OVO’s Thompson: “We’re moving forward from payments into financial services”

• Architecture and ecosystem are the two fundamental things that contributed to OVO’s success
• The reason OVO gets to scale and drive inclusion lies within its partnerships
• Some of the concerns in doing business in Indonesia are scalability, localisation and lack of infrastructure

OVO is moving towards financial inclusion, introducing an ecosystem that enables a wider spectrum of customers to obtain access to quality financial products and services with competitive pricing.

Its journey began in Indonesia back in 2016 as an app that offered payments, loyalty points and financial services backed by Lippo Group’s digital arm. The next year, Jason Thompson joined Grab Financial Group and by December 2017 was appointed to lead OVO’s financial service business.

Before joining Grab, he was leading Euronet’s EMEA and Asia’s business since 2011 where he developed Euronet’s e-pay services into a key product vertical. By 2016, he was heading to Southeast Asia with something different in mind. But a call from Anthony Tan, founder of Grab, convinced Thompson to go in another direction.

On October 2018, OVO announced its partnership with Tokopedia, the Indonesian e-commerce unicorn. Aside from the capital injection it received from Tokopedia, OVO is also made available as a payment option in Tokopedia’s e-commerce marketplace. The move added 80 million more active monthly users to OVO’s then existing user base of 60 million.

In a joint press release from OVO and Tokopedia, Thompson stated “Having established ourselves as the number one mobile payments platform by transaction volume, this partnership with Tokopedia and our push into e-commerce will further accelerate our growth. We expect the surge in new users and additional transactions from e-commerce to drive overall leadership across the board”.

In this conversation, Thompson talks further about working closely with their partners, the growth strategy of OVO and his move to Indonesia.

Foo Boon Ping (FBP): People compare OVO and other platforms in Southeast Asia with developments seen out of China. Does this comparison hold?

Jason Thompson (JT): Everybody’s looking at Southeast Asia as if we’re going to do China in one year. We’re not going to do China in one year. We have to be realistic about where we are, about where the systems, the processes, the governance and the customers are.

FBP: It will take much longer for Southeast Asia and the rest of Asia to develop as compared to China.

JT: If you look at China, essentially, you’ve got three layers. In the center, you’ve got the wallets, which are creating community and usage models. Wrapped around the wallet is switching and identity. Then wrapped around that is financial institutes, so all the money and everything that comes and goes out of the system is through a financial institution.

When you look at Indonesia, our biggest problem is cash, solving for the volume of cash that’s in the system, solving to make sure the consumer credentials are correct and the merchant credentials are correct. It’s a whole different problem. I’m not saying they didn’t have that problem in China, but it’s taken 10 to 15 years and an investment to solve it. Then away from infrastructure and development, you have the consumer and education. I still think we’re a long way from the end. For Indonesia, this is just the beginning.

FBP: How do you look at Indonesia in regards to financial inclusion?

JT: A lot of the banking usage here is used for salary dispersal. While the banking penetration has grown in Indonesia, the actual usage like penetration of savings is at 0.03% and growth of insurance policies is at 3% per annum. Even with all the work that we’ve done over the last three years, e-money penetration in Indonesia today is 2.1%. We have to be realistic about where we are.

One of the things that impressed me about China is the effort to drive financial inclusion. This is real effort. This is taking villages, rebuilding houses, creating communities and saying, okay, you can have financial inclusion and not be in the city. But even with WeChat and AD Financial, all the investment in infrastructure, there’s still a huge job of financial inclusion to be done in China. So for them, the job is not finished.

Making the switch

FBP: It was also a journey for you to head OVO in Indonesia?

JT: When I first came to Southeast Asia, I wanted to do something different. I was at a career stage profile where there were lots of logical jobs for me to go and do. And I had a great time at Euronet. But I wanted something different. And then out of the blue, I got a call from Grab talking about how they wanted to develop payments and financial services.

