Episode Three

Enhancing SME Efficiencies:

Gabriel Frans of CrediBook

IndoTekno Podcast, 16 January 2021


ALAN  0:13  
Welcome back to Season Two, Episode Three of the Indo Tekno podcast. Selamat berjumpa kembali! I'm Alan Hellawell. I'm host of the Indo Tekno podcast. I'm also founder of Gizmo Advisors and venture partner at Alpha JWC Ventures. I hope you enjoyed today's podcast intro music. There's an interesting story behind it, which we'll get into shortly. But first, let's tee up today's topic and speaker. There's undeniably a massive opportunity to be had in helping Indonesia's 56 million SME's leapfrog into digital banking. A vast majority of these small businesses remain hostage to the inefficient and often perilous world of what we might euphemistically call the "informal world" of credit. Today's guest, Gabriel Frans, is co-founder and CEO of CrediBook. CrediBook is focused squarely on modernizing traditional approaches to debt and cash management. Gabriel and team seek to remedy the Indonesian SME's largely offline approach to debt and cash management through an easy-to-use digital ledger and payments app. Welcome to the show, Gabriel.

Hi, Alan. Thanks for having me here.

ALAN  1:26  
It's an absolute pleasure to have you on Gabriel. Now getting back to my initial and very cryptic reference to today's Intro music: I've come to discover that you have a recording studio at home. You seem to be a man of many interests. If you don't mind, tell me about your greatest non-professional passions.

So yeah, my greatest passion currently is music. In my recess time, I produce my own music since I have my own studio at home. And I also write and compose my own music. I've had this passion since childhood and currently I'm still exploring it and hopefully I can dig deeper. Currently, I'm also exploring jazz piano, on top of other musical instruments.

ALAN  2:08  
Let me put you on the spot Gabriel. What is your favorite piece of music right now? Or who is your favorite artists? 

Well, I have a lot. But I can say Cory Henry from Snarky Puppy, or else Jakob Collier. He's been nominated for many Grammy awards.

ALAN  2:26  
Fantastic. That'll be part of my homework over the weekend is to listen to some of these individuals. Now I also noticed that you went to ITB or Institut Teknologi Bandung. Several of our past interviewees are graduates of ITB, and I was hoping you would describe for our non-Indonesian listeners what ITB is like.

ITB is the best engineering school in Indonesia. Many foreigners have an analogy of University of Indonesia as a Harvard, and ITB as MIT. I met some top students back then in my college life. And currently, you can see many ITB graduates sitting in the top management levels of government-owned companies, MNC companies in Indonesia and other top companies in Indonesia.

ALAN  3:15  
And Gabriel, just out of curiosity: is there anything similar to even a small Silicon Valley in and around the ITB campus? Or is that really more in Jakarta?

Well, back then the plan was to have some sort of Silicon Valley around ITB. But we can see that currently, the top talents of startups and engineers and programmers are still sitting in Jakarta. So I can say there is not much similarity between Silicon Valley and ITB.

ALAN  3:45  
Gotcha. Well, I'm looking forward to eventually making a visit to the campus, and I am also forgiving you for not comparing it to Stanford University instead of MIT...

Yeah, you should go there. It is a lovely place. 

ALAN  4:00  
Fantastic. Now, Gabriel, looking at your professional background, you were involved in international expansion with Traveloka if I'm not mistaken. What were some of the highlights of that role?

Indeed, I'm not exaggerating, it was some sort of a golden moment of my career. Before Traveloka, I was working mostly rolling products at the local Indonesia level. So in Traveloka, it was my first time with Southeast Asia exposure because I was involved in international expansion. And also on top of that, I worked with many functions in Traveloka. Prior to working in Traveloka, I would handle mostly product management, and go to market strategy. By managing the international expansion at Traveloka. I worked with legal, tax or even data privacy. So, it was an eye opener for me.

ALAN  4:47  
Fantastic. Now, Gabriel, can you share the origin story of CrediBook? How did you come up with the idea?

