William Li is the CEO of Akulaku, the largest consumer finance company in Indonesia, and a very fast-growing digital bank. Akulaku is a Southeast Asian tech company that has both Chinese and Southeast Asian management, and investors from China.
William used to work in the legal and financing industry for over 10 years. He founded the Akulaku with his co-founder Gordon, a senior developer in late 2014 and received funding from IDG. Hear William explain:
How they identified the opportunity in SEA, and pivot the business from Bitcoin to a digital bank;
Why they started with eCommerce, and how it helped with the rapid growth of their digital bank business;
The difference in the banking system among Hong Kong, mainland China, and Indonesia;
How Akulaku is structured and resources are allocated to optimize the efficiency, as well as balanced between the eCommerce and digital bank business;
What the SEA market looks like today, and why they decided to expand to Europe next.
Rui: Hey everyone. I am so pleased to present this, dare I say, pretty exclusive interview with William Li, the CEO of Akulaku. Akulaku might not be a company you’re very familiar with, but that’s because you’re probably not based in Southeast Asia. It is the largest consumer finance company in Indonesia and a very fast-growing digital bank. And as you’ll learn at the end of the episode, the company’s actually expanding into regions far beyond Southeast Asia. So, maybe you will see it in your neighborhood soon.
Anyway, what does this have to do with China tech? You ask. Since that is the topic of our show. Well, as you might’ve guessed, while it is a Southeast Asian tech company, it is founded by Chinese founders, William is one of them, and it has both Chinese and Southeast Asian management. It’s also raised more than $200 million dollars from seed to series D. You’ll recognize some of those investors as being from China, such as Qiming, and Ant group.
All right. There’s so much more I can say about the company, but I think it’s best you hear it from William’s own lips. So here we go. William Li, CEO of Akulaku.
Okay, William, I want to welcome you to the show. So I’m based in San Francisco right now, but you just told me that you are calling in from Shenzhen. Is that right?
William: Yes. One of our R&D center is in Shenzhen where we have 1000 developers.
Rui: So a lot of our listeners don’t know anything about Akulaku. Tell us about yourself and the company, because I think that when I went on Google , there was very little information in English.
William: Okay. I’m William, the founder and CEO of our platform. So before Akulaku, I work in legal industry, and also financing industry for more than 10 years. My co-founder Gordon is a senior developer in China, and he worked before in Tencent, also Oracle, and Citic securities. We found the company in the late stage of 2014. We received venture capital from IDG. And the idea was quite different.
By that time we want to build up Bitcoin exchange. We are trying to find an application of Bitcoin. So when we go to Hong Kong we find there’s a lot of Filipino workers trying to transmit the money to their Homeland. So we decided to use Bitcoin exchange money for them. But when we started to try the idea, we find the cost is even higher than the normal international remittance. After one and a half years operation, our business is maybe 10 million us dollar per month, transaction volume, and with roughly 35,000 overseas workers using our application.
But the banks don’t like our business. So we have to pivot our business. We have a lot of talk with the banks in Indonesia, and we understand that there’s a lot of people trying to borrow money, but the normal financial institution doesn’t want to entertain them because the ticket size is small and the individual delinquent risk is really high, so they are forced to go to the pawn shops in the Philippines or in Indonesia for small cash borrowing or something. So we decided to use the algorithm and machine learning technology. By that time, it was very prevalent in China.
We want to use that kind of a technology in Southeast Asia, help them to change the lending industry. At the second half of 2016, we launched our Akulaku application in Indonesia and also in Malaysia, the Philippines later, because the infrastructure in each country is different.
Malaysia is relatively rich. Average GDP of the nationals there is about 6,000 to 10,000 us dollars, in Indonesia 4,000 us dollars, in the Philippines around 3,500 us dollars. Regarding the infrastructure, actually the Philippines is the weakest, because they don’t have a unified national ID system. To decide whether you are you. Yes. So that’s one of the common troubles when you’re trying to identify each individual users in Southeast Asia.
Rui: So you started off in Indonesia and Malaysia first.
William: Yes, at the beginning. The business for the first two or three months is actually pretty struggling.
So everyday there’re around maybe 50 phones or 70 phones that were installed from our website. So our website is pretty simple. We offer a lot of cell phones and also laptops. So each individual just buys 10% or 15% down payment and they can get their goods.