What really got me hooked was the way Anthony Tan, CEO of Grab, talked about the drivers. He talked about Indonesia and Jakarta and its infrastructure, the work we got to do, the way we need to bring investments to Southeast Asia, the way we need to give people confidence to invest in Southeast Asia. He spent time talking about strategy, but what really impressed me was the amount of time he spent talking about real people and how much time he spent in local villages, in towns with people, learning. He’s got an incredible appetite for people. It was the first time I felt that I could do a job and really make a difference, so I started developing Grab Financial Group.

BP: What were the key decisions you took since you moved to Jakarta?

Jason: From December 2017, I’ve been full time in Jakarta. As a group, there are two fundamental decisions that we made that have helped our success. One is the open architecture that we’ve employed. We’ve put OVO inside of Grab and Tokopedia. We are very open. There’s no restriction on me working, say, with Go-Jek, Shopee or Bukalapak/BukaDompet. We’re a totally open architecture.

The second fundamental thing was the way we really decided that the architecture and the ecosystem was going to represent itself. Certainly, the organisation has grown a lot, but we’re still very young. I don’t take anything for granted.

FBP: Five years ago, nobody heard of Grab OVO even though OVO was around. Now you are booting up your user base tremendously having 110 million users in Indonesia.

Jason: We are on 150 million devices. They’re not all users. The first problem we solved by the architecture was that it allowed us to be present on so many more devices. In a lot of emerging markets, memory capacity, download speeds are a problem. The fact that we fully imbedded the application, it overcome so many problems. So it’s not that we’re transacting with all 150 million, but we are present on 150 million devices. That was very important to us. In terms of market leadership, we became the leading wallet in October last year through third-party taxi booking

FBP: What leaf did you take from how the Chinese platforms have grown?

JT: We have spent a lot of time studying China, and we’ve looked very carefully at the sequencing. We’re not inventing the wheel; we’re localising the wheel. Number one, the transport usage problem is critical. The frequency, the value. If you look at something like Mobiledia, mobile app is about $24 a year, $2 a month. It doesn’t generate consumer behaviour, so it doesn’t help. We looked at transport, at how we generated that behavior and it’s at high-velocity, low-cost acquisition. Grab is absolutely critical to consumer acquisition. We then looked at consumer velocity and consumer value. And realistically online, high-capacity value, relatively high frequency. So we moved from Grab to Tokopedia. We then looked at all the different usage models such as bill pay, and there’s a whole lot more to do.

FBP: How long did it take you to build your ecosystem?

JT: We’ve built our ecosystem quite quickly, within 18 months. But John Riady, executive director of Lippo Group, had the foresight to position this business, his loyalty as well. A lot of what we’ve built now is the way that the currency across the ecosystem is.

Number one is the cash, OVO Cash. Number two is the rewards, which really get people to operate across usage models. So buy something on Tokopedia; take a ride on Grab; order some food with a tap of your phone and you can use your points or you can use OVO cash. We’ve really made that consistent across the ecosystem. Recently, we launched OVO PayLater as a financial lending product.

FBP: Is that with Taralite? And does it actually drive you towards an open architecture because you are building user base through partnerships?

JT: Yes, through the Taralite acquisition. That, again, is accelerated. Because now the user experience is pay by OVO Cash or points or PayLater. So we’re really building very simplistic ways.

You can see our promotions and our investment in rewards across the ecosystem. So to a large degree, we’ve already set our strategy for open ecosystem. That’s good for Indonesia. That’s good that customers don’t have to have stored value at seven wallets. Customers can have one wallet and it can serve all their needs. They can earn points, make more money and send money.

We’re very focused on solving problems. One is domestic remittance. A lot of the time, domestic remittance is done through undesirable channels. How can we make that cost effective? How can we make it secure? How can we make it consistent? Another problem is for the merchant to be able to buy goods. The work that both Kudo and Tokopedia is doing is bringing the marketplace to the local warung – a type of a small family business and local retailer – and give them competitive pricing. That’s really important for the survival of the warung and the local retailer.

Joining the financial services industry

FBP: You are growing increasingly beyond payments.

