This is an article contributed by Sonat Yalcinkaya (Kaya) and Vyani, co-founders of Shox Rumahan, one of the leading rural commerce startups in Indonesia. Kaya has extensive experience running e-commerce across different countries. While he is native to Turkey, he also speaks fluent Mandarin Chinese and Bahasa Indonesia.

On the other hand, Vyani possesses a keen understanding of rural Indonesia, having been heavily involved in Nestle’s activities in the region. A second-time founder, she grew Shipper’s fulfilment initiatives more than 50 times after her start-up, Pakde, was acquired by the company.

We spoke about the different factors that affected the success of a business model in rural areas in the first part and discovered if an urban business model could work in rural areas in the second part.

The 200 million rural underbanked population in Indonesia has been coveted by many fintech players. However, no one has claimed this massive user base yet. Even BCA, the largest bank in Indonesia, has only 10% penetration. Why is that?

The answer lies in use cases, lack of multiple monetization models, rural specific pain points and building a holistic ecosystem that can find a place in low-end smartphones with limited storage space.

Use cases

In rural areas, customers usually purchase lower-end smartphones which have limited storage space. They don’t see phones as a luxury but a necessity and investment for their household. 50% of the storage is taken by social media such as Facebook, WhatsApp and Instagram. The remaining 20-30% is occupied by entertainment apps such as TikTok and two or three gaming apps. They also have YouTube and Zoom for their kids’ remote lessons.

There’s only 10-20% space left in their phones and more than 10,000 apps are competing for this market. Users prefer apps that provide a unique value and have multiple functionalities.

Sadly, financial apps don’t fall under this category. An average user downloads a fintech app to get loans (they use the money and repay the loan outside the app) and then delete the app to free space for more essential apps. As fintech apps don’t host the complete user journey on their app, they are perceived as tools. It is difficult to build loyalty for this use case. This also leads to difficulty in building credit scores for users’ other purchases later.

E-commerce and fintech marriage

E-commerce, especially with agents/resellers, turns the table around. Shoppers have an incentive to keep opening their app every day – to earn savings for their essential needs. Moreover, getting loans and shopping happen in the same app ecosystem.

As the essential needs of a rural household keep evolving with upward mobility, the shopping history and credit scores also increase. The agents are able to build loyalty, retention, and this results in longer consumer lifetime and larger lifetime value.

We, at Shox Rumahan, have gamified this process where we can participate in the journey of rural underbanked users – right from their first low purchase to building a credit score for their home mortgage applications.

Limited monetization models

Fintech players don’t have a lot of monetization models – interest rates and late fees for defaulting are a few options.

Fintech and e-commerce can be compared to Blockbuster and Netflix’s business models. Blockbuster made most of its revenue from late DVD returns while Netflix generated revenue when viewers spent more time watching. Netflix is more aligned towards viewers’ needs, making money upfront with membership and not betting against failure (like what Blockbuster did). Since this was a more pleasurable experience, viewers spent more time on the site and it also garnered positive word-of-mouth marketing, which in turn brought more viewers.  

Currently, fintech players are similar to Blockbuster because they make money only when borrowers fail to pay. E-commerce players are like Netflix since there is more than one way to make money (merchant fees, ad spots, etc.) and they don’t bet on customers’ failure.

The goal is to attain a higher wallet share, which in turn enables cheaper logistics, lower prices and a larger customer base. And the positive flywheel continues.

This is why we believe the model to crack the rural underbanked population will not come from fintech players but holistic agent-based e-commerce applications. E-commerce gives customers multiple use cases to stay loyal to the app. Moreover, the monetization models align with sharia and don’t bet on customers’ failure.

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.