And then they’re going to repay the remaining principal in the next six months or nine months or 12 months.
Rui: It’s a buy now pay later business, basically. Yes. Okay. But you are selling, you’re actually selling the goods as well.
William: Yes. At the beginning. Nobody knows us. It’s very hard for talk with the distributors. So we have to buy a lot of inventory, but luckily the business is flying very quick after three months . So after maybe some weekends of the September, we opened the console of back-end. We find that, oh, this morning there’s 160 phones already ordered. So since then the business is flying quite fast. In the year of 2017, our GMV for the entire platform was already 200 million us dollars.
Rui: So do you know at this point, after the first three months, what happened? Was it something external or was it just,.you had refined the product?
William: I think it’s a little bit lucky. It just fit in the market by that time. There’s a lot of young people in Indonesia. In average, people there are 28 years old. They are trying to buy a lot of cool stuff, but they have only very little disposable income every month.
So I pay, let’s say $30 for a down payment of a cell phone. And then I can use it for the next year. I will repay maybe $10 per month or something. That’s a pretty good idea by that time, actually.
Rui: You basically spent money to buy inventory from the distributors. So you were doing e-commerce except that you also offered pay later, almost like a credit card mechanism.
William: Yes. That’s our business model. Since then we are operating an e-commerce website and application. And until now the application still offers a lot of SKU. So far we offer roughly 30 million SKU now.
Rui: Are you the first party seller or is it a marketplace?
William: It’s a marketplace. It’s a focus of electronic products and home appliances.
Rui: Like a JD except more of a marketplace. And then you’re offering the credit. So when we were preparing for this call that you think the strength is in the algorithm, I assume the algorithm is in the financing part of the business
William: Have a lot of applications, not only financing part of the application.
Firstly, we need to select the good users from the entire pool of applicants. And then by that time, the algorithm can help us to do anti-fraud at the beginning, and later we’re gonna have very primitive scaling of each user. So for example, what is his income and what is his, let’s say tendency of a repayment.
We are going to make several calculations and offer initially different credit lines and interest rates, and also decide what kind of a product or services is available for a specific individual. In the transaction and author transaction, we still use the algorithm to decide the risk tendency and everything. Also in the e-commerce parts, we are using the data and also the algorithm to decide the preference of the buyer, also this application on the recommendation system.
So actually data is very important in our business from the acquisition size to the finish of the transaction, to the repeating buying.
Rui: So would you say that since 2017, to now the business has then largely remained?
William: Part of our business is remained roughly the same, except that the product we offered become many. Also we increased more products. So five years ago, we were just an online version of Home Credit, very simple.
Now we basically offer digital banking services to everyone. For example, deposit, bank transfer, payments. So for now the banking service already have more than 3 million users. Our lending service historically served more than 10 million users. .
Rui: When did you start that banking services and what were some of the changes in the market that made you think you should go after this sector?
William: Okay. So at the beginning of the first year, we start to offer installment services. We understand at the end of the day, we’re going to offer full scale financial services to other users. The reasons are quite simple.
So at the beginning, you have to think about how to repay the money. So if you have a debit card, you can make an auto debit, which saves a lot of time for people in the collection part or after lending part. Also in the day-to-day transaction, they tend to purchase maybe some products on other websites.
And also you can offer your installment loan or payment services to these users. And then, so far, we understand the Indonesian market and also Malaysian market is quite underserved. Actually the bank system is quite discriminating for the general public, because they’re not revenue generating. They tend to use not that many of the payments or wealth management products.
And therefore, the banks don’t have that many deposits from these kinds of individuals. And then, their main revenue is actually the lending to big corporates or relatively large private corporates.
That’s a very huge difference between traditional banking and digital banking, because in digital banking, you run an algorithm, you run an app, and you can maintain a massive number of individuals at the same time, and still make the service attractive. And the fee is quite low. Yes. So the reason why we start our banking services is also because our main revenue is from lending activities.
If you have your own deposit and then the funding costs will be lower significantly. So give you a sense, like in Indonesia, the inflation rate is around 4% or 5% per year. The average deposit rate for one year deposit is around 6% to 7%. Some small bank even offer for 8% or 9%. But the lending rate in Indonesia is maybe 30% to 70%, depending on the ticket size, and also depending on the product type.