JT: As we move forward now, the big thing we need is to move from payments into financial services in a meaningful way. We’ve started lending, added a new online lending to offline. Also, the work that we’re doing with Prudential is bringing subsidized insurance. We’re really committed to subsidizing insurance and teach, in an educating way, that insurance is important. Lending is okay, but if you’re not going to insure the customer and not going to educate them, there’s a problem. Then the work we’re doing with Bareksa, really, is about mass inclusion for savings.

FBP: In OVO itself, how much of extension of Grab is it? It is owned by Lippo Group at the core. You have foreign investors such as Tokyo Century and Grab.

JT: First of all, in Indonesia, without commenting on OVO, it’s logical that businesses growing here need foreign investment. Go-Jek is about 90% foreign owned. That really helps them grow in Indonesia. We all acknowledge that there’s a requirement for foreign investment.

OVO is an independent company. You can see that on the way we operate. Everything we do is independent. I am fully employed by OVO. My compensation is with OVO. I’m fully aligned to the business. My team is fully aligned to the business and is designed to serve an ecosystem, not one partner. Because if we polarize to any one partner, whether it be to Tokopedia, or whether it be to Grab, we won’t serve the ecosystem. Our product roadmap is independent. The way we think about our investment is very independent. The advantage we have is when we work really closely with our partners like Tokopedia, we can design solutions that really change the customer experience. That’s the advantage. It’s not about being controlled. It’s about being partners.

FBP: While OVO operates on the back of a wider, newer vision of financial inclusion at the core, you are a commercial setup.

JT: We’re very focused on that. In the next three years, we really got to move to three things. We’ve got to sustain our position in the marketplace in payments and continue to be a market leader in payments. We’ve got to drive financial inclusion through financial services and build for sustainability. Within that three years, we must hit a point where we’re at least P and L neutral. In the next three years, that’s what success looks like. Our cost of funds as a payment company is world class, it’s 38 basis points. It’s very low. We continue to try and drive it down because, as a payment business, you’ve got to drive down your costs because your revenues are actually very low.

FBP: Would it be important for you to get into the remittance where there are huge margins?

JT: I’m not sure if it’s just about margin. Payments don’t have to be a loss leader. I don’t think it has to be a loss leader, but it’s not going to be a cash cow. Payments can break even. With financial service, you bring profitability and sustainability. Through driving financial inclusion and good governed services, whether that be lending, remittance, or insurance, the business can be profitable.

FBP: What are some of the key milestones in building OVO?

JT: Our first objective was to become relevant. We were a small organisation, and becoming relevant was highly important, so building ecosystem access and critical mass of merchants and consumers, we can all say that we’ve done that. That’s the first phase.

The second phase are now two things. One is around sustainability and the other one is the growth of financial services. Actually, those two are intrinsically linked for future sustainability. A lot of subsidies in Indonesia are huge today, disproportional. We got to be more frugal with subsidies and think about how we take the consumer through value add, how we give value to the customer and how we grow our financial services to sustainability. That’s what we’re focused on for the second half.

FBP: How sustainable are those incentives?

JT: It’s very competitive. You see some of the subsidies that are given, which we don’t. We track this space very actively and we gradually reduce them. We’re really focused at the moment on how we build a sustainable business. Financially, we have to be prudent and responsible. That’s important to us. Sustainability is absolutely key. In Indonesia, we have every opportunity to see a dot.com bubble burst in the same way we’ve seen historically.

FBP: How much of that fintech boom in Indonesia is market driven?

Jason: Indonesia is very attracted to foreign investment. But we see globally, the markets are becoming more frugal as well. There’s some tightening of the credit markets. There needs to be more responsibility, and we’re going to see that right across the world, particularly in Southeast Asia. While we continue to grow, organisations will be expected to demonstrate maturity and sustainability. There has to be a balance between the inclusion aspect, strategy and sustainability.

FBP: Grab has a market evaluation of $14 billion and Go-Jek is at $9.5 billion.

