Meet Naufal Rahman. In his mid-20s, the Jakarta native has been exploring Indonesian robo-advisor platform Bibit as he prepares to make his first foray into investing.
Together with his millennial and Gen Z peers that make up a combined 53 per cent of the population, Naufal is part of a new generation of retail investors that have benefitted Indonesia’s rapid economic growth. World Bank data showed the archipelago’s economy grew on average five per cent annually from 2010 to 2019 with income levels doubling.
Despite its large population, Indonesia has a low penetration rate for stock investments. At the end of 2019, there were only 1.6 million capital market investors in the country, which is less than 1 per cent of its population of 273 million. In comparison, Singapore and Malaysia have penetration rates of 26 and 8 per cent respectively.
While income levels have risen over the last decade, it was only in 2020 when spending patterns shifted and retail investing gathered pace. With lockdowns imposed across the country, more time was spent at home while personal expenses were reduced. The greater availability of time and capital allowed more to research and invest in capital markets.
Besides greater wealth, digitalisation has also played a key role in the rise of retail investors within Indonesia.
Firstly, it has enabled Indonesians to exponentially increase their financial literacy rate through a combination of public and private efforts.
As part of the government’s effort to raise financial literacy rates, the Indonesian Stock Exchange (IDX) launched its Yuk Nubang Saham online campaign to educate millennials on investing. It seems to be making good progress – IDX claimed the campaign accelerated investor registration growth by more than 25 per cent in 2019.
Meanwhile, the rise of “stock influencers” has resulted in greater access to investing knowledge. Publishing videos on investment strategies, these social media influencers boast millions of subscribers.
Notable influencers include Ruditya Bika, who has over 9 million subscribers on his YouTube channel while garnering over one billion views for his videos. Kaesang Pangarep, son of Indonesian President Joko Widodo, is another up and rising influencer with over a million YouTube subscribers.
Besides driving greater access to investment knowledge, Indonesia’s digitalisation push has contributed to the success of tech giants with local listings in the pipeline.
Bukalapak and GoTo are set to IPO on the IDX this year, with the former gunning for an August listing and the latter by end of the year. Traveloka and Tiket are also in talks for a public listing.
These companies have been synonymous with the growth of the Indonesian economy over the last decade and are widely used by the masses. The increased visibility, coupled with a global bullish sentiment on tech companies, will drive retail investing interest as locals seek to participate in the upside of these local tech giants.
Besides a greater interest in investing, the barriers to it have never been lower, thanks to the rise of wealthtech platforms across Indonesia.
By slashing platform fees and adopting a digital-first approach popularised by investing apps such as Robinhood, platforms such as Ajaib, Bibit and Pluang have democratised access to investing. For instance, Ajaib requires no minimum deposit to open an account while Pluang allows contributions from US$0.50.
At 5.4 million, the total number of investors in capital markets has doubled since 2019. Buoyed by this growth spurt, Indonesian wealthtech startups are knocking on the doors of investors.
According to DealstreetAsia, local wealthtech startups raised US$356 million in the first half of 2021. This is more than double the US$124 million raised in the whole of 2020.
The largest fintech rounds within Southeast Asia have also been raised by these startups, with Ajaib’s blockbuster US$90 million Series A and Bibit’s US$65 million round topping the charts.
With their massive funding rounds, others are wanting in on this growing lucrative pie. Incumbent financial institutions such as banks, investment management firms and securities companies are investing in infrastructure to provide wealthtech solutions for their customers.
However, wealthtech startups should not view them as a threat. These traditional players target wealthier segments with more sophisticated investment products and higher fees that are unsuitable for retail investors.
Despite that, pure-play wealthtech firms including robo-advisors and financial planning platforms could face increased competition from companies adopting embedded finance solutions.
For instance, GoTo and Bukalapak are offering wealthtech services on their platform with the latter launching a joint venture with an asset management firm to set up a retail mutual funds platform.
Larger exchange needed
Besides competition imposed by embedded finance solutions, wealthtech players need to be wary of the weaknesses posed by the IDX. With a market cap to GDP ratio of only 46 per cent, the IDX is relatively smaller than exchanges in Vietnam (47%) and Thailand (75%).
Hence, regulators need to increase the market cap of the exchange and provide sufficient liquidity to meet the increased demand from retail investors.
There have been efforts made on this front. The relaxation of listing rules encouraging tech companies to list locally will significantly increase the market cap of IDX. Bukalapak’s bid to raise US$800 million in its August IPO will mark the exchange’s largest listing in a decade. GoTo’s subsequent IPO is likely to eclipse it.
With another 24 listings reportedly in the pipeline before the end of the year, this year’s IPO haul will likely overtake the US$1.02 billion record set in 2019.
The only way is up
With over 65 per cent of its population below 40 and an internet penetration rate of over 73 per cent, Indonesia is home to a young and tech-savvy population. Furthermore, the country’s economy is expected to continue growing at an average annual rate of five per cent.
These factors will only serve to increase demand for wealthtech solutions in the country as a new generation of retail investors emerges. With only two per cent of the population participating in the capital markets thus far, the sky is the limit for the Indonesian wealthtech ecosystem.