The Online Investment Boom:
Anderson Sumarli from Ajaib
1 September 2020
Welcome everyone to Episode 13 of Indo Tekno. Selamat datang, semuanya. Thank you all for tuning in again. We fast tracked our invitation to today's guest the second we heard of the planned public filing in China of Alibaba fintech affiliate Ant Financial last week. The world's highest valued fintech company, Ant Financial is also likely to execute the world's largest IPO in a planned dual listing in Shanghai and Hong Kong, with a target valuation of $225 billion later this year. Having surveyed the online personal finance landscape in Indonesia, we are extremely pleased to have join us today Anderson Sumarli, CEO and Cofounder of Ajaib. Ajaib is often described as the "Robin Hood" of Indonesia, as Ajaib, like its Western cousin Robin Hood, also offers stock and mutual fund services that can be accessed online. Ajaib most importantly in our minds makes affordable these services to all tiers of the income pyramid in Indonesia. Anderson, thanks again for joining.
ANDERSON SUMARLI 1:16
Thank you for having me.
Anderson, please share with us your background and also the origin story of Ajaib.
ANDERSON SUMARLI 1:22
I'm Cofounder and CEO of Ajaib. Prior to this, my background has always been in either financial services or technology. I actually started my career at IBM working in their chief analytics office in the New York headquarters. And that's where I started falling in love with data and analytics, helping them expand across Asia and Europe. And after a couple years doing that, I went back to Indonesia and I joined the Boston Consulting Group. They were at a pretty interesting period of time, just about to launch their Financial Services and Technology Advantage practice. I had a lot of fun there, advising a lot of big banks and big multi-finance companies on how to make the leap to digital. From there I started realizing that there are some gaps in the FinTech scene. There's a bunch of digital banks and companies in digital payments, digital lending; but virtually nobody's innovating in the investment space. And that's what really drove me to start Ajaib. I felt like there was a lack of innovation in the investment industry in Indonesia.
Now, Indonesia hosts the largest capital markets in Southeast Asia. However, Anderson you recently estimated that the country has one of the world's lowest investment penetration rates at roughly 1%. How do you think about the long term opportunity in this regard?
ANDERSON SUMARLI 2:37
Yeah, it's actually pretty crazy to think about it. Indonesia is half a trillion dollars in market cap. A lot of people don't realize that Indonesia's stock market is larger than Singapore, despite people thinking Singapore being the central financial service hub of Southeast Asia. And what's more crazy is knowing that only half a percent of the country is investing in stocks. We don't need to go too far away. Just look at Thailand. They're way higher than us in terms of investment penetration. Looking at India, they're at two and a half percent. China is in double digits. And again, Indonesia is still at half a percent. Indonesia might just be one of the largest stock markets in the world with the lowest investment penetration. And that's why I'm very optimistic about the opportunity in Indonesia. And I think that this will trend up. And I think that, if you think Indonesia is half a trillion dollar market cap is already big, it will surprise you in the next few years.
Can you outline briefly the value proposition that Ajaib is currently presenting to Indonesian target customers?
ANDERSON SUMARLI 3:42
So here at Ajaib, our mission is to onboard a new generation of investors to modern financial services. So with that, we offer a few things. First of all, we're "technology-first." In fact, we are the first stock broker that is branchless, fully online and "mobile-first." That allows us to do a couple of things. A) it allows us to offer the cheapest fees in Indonesia. In fact, with our mutual fund business, we offer zero commissions. And with stocks, we offer the lowest fees in the market. And we get to do this because we've automated all the processes, and approach our customers in an efficient, safe online manner. And B) it also allows us to educate customers. We have a repository of the largest investment content in the Indonesian language. And we're able to reach customers through our website, through social media, through our app, all fully online especially during this COVID period. So our value proposition really is driven by technology in making financial services more affordable, and also making education more accessible.
If I'm not mistaken, Anderson, subsequent to launching your first online mutual fund offering in January 2019, Ajaib has enabled more than 200,000 new retail investors across Indonesia. This was roughly 25% of all new retail investors in Indonesia last year. How do you think about 2020 and 2021?
ANDERSON SUMARLI 5:09
Yes. How crazy is that, knowing that in our first year of launching, we contributed one of every four new retail investors in the whole country? I think that such a thing would be difficult to achieve in other markets that are already developed. And so it just tells us that this market is just begging for innovation. People want to invest, but they don't know how to or they cannot afford to invest. And our vision for 2020 and 2021 is even more ambitious. Though, we want to focus more on financial deepening. We want to make sure that these 200,000 and growing investors that we have on our platform, understand what they invest in, understand what's the difference between a mutual fund and a stockbroker, and understands the decisions that they take that will impact their future financial freedom. And that's why we're investing heavily into education. We're doubling down into our technology platforms to make education more accessible, and also to make investing much cheaper and accessible to everybody from all walks of life.