JT: At the moment, we don’t have an evaluation for OVO. We’re a very young company. We have been around for about two and a half years as a loyalty business and 18 months as a payment business. OVO will be two years old on the 25^th of September. The reason I know that is I actually share the same birthday as OVO. It’s quite by accident.

We’re still building our credentials. To me, this is about focus. From my perspective, I’m very focused on execution. We’ve worked hard to really be relevant in Indonesia. The next phase for me is, how can we be relevant in financial services? How can we solve problems, work in lending capital to a merchant, a driver and an online merchant for Tokopedia? Whether it’s consumers that need distress loans, how can we educate them, protect them? How can we drive financial inclusion? That’s what I’m passionate about and that’s what I’m focused on. Sustainability isn’t about valuation. Sustainability is around unit economics.

FBP: Eventually you will raise capital in the market, won’t you? But at this point, how big of a war chest do you have? And there is also plenty of competition in the marketplace.

JT: I expect in the future, we’ll go to the market for fundraising. At that time, we’ll look at the business value appropriately, but we haven’t done it. It’s important that we do one step at a time.

The general consensus in the market is we spend an awful lot more than we actually do. We’ll continue to be conservative and make sure we spend appropriately. It’s all about execution right now.

Everybody understands that having 57 different stored values and wallets in Indonesia doesn’t help the consumer or the merchant. But like most things, markets polarise. I do think over the next couple of years, we’ll see some consolidation. Not just in payments, but in many areas. We’re not pushing that strategy, but I can see it happening in the marketplace. I don’t think there’s going to be four or five big wallets here. I think the market’s going to be quite happy to follow us.

FBP: You move into food, online and one of the things about building this ecosystem is you’re building those assets to emulate what happened in China?

JT: We’re following that. For organisations that don’t have either the market share or the critical usage bases or use cases, it’s very difficult. We have 2.1% of transactions in the whole electronic transactions market. That’s important, that we don’t get beyond ourselves and think we’re successful. We’re at the beginning. We got to stay very close to the consumer. We got to learn, understand the problems and solve them. That’s the way that this will work. It can’t be a top-down vision of grandeur and control as an organisation.

FBP: You have leadership in terms of your e-wallet base but not so much in terms of volume and value of transactions?

JT: Yes, we have market leadership of e-money. I think it’s competitive as cash, and cash is 90% of transactions. Cash is our competitor, but market leadership is not just about the TPB, the volume or the monthly active users. We need to have market leadership with customer. We need the customer to recognise. The way we do that is, we have to listen to the customer, develop products they like and solve their problems. Leadership isn’t just about the quantity of measure. It’s also the qualitative aspects as well. I don’t think we’re there yet. We’re a long way from there.

FBP: How do you increase user adoption in Indonesia?

JT: Focusing on business to business (B2B) and business to consumer (B2C). We’re heavily B2C focused at the moment. It also has to be supply chain SME focused. We really got to pivot on our B2B strategy soon, but you have to get to critical mass before you do that. I see B2B being critical. I’ve seen it in China. The work that Tokopedia is doing around enablement of merchants online is critical. Kudo is very critical, too.  

FBP: Do you think the China model will work here?

JT: One of the things I struggled with when I got to Southeast Asia was localisation. The first thing is, there is no Southeast Asia. There isn’t even one Indonesia. Because Jakarta is very different from Medan, and it is very different to Surabaya.

There are two separate parts of looking at China. One is looking at the thesis, the high-level strategy, which kind of gives us a lot of learnings and indication of what could be successful.

But in Indonesia, it’s localisation. It’s not even localising to Indonesia. It’s localising to the community. The food that’s important in Medan is different than the food that’s important in Surabaya. I find that localisation, for me, is critical. We can take a high-level hypothesis from China, but at the end of the day, it’s working with the regulator and local businesses and it’s localising. Without that, we can’t be successful. We’ve seen organisations try and just enter Indonesia with a very top-down philosophy and it failed. It’s a ground-up philosophy here. There is no substitute here for hard work.