So for example, motorcycle loan the real rates for every year is a lot, maybe 50%
Rui: Five zero. Wow. That’s very high. Okay. So you are saying that Akulaku can do much better than that, at a much more competitive rate.
William: Yes. We offer roughly 40% per year for unsecured loans. If you buy a cell phone. However, I think maybe if you just look at the lending business, rates is just the one thing that you should consider, because they have other considerations.
For example, the ticket size. So if the ticket size is just $5, even if you just charge, let’s say half a dollar for two months. If you annualize it, it’s still like 50% or 70% interest rate, which is quite scary. Consider all the costs there. For example, risk control costs. We need to pay some fee for KYC. You will need to pay for the payment, cost, everything. If you combine them together, it’s still a fixed amount of money you need to charge upon every transaction.
So I think that’s one of the missed understanding of online installment or online lending. People believe that the rates decide the nature of the business. Actually, it’s not only the rates, it’s also the tenure and also the purpose, and also the principal. Also you need to consider all the costs to perform a transaction, everything together.
Rui: Let me go back a little bit, and then, because you had mentioned earlier that, the Indonesian market where the traditional banks really don’t serve the individual customers very well, because they’re focused on higher-margin businesses, principally, letting to enterprises.
That sounds very similar to me as what many of the complaints about the China banking system is. How similar would you say the problems are between the two ecosystems?
William: We can compare Hong Kong, China and Indonesia.
I think if you talk about the affordability of banking services, the Chinese banking system is definitely the cheapest banking system in the world. And inclusive finance is also perhaps the best around the three regions because they have a very strong central government to promote the financial services, to reduce the rate, to reduce the fee.
Rui: wow. Okay.
William: Hong Kong is definitely the worst. I think banks still have very little incentive to change and then they are very hostile to individual users. Indonesia is in the middle of it in terms of debit and account opening.
But the infrastructure is relatively behind. So still a lot of users, they have a bank account, but they use a bank book, account book. So it’s like a small book. Every time you deposit money, or withdraw the money, the cashier is gonna print the record in the book. There are a lot of people who started to use debit cards, but the ATM machine is not working very well.
So for example, not all the bank cards make bank transfers in the ATM, or even not all bank cards can withdraw money from the ATM. You still need to go through a lot of procedures.
So our service is, forget about the bank card. You use your applications. Our banking service is totally in the application. You open up, you make deposits, you make bank transfers, or you withdraw the cash, even from the place that we designated, for example, convenience stores, Seven Eleven.
So that’s actually the trend in Indonesia. A lot of internet players start to realize this is the future of banking. And then also some traditional banks, very big banks, start to explore on this direction.
Rui: What you were saying sounds like actually very similar to what we’re seeing in some other developing economies.
Is there another FinTech, unicorn, maybe another part of the world that you would say Akulaku is most like?
William: Really rare. A lot of people have questions. So you also operate an e-commerce platform. So how can you be so sure that you can be good at both? If you look at the wrong people, emphasize the idea of e-commerce is e-commerce, finance is finance, these two kind of things are totally different, but we are in a really unique position.
In the first year of our operation, there are a lot of venture capitalists telling me, this is not going to work, because you’re running two things together. However, I think for lending activities or banking activities, to run a e-commerce actually do a lot of help.
So firstly, I think all the financial institutions have the struggle to acquire new users. The way of acquiring new users. It’s just very straightforward and very expensive. And if you run e-commerce, then you’ll have plenty of ways to attract new users. For example, group buy, for example, flash sales, for example, the newest type of phone can be offered at a very affordable price on our platform. So there are a lot of ways to acquire new users. So that’s the reason why for every month there are roughly 400,000 or half a million new QVC users.
Secondly, you have a better understanding of how these people are going to use it. If you just have straightforward lending of cash, then you don’t know the purpose of the lending. Remember one thing in Southeast Asia, the delinquent ratio is maybe 10 times higher than that in China. Yeah. Maybe three times higher than in America, or in Europe in general. So knowing the purpose of lending is very important.
Rui: Why do you think that is?