At the beginning of my career, I worked at Kudo. It was acquired by Grab back then. Currently it is named GrabKios. It is an online-to-offline product for the SME industry. Actually, the SME industry is very close to my heart. Ever since I started my career. And back then I worked with Hendra Kwik. Currently he is the CEO of PayFazz. And after I moved from Kudo, and Hendra started PayFazz, we were still in contact with each other. We chatted on a monthly basis. And we talked about how we can leverage more on this SME industry, what are the current problems that need to be solved on the user side, on the industry side? And then, in the beginning of 2020, I was talking with a lot of SME owners, and we were seeing that cash management is still a very heavy problem back then. And then I decided to start CrediBook. And then that's where the journey begins.

ALAN  5:52  
That makes a lot of sense. We're going to be coming back to that relationship with PayFazz a little later in the conversation. Before we go there, a very basic question for you, Gabriel. How exactly does the small business owner use the CrediBook app today? And how do you envision him or her using it in two years' time?

Currently, they use CrediBook to manage day-to-day transactions, whether it is a transaction that has happened in cash, or that has happened in informal credit. Because at the beginning, we make our entry point by solving the debt management and debt recording problems. And currently, we are introducing more and more features to solve more and more of their problems. And in two years, we hope that more SME's are going digital. Currently, based on the government data that you have mentioned, of 60-65 million SME's, around 16% have gone digital. But we are hoping that it will increase more and more. And within two years, we are going to solve more problems and launch more product verticals. And they can rely on us with operating their businesses.

ALAN  6:58  
Okay, so basically rolling out an increasing number of ancillary services to the SME over the next few years. Is that correct?

Yes, indeed.

ALAN  7:08  
Gotcha. Now, Gabriel, is this a very localized business or are lending and borrowing habits quite uniform across Indonesia, and Southeast Asia for that matter?

Well, on the topic of lending businesses and the localization of these businesses, even in Indonesia, every area, every province has their own characteristics on how their businesses operate. What we found and what I personally found in Southeast Asia is that in Indonesia, and specifically in certain areas, the business is more relational, rather than transactional. And I guess in other Southeast Asian countries, it's more transactional. So it is based on trust. That's why there is a lot of informal credit, not only on the level of merchant-to-consumer, but also merchant-to-wholesaler, which involve big numbers on the value of the credit.

ALAN  8:01  
And so are you saying that to win in this business, you have to have a very intense local understanding of each market?

Yes, indeed. Because that characteristic is even different among areas. It is a very localized market. So we need to have a very good local understanding of each area so that we can solve that problem, we can talk to the users intensively and then we can deliver a good solution to their problems.

ALAN  8:29  
Let's continue talking about the SME or even the warung owner. We've seen a number of very admirable attempts to bring the warung and the small business owner into the digital era. Many who attempted however, find great challenge in everything from a lack of digital literacy with the small business owner, to an inability to grow scale effectively across what is no less than 56-60 million largely unconnected SME's, to difficulties in monetizing these small shopkeepers in a meaningful way. How does CrediBook think about these challenges and others that surround this effort?

We can group the big obstacles into two groups that we are seeing Currently, the first one is financial literacy. And the second one is digital literacy. What I meant by financial literacy is that still many of the business owners, specifically the SME business owners, don't think that financial knowledge is important for them. In their mindset, they just sell the products and then they get profit, and then they will do it again and again. So that's why it is our job to provide the market with education on the importance of financial literacy that could make your business bigger that would scale up your businesses that will prevent you from losing your money and things like that. And the other one is the digital literacy. That is the "dual edge" of what you have mentioned. There are a lot of products, there are a lot of startups, there a lot of companies that are focusing on SME's. And it could be good because the digital literacy becomes a joint effort. If they try a new app, they will be familiar with the new technology. But on the other side, competition could be saturated. Imagine if someone's currently visiting SME owners; the SME will say that "nah, it's just another product. I already have a lot of applications installed in my phone."

ALAN  10:26  
So in that regard, are you saying that it could become a very crowded space, and that the SME owner could be faced with so many options to choose from?

My point is that we have to choose the right products and choose the right segments. Because if we target all of the SMEs, we are targeting a very general product. It is very crowded, and it could be saturated. And it is even harder to tap SME owners.

ALAN  10:53  
That makes sense. Now, what was CrediBook's growth in 2020? And what are you targeting for 2021?

We actually launched in February, 2020. By December, we managed to have more than 500,000 users. And speaking of 2021, we are going to roll out to more and more areas that we are already focused on. And we are going to launch more product verticals to solve more problems, not just bookkeeping.