Anderson, who's our competition?
ANDERSON SUMARLI 6:22
Our main competition is a lack of financial literacy. To tell you the truth in Ajaib, more than 90% of our investors are first time investors. They've never invested in anything before until they met us. And so our job when they come on our platform is not to convince them to invest in us, and not invest in A, B or C. Our job is to convince them that they should be investing, that this is good for their future, that this will uplift their financial standing. And so every single day our team is focused and thinking about: "how do we reach out to all these young millennials with our message to tell them that they need to be invested so that they can beat the inflation rate in Indonesia, so that they can have a brighter future."
Anderson Can you share with us the vision behind Ajaib acquiring securities broker PT Primasia Sekuritas earlier this year? How do we think about integrating services, personnel and other parts of the business?
ANDERSON SUMARLI 7:20
Yes, this is the largest challenge that I've ever faced in my career. But it's very fun. What we realized early on is that financial services is all about trust. And so regulatory standing is very important. So instead of partnering with another broker, we decided to acquire a broker and become that broker ourselves. And with that, we treat the acquisition process in the best way we know, especially since we closed the acquisition during the COVID period. So we have retained all of the employees that we acquired. We have started integrating them into our culture, and we've done knowledge sharing between them, because this company that we acquired has been around for 30 to 40 years. And so they understand what it takes to run a stock broker. They understand the operational importance behind it. They understand the standard operating procedures that are compliant. And so we're constantly learning from each other. And the vision is that we can take the knowledge - institutional knowledge - that they have about how to run a stock broker, and we can inject it with a modern age technology. And that's why today we are the only brokerage in Indonesia that is fully online without any branches whatsoever.
Anderson, what's the regulatory context surrounding Ajaib?
ANDERSON SUMARLI 8:40
Regulation here is very complex. Let me start it off with that. We have all kinds of licenses. To start off with, we have a full broker-dealer license. We also need to have a mutual fund brokerage license, and many other licenses, to go online to launch our product. And so we're very good friends with the Indonesian financial authorities. We're very good friends with the Indonesia Stock Exchange. We see this relationship as a partnership. It's a partnership of trust and also to bring education to the masses: our target market, which are first time investor millennials.
Ant Financial's "Yuebao" is China's largest money market fund with US$170 billion in assets. What is market share breakdown amongst money market funds in Indonesia? And where do you see that trending longer term?
ANDERSON SUMARLI 9:31
I really look up to Yuebao. In fact, I believe that they're today the largest money market fund in the world. Indonesia's money market scene is very interesting. Believe it or not, the returns range between 5-7%. That is insane. The Sharpe Ratio is way-off the charts. In fact, I put most of my salary into money market funds immediately after I get it. That's how good it is in Indonesia. Yet it's still in its nascent stage. Much of the money market funds today in Indonesia is still held by institutional money. And so the retail market has yet to understand the power of money market funds. In fact, if you look at the inflation rate in Indonesia today, it stands about 3% to 3.5%. Whereas the returns that you would get from your bank savings account is less than half a percent in a year. A lot of people don't understand that by putting their money in the bank, they're already losing money immediately. And an alternative like money market funds, which return 5% to 7% is one that is very attractive. That is something that has happened in China, where all the young millennials have started to realize that and shift their funds from banks to money market funds. It has yet to happen in Indonesia, and we want to lead it through our educational resources.
Anderson what have been the most pronounced effects of COVID on Indonesia's personal financial markets?
ANDERSON SUMARLI 11:02
Oh boy, this is a huge question. If we look at anywhere else in the world, COVID has essentially increased the penetration of retail investors in each stock market. No matter if you see it in the US, in Brazil, in India, in China; the story is all the same. And that is happening right now in Indonesia. And we're very excited to see that. I've two theories behind it. The first one: I think that COVID has unfortunately impacted a lot of people at work. So a lot of them have lost their jobs or have reduced hours. And so they're longing for an alternative source of income that they can make money on. It just happens to be investing in our platforms, which are fully online, fully mobile, including the whole onboarding KYC process, is one that is much more accessible to people to add to their daily income. The second part of this is that, because of COVID, Indonesia has been in work-from-home lock down for the last six months. And so we see a huge spike in our user base; their usage during working hours. Previous to this, we only saw them in the morning, saw them a bit after lunch, perhaps after they take a lunch break at work. But now we see them consistently active on our platform throughout the day. So it seems like they're remotely working but at the same time enjoying our products throughout the day.