William: I think that’s a combination of several elements. So firstly, the development of the economy is just at that level. So the natural delinquent tendency is just higher. For example, in China, unsecured credit loans, overall, this service is around maybe 1.5% to 2%. In America, depending on your FICO score, but in average, 5%. In Indonesia, this number is around 14% or 15% at the beginning while we run the business. But now we reduce it to roughly 5% to 6%.
Rui: Very machine learning.
William: Yes. Using the algorithm is not rare. Everybody can have their own algorithm. The most important thing is you have the data, that’s the value of e-commerce. You understand people’s behavior. And then you can make analysis from different angles, and then you can have better results.
Rui: It seems to me that what you’re describing is just Alibaba.
William: We’re not trying to be Alibaba. Our e-commerce is quite conservative. We only focus on the stuff that is in the category that we’re good at, only home appliances and electronics. Suppliers, supply chains are relatively stable in these two categories. Once you establish trust and then you can go deep into it.
Actually, I mentioned that we have roughly 1000 people in Shenzhen and maybe 800 developers, maybe 40% of them is for data and the risk control side, the remaining of them for infrastructures like data warehouse, like securities. So that’s the strategy to build up something that is unique.
Once you have e-commerce, you can offer loan or offer installment directly in your application, you can also partner with a third party. We basically partner with every major e-commerce in Indonesia and also some other internet companies to offer virtual credit card services or lending services, depending on their demand. So far, third-party partnership transactions represent about 25% of the total GMV we have.
Rui: Got it. So you said that earlier this interesting combination you have of e-commerce plus lending was not really well understood by your investors, but you did have Ali-Baba as one of your later investors. So they got it, then they understood.
William: I’m not sure. The most important thing is substance, not form. The substance is there’s a quick growing business and they’re looking for the market leader by that time in this region. We’re basically the number one for consumer financing. We already have roughly 700,000 followers every month.
Rui: Every month, new borrowers every month. Okay. Wow.
William: That is the number roughly, in two and a half years. And now every month is around 5 million users
Rui: So we spent like the whole past half hour explaining what Akulaku is. If you had to use just one sentence to describe it, how would you describe it?
William: Akulaku is offering digital banking services to the people in Southeast Asia and the vision of the company is to build up a payment network for virtual credit and also debiting services.
Rui: You didn’t mention the e-commerce at all.
William: Yeah, e-commerce is just a form, not the substance.
Rui: But would you say that you are the leading consumer finance company in Indonesia?
William: It is.
Rui: And now you’re also focusing on the digital banking side as well.
William: Yes. And then the digital banking service is growing quite quick. So for example, every month there are around 2 million new accounts opened.
Rui: Okay. I think looking at your background is so interesting. So you grew up in China, right?
Rui: And then you went to the U.S. Then you returned to China and had about a decade of working experience before you started, and at the time you weren’t necessarily looking to start a business in Southeast Asia, you were just doing your Bitcoin thing.
And then Southeast Asia just happened to be an opportunity. When you look back now on those decisions, it’s working in Southeast Asia, one of the best decisions you made?
William: I think my experience briefly, is immigrating from the north part of the earth, and finally find a place in the south of equator.
Rui: Like a monkey? Great ape? Okay. Why do you say that?
William: So I was born in Jilin province in China. So for people who don’t know where Jilin is, they have a shared border with North Korea. And then I finished my high school there and I started at Tsinghua University in Beijing.
After that, I worked in King & Wood Mallesons, which is a law firm in Beijing. And then, I went to Shenzhen and I worked in Ping’an insurance, which is one of the largest financial conglomerates in China, for three years.
Before I worked, I actually attended a law master degree in the United States. And finally, I started to have some business, real business in Indonesia, in Southeast Asia. So if you look at this, it is like a human history where basically monkeys or apes in Africa originally. And then they walk for a very long distance, across many rivers and oceans, and then they become widespread in the world.
So I think these two kinds of experiences have some similarity. You’ll just walk towards a direction and finally you’ll find someplace to settle.
Rui: Okay. You went, from all the way, the Northern part of China to, doing business in Indonesia. So where it’s much warmer and near the equator.
I guess what I want to ask is a lot of people talk about the advantages Chinese entrepreneurs have working in developing markets, such as Indonesia. In your opinion, what are some of the advantages and disadvantages?