ALAN  11:23  
Understood. Now going back to an earlier topic, you referenced having built a friendship with someone in an earlier job. And indeed, CrediBook seems quite uniquely aligned with another leading private company in Indonesia's FinTech space. Can you tell us more about the tie up with PayFazz?

Yes, indeed. Hendra the CEO is a good friend of mine. We worked together at Kudo as I've previously mentioned. Currently, they (PayFazz) are mostly focused on payments and transactions. Their products are mostly used by warung and small, traditional FMCG's. While for us, we complement them with a bookkeeping and stock keeping part to create a one-stop-solution for them via strategic synergy and collaboration. And the good thing for us is that we can access their network and they can also access our network. We have a broader spectrum of SME sectors like laundry stores and even wholesalers and suppliers.

ALAN  12:17  
And do you think that these synergies would be as strong if you had not known Hendra from your earlier career?

That's an interesting question. Of course, our friendship plays a part. But actually, the product itself makes for very good synergies with PayFazz's product. And currently, I can say that we also have other partnerships with other products. And I can say that we are doing well in supplying the data and also having access to good users as we focus on bookkeeping. We currently partner with other lending and payment companies, and we are making good partnerships around that.

ALAN  12:55  
Interesting. So it sounds as though collaborations and partnerships are quite important to CrediBook's success.

At this stage, yes, indeed. Because we have chosen an entry point with our bookkeeping features, but we definitely need to broaden our solution. We have collaboration and partnerships with other financial services providers, because in Indonesia, it is hard to obtain licenses. And what we are doing right now is giving solutions to our users through collaboration with the players that already have the licenses.

ALAN  13:28  
I understand. Now, Gabriel, I think distribution has been a real challenge for those wanting to modernize SME's. What is your biggest unfair advantage in eventually being able to reach millions of Indonesian SME's?

First, we are tapping into some key distribution channels. We already have key distributors. They will use CrediBook with their merchants, and their merchants will use CrediBook with their consumers. And that will create network effects. And the other thing that we are seeing as an unfair advantage is this partnership with PayFazz. They already have a nationwide presence. And by having these synergies and collaboration we can also tap that network. 

ALAN  14:09  
Makes sense. Now Gabriel, how do you divide your time between building the "upper funnel" like acquiring new users, and on the other hand, deepening product development and user stickiness? 

Well, they say that while distribution is god, product is still the king, right? So we are also focused on building a good product. I can say that, among other bookkeeping solutions, we are the one that is very close to our users, so that we are continuously taking their inputs. And then we deliver good features. We deliver more solutions helping the merchants with their daily problems. If they love the product, it is easier for them to refer others to also use the product, and that will create virality. Currently, we want to boost our organic users. So by having the users love the product it will create virality and then it will boost organic users.

ALAN  15:05  
Excellent, I understand. Now Gabriel, it looks as though a major part of our value proposition going forward will be predicated on successful credit scoring. There have once again been many different strategies taken, trying to gain useful insights from the small business owner in order to lend to them productively, whether it's from scraping telco usage data, or partnering with an offline bank or simply reviewing one's own data if you're an e commerce platform. How are we doing credit scoring differently than others?

As mentioned previously, we want to tap into the distribution channels. So, CrediBook is currently used not only by the merchants, but also by the consumers and the wholesalers. So currently, if we know the merchants purchase the goods from certain wholesalers, and we have the record, we can track the transaction flow from the beginning as they purchase goods until they sell it to the consumers. And we can check it on the two sides too. So if all the stakeholders in the chain are using CrediBook, we can verify the data. And also we have introduced digital payments. If we are thinking about bookkeeping, if they manually input the data, it's hard to use that data for credit scoring. But by having the transaction happen in CrediBook, we can track it down to the bank or to the payment partner, and it will improve the data validity. Hence it will improve their credit scoring capability.

ALAN  16:34  
Understood. Now there would seem to be several rings of competitive overlap that CrediBook, whether it's other private companies such as BukuWarung, or BukuKas. It might be the B2B marketplaces, who themselves are seeking to roll out credit offerings, or even Indonesia's e-wallet license holders. Who is our most prominent competition in your mind, Gabriel?

Well, we have been in the market for almost a year. What we are seeing currently is that most competition comes from the old behaviors. So the manual process using pen and paper and books is still huge out there. And we are still keen to convert that onto a digital solution. So we will win by changing the old behavior through correct product strategy and appropriate market education. And we definitely will change that behavior of using the manual process.