Now most of us are well aware of Indonesia's millennials being much more mobile-first than their predecessors, and being true digital natives. How do they figure into our business?
ANDERSON SUMARLI 12:36
Well, Ajaib is a mobile-first company. When we thought of this concept, we knew immediately that mobile is the key; the reason being that mobile is a platform that is highly underutilized by existing incumbents. For example, there are only three Indonesian brokers that have more than 100,000 downloads on their online stock apps...and that is downloads, not even investors. So we knew the power of mobile, having seen how Robinhood developed in the US as its first mobile-first online broker, seeing how Zerodha developed in India and anywhere else in the world as well. And I think that COVID has really accelerated the adoption of mobile amongst millennials for financial service activities for the very simple reason that millennials, they don't want to go and meet another person in this era. They don't want to go and meet a teller at a bank to open up an account. They don't want to go and handle 20 pages of documentation to open up a brokerage account. They want things quick, they want things efficient, they want things that they can do right at home, and they want things to do that are safe. And right now everybody is work-from-home. Everybody's in a lockdown situation. And so that's just going to accelerate the adoption of mobile amongst millennials for financial services.
Anderson, can you share with us any interesting behaviors or trends that you've seen in your customer base since launching your funds and stock trading online? Does, for instance, a certain demographic "churn-and-burn" more than others, etc?
ANDERSON SUMARLI 14:11
Well, it's very interesting because we've done a great job in attracting a very specific segment of the market, which is practically making up more than 90% of our user base. It's these millennial first time investors. And we're very proud of attracting them. We've somehow created a product that speaks very deeply to them. They have a very unique customer behavior. They are loud. They tell a lot of their friends. They're excited about things. One would anticipate that someone who's never invested before would be less vocal about their first time investing experience. But here we get randomly added to WhatsApp groups every single day, because our users create the small Whatsapp group with all their colleagues at work. When we think about it, it makes a lot of sense. With only half a percent of the country investing, whenever someone becomes a stock investor, they're more likely than not to be the "expert" amongst their community immediately, because they're the only ones that have invested in stocks. And so we see that launching stock trading on an online platform, in a mobile platform, just really encourages that generation to share us on social media, share us on WhatsApp, share us on their Instagram stories and so forth. And that's really something that's been surprising to us.
Now, part of the value proposition, or that of a Robinhood in the West as you referenced earlier, is disrupting traditional brokers by being the first branchless, fully online stock broker. How quickly do you expect disintermediation to occur?
ANDERSON SUMARLI 15:47
Well, for us, Ajaib was born as a branchless fully online stock broker to start off with, and so we're immediately disintermediating those processes. But let me speak for my other peers in the market. If we look at the biggest brokers in Indonesia today, their strength is in distribution, in particular, physical distribution. The largest brokers in Indonesia today have the largest network of physical branches and salespeople. And they did it because, back when they were developing that distribution channel, regulation stated that you needed to do face-to-face KYC (Know Your Customer) or account onboarding. Remember, earlier when I was talking about those 20 pages of documentation that people need to do, and now the age has changed. And it's very difficult for the incumbents to adapt to that change because the distribution network of physical branches and salespeople apparently has been very effective in attracting a specific segment of the market, which are high net worth individuals. High net worth individuals still want this physical touch, still want to be able to interact with a specific salesperson. And so it's very difficult for them to stop all that, because stopping all that would mean letting go of their high net worth clients that are contributing a lot of their volume. And so the way I see it is that, it's a fork in the road, in which the incumbents have committed to this segment of the market. And we as Ajaib have committed to the opposite segment of the market, which are first time investor millennials. And so I think that these two strategies can coexist with each other. I don't think everybody would go full branchless, full online like we do. I think most people will still remain with physical branches and salespeople, and that's okay, because our mission again, is to onboard a new generation of investors. And so we're more concerned about pulling in first-time investors into our platform.
Looking north to China, as we often do here at Indo Tekno, China's two largest FinTech businesses, Ant Financial on one hand; and WeChatPay WeSure and Licaitong on the other; are connected to the country's two largest internet and e-commerce platforms. Alibaba and Tencent have China's largest captive user bases online: one in e commerce and the other in social networking. How important will it be for Indonesia's FinTech platforms to similarly be connected to captive businesses, such as SeaMoney with Shopee or Ovo with Grab and Tokopedia? And how does Ajaib view its position?