William: Advantage is quite obvious. You have experienced the industry in China, no matter if you are a participant or not. So basically we are observers for the development of an internet industry in China, but we also talk with people in the circle. How do they compete with each other? How do they organize a very effective culture for engineers? And also there is a huge talent pool in China. You can hire as many as you want engineers, developers to do whatever you want. There’s no shortage of talent here.
The disadvantage is people have always some, maybe, bias or prototype. So they don’t believe that normally Chinese entrepreneurs can really do pretty well in places outside of China. That’s a misunderstanding. Also people sometimes believe the reason why you can’t do business in China is because you are weak, can’t compete with the entrepreneurs in China. So that’s the reason why you try to avoid the competition and find a place. But I think maybe they’re right. By that time, I was weak. However, as a survival strategy, it is not to pick up the fight you can’t win at the beginning, right? Maybe at the end of the day, we can go back to China,
Rui: How competitive is the market today? Do you have any advice for entrepreneurs looking to get started and try to enter Southeast Asia? Is it too competitive to come? Is it like China now or what do you think?
William: So firstly, I think the environment has totally changed. By that time we started to offer our own business.
Tokopedia only had maybe 30 million us dollar per month. And now they merged to Gojek already, and Gojek, by that time only valued at around 300 million us dollar. They’re still, maybe by that time, there are 20 e-commerce. Everybody claimed there are the best.
And now basically these small players vanished. There’s only a war of the big guys, relative. If you talk about the operational matrix, actually in this region, I guess nobody is as big as Alibaba or Tencent in China in terms of the development stage. And then the funding everybody got is actually quite competitive.
Every lane there players with maybe more than 300 million cash in their pockets. That’s the situation. I think the market is actually quite competitive. People normally underestimate the competition here.
The reason for this is because the customers in Southeast Asia can’t spend a lot of money. Ticket size is inherently small. For example, PDD in China, they offer maybe $1 product or $2 product, people already think that’s very affordable, but that’s the average ticket size in Indonesia.
Also the supply chain and merchant resource is not that well established. In China, if we want to build up a platform, the product is not something that you need. There are very mature product lines, and over supply of the capacities for every factory.
That’s not the same in Indonesia. There’s a big ocean in between the two worlds. So the shipment of the product becomes inconvenient, the cost of international trade becomes very high, and the local factories are not well established.
So there’s a lot of difficulties there. The performance of the business, for example, when you perform a contract, the cost is relatively high, payment costs, shipment, everything. What left in between the net margin for each business is still very thin or even negative for most of the start-ups here. So I guess if people can really succeed in Indonesia, they probably can succeed in some other country. That’s also our own thinking. So for this year, we decide to expand our Europe business,
Rui: Western Europe or Eastern Europe?
William: Western of course.
Rui: So basically your goal is not necessarily to be focusing on Southeast Asia, but to go wherever you see market opportunity.
William: Whenever our technology can be applied, our experience can be applied, we can go there. There are several reasons behind this decision. So firstly, our business model is actually quite unique. We operate an e-commerce and also financial services at the same time.
Our advantage is we have experience of this kind of arrangement. And then the code is just there, the applications there, but make some minor adjustment and then they could be adaptive to a new market.
Secondly, the supply and chain for internet trade is in China, especially recently there’s a lot of merchants that are sanctioned by Amazon. They want a new platform to help them sell the product. The product is just very good. The reason I think they get delisted is just quite arbitrary. I think that’s arrogant, but basically there’s a good chance for us. Thinking about this in China, there’s maybe 1 billion SKU that’s already shipped overseas, waiting to be sold to the customers.
And also in Indonesia, the delinquent ratio is pretty high. In Europe, the natural delinquent ratio is just very low. We are very adapted to a more dangerous environment and now we’re entering into a safer environment and then as I said, Indonesia is basically quite competitive. In Europe, we believe that there is still plenty of room for new entrants.
Rui: Interesting. I was just thinking that because you have a legal background, do you think that helps you in doing a business? Like Akulaku, there’s such a huge part of the business that is about risk management and KYC, and especially when you’re operating abroad, trying to understand the local regulations, does that help?
William: It certainly helped, because I was trained in probably the best law school in China, and also top tier law school in the United States.