ALAN  17:26  
And with regard to those old behaviors you just mentioned, I guess many of us can guess how informal credit is given between merchants and consumers and wholesalers and merchants. How specifically do we improve these processes? Can you give us a couple examples?

So for merchants-to-consumers, the merchants by using the old ways (the manual process), tend to lose the money because of their messy recordings, or they forgot to recap because it took time - things like that. By having CrediBook we are reducing or can even completely ensure that the debtors will pay their merchants. So by having good data which you won't lose, you can also set a payment reminder, you can set the payment schedule, things like that. We will ensure that CrediBook is helping the merchants to collect money. And then for wholesalers-to-merchants they are doing informal credit on huge amounts of value, right. This is where the partnership also kicks in. Imagine the transaction between wholesalers and merchants sometimes can be IDR200 million, which is around USD10,000 to USD20,000. By giving the merchant  informal credit, sometimes it is impacting the cashflow of the wholesalers. That's why we are keen to do invoice financing. So the wholesalers can also receive the money first. Merchants can pay it later but we will give the money to the wholesaler first so the cashflow can be better on the wholesaler side. It is some sort of "BNPL" (buy now pay later), but between the merchants and the wholesalers. 

ALAN  19:04  
Now I see we are constantly introducing new services. Let's just take a second to look at one of them. Can you share some of the innovations that CrediBook has developed around credit collection alone? Can you quantify how you've improved that process?

Yes, so for merchant-to-consumers we introduce this payment schedule and, on top of that, we also can shift the payment onto installments. We are seeing that it improved the debt repayments on the merchant-to-consumer side. And for the wholesaler, it improves the cash flow on the wholesaler side by having this sort of buy-now-pay-later from merchants-to-wholesalers. And we have a specific app, a specific product to tackle that named "Jualan". It is the complement to CrediBook. Jualan helps the merchants mostly with product, the inventory, the online catalog, the online order management; while CrediBook is still focused on solving the book keeping problems.

ALAN  20:01  
Now Gabriel in what tier market will CrediBook see the greatest success? Is it tier one, tier two, tier three? And why specifically would you have outsized success in a certain tier of the market?

Another interesting question, Alan. So generally speaking, it will be in tier two and tier three cities. I can say with tier one cities, the scene is quite crowded. So if you are coming to SME owners in Jakarta, they are very used to having a guest who is selling the products, who is introducing new product; and sometimes it becomes quite hard to onboard them to use the product because they are sensitive to the memory allocated in their phones, or else they need to learn again from the beginning. But in tier 2 and tier 3 cities, financial and digital literacy is quite hard. But we are seeing that the sweet spot comes in some areas of the tier two cities where technology literacy is more than others. We are seeing that some areas in West Java or Makassar or other areas in East Java, technology literacy is better than others.

ALAN  21:11  
Interesting. So it has particularly valuable relevance to tier two and to a lesser extent tier three. 

Yes, indeed. 

ALAN  21:20  
Gotcha. Well, let's continue the geographic discussion. Gabriel, do we have any regional expansion plans? Can you give us a sense of target markets and timelines if we do have regional plans?

Yes, we do have regional aspirations. We are seeing that some of the areas in Southeast Asia have similar market characteristics to Indonesia. They have SME's, and typically we are targeting SME's that still use manual processes to solve their day-to-day transactions, to solve their day to day business problems. And with regard to timelines, I think after we dominate the Indonesian market, we can move regionally.

ALAN  21:59  
Okay, well, you've got quite a large market in your backyard. So I assume for the immediate future. All eyes are on the Indonesian market, yes?

You can say so.

ALAN  22:09  
Okay, what an absolutely impressive and ambitious mission you have outlined around Indonesia's 10's of millions of SME's. I'm personally hopeful that the CrediBook solution will become as virally popular as the music that you shared with us will inevitably become now that it's appeared on the Indo Tekno podcast. Well, thanks a lot for joining us today. Gabriel.

Thank you so much. The pleasure is mine, Alan. 

ALAN  22:35  
Fantastic. Today's podcast has been translated into Bahasa Indonesia by Alpha JWC Ventures. Terima kasih telah mendengarkan.  Sampai jumpa lagi!