ANDERSON SUMARLI 18:17
That's a really good question. It really depends on which area of FinTech you're in. I believe that you do need to connect to these platforms. If you are a payments company, or you're a peer-to-peer lending company, or just a credit lending company. I think these are important to connect to, because I think data is really important in these businesses. I think that the virality of networks that happens with connecting to one of these large platforms with huge distribution is really important, but I think it's less important when it comes to investments. Maybe you can argue that for mutual fund investments, but much less for stock trading. In fact, I cannot name a single e-commerce platform or ride hailing platform or a social networking platform anywhere in the world that has done a successful job in launching stock trading on their own platforms. And I think it's because stock traders have a very unique behavior that's very different than users of any other financial services. Stock traders want to look at their stocks immediately. They value speed. They value accuracy. They value safety. And so nobody wants to go on a super app and be met on the first page with 10 different options of financial services that you can choose from, and then have to click three more buttons before they can see the price of their stock and to purchase it. What we know is that our users want efficiency. They want to have the least clicks, the fastest and most accurate pricing that they can get because every second counts when it comes to stock trading. So again, I think that it's really important for payment companies, for lending companies, as we've seen in not just China. We've seen that in India. We've seen also in the US, but we think stock trading is very different. We think that's why Zerodha exists on its own in India. That's why XP exists in Brazil. That's why Robinhood exists as-is in the US. It's similar to how in China, Tiger Brokers and Futu Securities also exists on their own platform.
Now, the growth of Ant Financial and Tencent FinTech services began around a nucleus of payments capabilities. How important is payments as an onramp to other financial services in Indonesia?
ANDERSON SUMARLI 20:34
Well, I think that it is important to have a very strong first use case. I don't think that it needs to be payments. If you look around the world for examples, in India Policybazaar started with claims management of insurance products. In the US, Robinhood started with stock trading. We see it in Brazil: XP started with financial advice. And so it's apparent to me that no matter where you start as a FinTech company, we need to prove ourselves to our customers that the initial product we launch with is adding immense value, 10X better, than the alternative to our users. And going from there, then we can grow with strength and we can expand to other ancillary products and services. I think that payments is one of the ways to onboard people into financial services. But I think that stock trading is one that is very exciting as well. And we're looking forward to proving that out.
What do you view as the biggest bottlenecks to Ajaib's growth?
ANDERSON SUMARLI 21:36
To me, it's about education. Again, I just cannot understand why there's only half a percent of the country investing in stocks. It makes no sense, especially knowing that the Indonesian Stock Exchange in the last 10 years is ranked second in the world in terms of returns. The first one is the NASDAQ. And so it's obvious that it's an economy that's growing so quickly. And that's reflected in these high returns in the stock market. And mind you that this is a huge stock market. It's not a small stock market. It's half a trillion dollars in the market. It's bigger than Singapore. Yet we only have half a percent of the country investing. And so I think that it comes to education. It comes to telling people the importance of keeping invested and the importance of personal finance, how you should think about inflation and your earnings potential. And truthfully, I think that there are a lot of FinTech players out there that are not really educating the market in the right way. They're educating the market based on returns, which is not really going to incite a lot of trust down the line. And that's why in Ajaib we have tripled down on providing investment content just to educate the market regardless of if they want to invest in us or not. We give them easy educational content so they can just learn and make a decision for themselves because we're confident that our product is much better than the alternative.
What other lines of business look attractive to you?
ANDERSON SUMARLI 23:09
It's very funny. When I had not started Ajaib, I didn't have that many ideas. But as I developed Ajaib, more and more ideas came up. More and more business lines look attractive. But now I have less and less time to explore all those. Well, for Ajaib specifically, we're not stopping here. We have a vision to onboard a new generation of investors to modern financial services. We're starting with investments first, because we think that's the most underpenetrated segment of financial services in Indonesia today. We think that it's interesting to look into bonds as well. I think it's interesting to also look into other areas of personal finance, such as insurance and retirement plans. And so the sky is the limit for us, but we keep focused right now on investments. We're still focused on stock trading. We're still focused on mutual funds. I think there's still a lot of homework to do. And I think that we can meaningfully contribute to financial deepening by increasing the penetration of Indonesians investing in the stock market in the next few years.
Super-fascinating discussion, Anderson, and I'm very much looking forward to tracking the growth of Indonesia's consumer FinTech scene through the success of Ajaib. This concludes our 13th instalment of Indo Tekno. Thanks so much for joining us today, Anderson.
ANDERSON SUMARLI 24:30
Thank you for having me.
The podcast was translated from English to Bahasa Indonesia by Alpha JWC Ventures. Terima kasih untuk mendengarkan. Sampai jumpa lagi!