of talk about Indonesia's unbanked population, but not many businesses are actually walking the walk to serve them, says Insignia Ventures Partners founding managing partner Tan Yinglan.

Fintech startup Payfazz, however, has been raising an offline army of agents to literally cross that last mile, he says.

Insignia led a pre-Series A investment round via convertibles into the Indonesian startup in September 2017, alongside other notable investors such as alumni of Silicon Valley accelerator Y Combinator, Vertex Ventures, Convergence Ventures and MDI Ventures. It declined to reveal the size of the deal.

Payfazz ropes in offline agents across Indonesia to help people without bank accounts to access digital financial services with cash. In Payfazz's initial model, these agents accept cash from users and convert that cash into balances on the users' Payfazz accounts that can then be used to pay bills, with the agents and Payfazz collecting fees in the middle. Since Insignia's investment, Payfazz has leveraged the same mechanism and its agent network to roll out other financial services such as peer-to-peer (P2P) transfer and personal loans, which are the firm's fastest growing business lines.

The firm is also partnering logistics and insurance providers to allow consumers to send parcels and buy insurance through its platform in the coming months. Payfazz has grown about 45 times in transaction volume since Insignia's investment and is active in all 34 provinces of Indonesia, with 90 per cent of its active agents outside of Jakarta, Mr Tan said.

Mr Tan tells BT why Payfazz has an edge over its competitors.

1. What is the under-appreciated part of Payfazz's business?

People often think Payfazz's offline network will soon be irrelevant, and investors unfamiliar with South-east Asia (SEA) might pass on it at first glance. However, it is our belief that a hybrid offline/online model like Payfazz is poised to win in a trust-based market like SEA. The majority of consumers still desire some form of a human touch as they sample new forms of technology, and it is the company that has been there to guide them through this phase of change that will capture the hearts, minds and hopefully wallets of these consumers.

2. The company earns 1 per cent of every transaction, which is a very slim margin. Are there plans to make the business more monetisable?

Definitely. Payfazz has already rolled out many product lines, some of which are enabling them to earn more than that. That said, the team is focused on keeping per transaction earning low, so most of the value is passed on to agents and users.

3. How strongly does Payfazz face competition from other players with an "agent model", such as Kudo and Gojek?

Payfazz does not see them as competitors, but more as peers that can co-exist and grow together. Payfazz targets the large rural unbanked population, which it understands and serves way better than any players in the market. The service offering is also starting to differ from those provided by Kudo/Gojek due to the different network asset they have. Payfazz is going deep into lower cost services with higher human touch (like parcel collection points, loans, insurance), while Kudo or Gojek is leveraging its mobile network to do higher cost, lower human touch services like direct-to-customer food deliveries.

4. How do you see Insignia adding value to the startup?

Our greatest support will be our world-class technical team that Payfazz has access to 24/7. In fact, in December, Payfazz was struggling to keep up with the know-your-customer (KYC) process as their numbers of users continued to climb exponentially. Insignia sent a team of five engineers to work alongside the Payfazz team in their office. Within two weeks, the combined team deployed a new system that removed the manual process of the KYC verification, improving efficiency by an order of magnitude.

Furthermore, as with all our investments, we also continually avail our panel of experienced unicorn builders in the payment and online-to-offline spaces, who guide the team on potential pitfalls and opportunity levers. Lastly, as a "gateway" fund in this region, Insignia is able to link startups to global investors who often lean on our regional expertise to find investment that fit their investment mandates.

5. What are some of the hurdles that the company needs to overcome as it grows?

All fast-growing companies continually need to strengthen their technical fortresses as they scale to ensure excellent customer experience. This is particularly important for financial services company like Payfazz where service instantaneity and data security cannot be compromised. Additionally, as we already are starting to see, many copycat services will emerge to replicate Payfazz's success. As such, Payfazz needs to continue to relentlessly innovate based on customers' feedback to earn the customer love and trust every day.

INSIGNIA VENTURES PARTNERS AT A GLANCE

Insignia Ventures Partners (fund)