Growing the ecosystem with reliable partners

FBP: What is the core utility for OVO apart from payments? A lot of the connections into the community are built around your partners. Your partners have those.

JT: The good news for us in OVO is it’s very clear we aren’t a super app. If you want a marketplace, go to Tokopedia. If you want food, go to Grab. If you want to talk about super apps, talk to Anthony. I’m not that. What I am is very simple. Number one, I am a common currency for Indonesia, OVO cash. I’m a common rewards currency for online partners, OVO points and I’m a place for financial inclusion. We can really focus. We’re not trying to be a super app. We’re not trying to be everything to everyone. We’re very clear, middle economy.

FBP: You’re building yourself through a platform where financial inclusion services can be on OVO.

JT: That’s right. The way we get to scale, drive inclusion is through our rich partnerships. The great thing is that Grab works closely with Tokopedia and Lippo Group. We’ve also worked really closely with Ramayana this year. We’ve opened up in department stores. We got several of the renouncements that will follow soon and the different organisations we’re working with.

You can see how our ecosystem’s growing. When you go back to how many wallets there are in the market, isn’t it better for the customer that you got one wallet? You can park your car, order a car or food, and you can order on Tokopedia. You’ve got all your balances in one place. You can even send money.

You’re building up credentials where you can potentially lend money on there, as well. That’s the philosophy. What has been done in China was, there wasn’t a usage model. They had to build all the building stones from scratch. What we’re doing is looking at those building bricks and saying, okay, where can we get the online brick? Where can we get the offline brick? Where can we get transport? Where can we get food? We’re building that ecosystem more rapidly through our partnerships. That’s how we’re localising.

Tokopedia plays to its strengths. When I show them something new, if they don’t think it’s right for one part of Indonesia, they will be like, “That’s not right. You don’t understand Indonesians!” I love that.

Then you got the Grab organisation, market penetration and transport now. They’re market leaders. They’ll be market leaders very soon in food, as well. Their food proposition’s growing really quickly. We then worked very closely with Paresky to know how do we imbed OVO to really richen the experience of the consumer? How do we work with the driver when they’re delivering food to make sure they got the capital to cover the cost of the basket?

It becomes easier for Grab to deliver their services. In theory, you almost don’t want to think about OVO. OVO’s like this magic in the background. It’s just a transaction. It’s okay. We can allow it to happen. Working really closely with our partners is critical.

FBP: What about the lending aspect of your business?

JT:  We’ve applied for finance license, so we’re looking at a combination of off balance and on balance.

There are lots of stories around what’s happening in peer to peer lending, but we want to have good governance of our lending. We’re not running. We’re being very careful, whitelisting, learning and growing. We’ve distributed a relative amount of money now, and our non-performing loan is very low.

We would rather be conscientious and grow and educate the customer than end up in a situation where we see some not very pleasant stories here. There are a lot of ungoverned lending in Indonesia and it’s bad for the consumer. There is no way to control that despite Otoritas Jasa Keuangan, or the financial services authority in Indonesia working hard to do that.

We want to be responsible. We want to drive it in a well-educated way. My style is very much to drive the business towards the objective. Things like what our valuation is, it’s cause and effect. When I need to understand the valuation of the business for fundraising, then I’ll do it. Until then, it’s academic.

FBP: What are your concerns in this market? And how big is your team now?

 JT: Scalability is one issue. I still feel like we’re too centralised on 6, 8, 10 cities. The problem is, there are 265 million people, not 100 million or 110 million. Scalability and how we can overcome the lack of infrastructure are our concern.

Our team is around 800 people. Relatively, we’re a happy, well-engaged team, relatively low attrition. But I worry about the team’s sustainability. We’re okay making mistakes because we’re learning. Just making sure that, as we’re growing, we’re learning. Because anything that we don’t learn now will be taught in the future, whether it’s about fraud, around subsidies or consumer engagement. If we don’t learn now, it’s like growing up and being taught lessons. I worry that we’re not learning all the lessons that we should learn.