Talking with the regulators and also to understand the regulatory environment in financial industry is quite important. On the other side, I think the law background helped me, in the way like, I’m really ignorant in the Internet world. So just trying to find the best people and delegate as many as I can to these people is really a key to success.
And also the law degree trained my language a lot.
Rui: What are some of the learnings you have from running your business, especially in Southeast Asia that you would like to share with other entrepreneurs?
William: Think more before you start, and that’s very important, whether you really like the thing you’re gonna do, because they’re not rich kids, they’re ordinary people. One of the drives for them to change their current life is financially they get the return, which is also part of the reason I started as a business. It’s really a tough journey.
So when you go through this, it really tests your patience and your determination. You have to really like, or love the business in order to stay there, especially as a CEO or the top management, you’ll probably be the last person to get off the boat. So you have to be mentally prepared for these crucial facts.
What is the driver make you to believe that you can fight alone without hesitation? I think it’s maybe the love of the thing you did or you were going to do. That’s very important,
Rui: Earlier you mentioned that you, there was a reason why Akulaku does not have much of an English presence. It’s really impossible to find information about you guys in English? What is the reason for that?
William: Because yeah, as I said that we were weak, we were worried about, we get some unnecessary attention by a lot of potential competitors. So for example, before 2019, still, there were a lot of Chinese FinTech (companies) trying to enter Indonesia. We have to be cautious about it to acknowledge that they’re basically stronger at that time.
So we have to keep a low profile. Yeah. And also doing financial business, keeping a low profile is very important. No regulator wants to see an Elon Musk in the industry. That is quite a regulated industry. So yeah, you don’t do, and cause unnecessary noise to make other people uncomfortable.
Rui: You just mentioned that there were a lot of Chinese FinTech companies eyeing the same market that you’re operating in.
Are they still trying to come into the market? Do you think they’re going to be successful? Have they been successful or do you think it’s just too late and you guys have a lead?
Rui: So not much competition from Chinese companies, more local competition though. Are you more worried about the banks or other internet companies?
William: We actually experienced, we have learned so far, is you don’t worry about other people, worry about yourself. I think the only thing can beat us is maybe proud or maybe careless or reckless. If we use our caution, use our technology, we can still go bigger and bigger.
During the pandemic, our business actually is growing 30% year over year. For this year, our business is growing around two hundred percent compared with 2020.
Rui: Wow. Okay. You said earlier that your staff in Indonesia is mostly the operational staff. So operations, sales people.
William: Or management there, because according to the law of Indonesia, you have to set up a higher business over there. So actually Akulaku is offering only algorithms and then applications for the people there.
And then in Indonesia, we store the data. And then in Indonesia, we make analysis of the data.
Rui: So the data never leaves the country. Your Shenzhen engineers just make the algorithm. And then you must have a lot of engineers in Indonesia as well, then to analyze the data.
William: Yeah, probably 100.
Rui: What is one thing that you think people are always getting wrong about your business? I know you actually mentioned quite a few earlier, but is there something else, like one thing that people always get wrong about your business or the sector that you’re in, that you want to clarify?
William: Okay. So we’re not a lender. We actually are the new Visa.
Rui: You are not a lender?? You’re actually the new visa. Is that your pitch to your investors?
William: Not yet. Our style is we deliver first and then we talk later.
For this year, actually our number of active order users is probably more than 12 million or 13 million. And then our GMV for the entire corporate is totally more than maybe 6 billion. And then the revenue is more than 500 million us dollar.
Rui: That is definitely a very respectably sized business, especially from an emerging market.
William: Yes. But comparing with the things we’re going to do, I think we have a lot of room or potential to grow the business.
At least in the Indonesian side, we can grow our business maybe five times or 10 times in your coming three years, basically. And then in Europe, I think we can create an equivalent or even bigger business in the three years.
Rui: Besides Europe, are you looking at Latin America, middle east?
William: We’re still trying to be focused. By our own analysis, maybe the European market is better. Europe is a relatively more balanced market.
So there are many countries. In every country there may be multiple players over there. So we have a plenty room to either partner with certain hierarchy or build up our own
Rui: So basically the other geographies have players who will do everything, but in Europe, not everyone’s trying to do everything, so you can probably find some parts.
William: Yes. That’s true.