Got Rails? For Indonesia’s Xendit, Infrastructure Is Baked Into The Business Model

Building a digital payments infrastructure from the ground up in Southeast Asia is every bit as challenging as it sounds. Case in point: When FinTech company Xendit worked with a bank in Jakarta, a bulldozer came through and plowed up one of the city’s main roads severing the lines that connected the bank to Xendit’s data center. Now Xendit builds its data centers inside banks.

Such adaptability has allowed Xendit to thrive in markets that often defeat other entrants looking to capitalize on the region’s explosive growth. And raise money. Xendit recently raised $64.6 million in Series B funding in a round led by Accel. This brings the total raised by Xendit to $88 million since its 2015 founding in Jakarta, Indonesia. It is also the first company in Indonesia to complete Y Combinator’s accelerator program.

Initially launched as a peer-to-peer (P2P) payments platform, Xendit pivoted to the herculean task of building digital payment infrastructures from scratch out of necessity.

“We can see in developing and developed markets around the world, that for countries to move into service economies or digital economies, you need to have basic infrastructure in place, digital infrastructure, just like you need highways and roads in real life,” Xendit CEO Moses Lo told PYMNTS. “You need infrastructure on the digital side and that didn’t exist. So we pivoted into this and realized that to build the pipes, to build reliable payments, we had to build it ourselves.”

That’s no small task in a region made up of thousands of islands with a dizzying array of payment options. In fact, Lo says, when they began in Indonesia, payment processing through banks saw a relatively low 75 percent success rate — a figure that they’ve boosted to 99.6 percent in just four years.

It’s also a market that’s seeing a striking change in terms of its relationship with the digital world. Lo said that many new digital consumers have never had much of a relationship with laptops or computers and are simply going to mobile first. They are also moving from cash to new ways of paying at a fierce pace. It’s a market that is expected to drive $300 billion in payments volume by 2025, one in which today, one in every three of its citizens are new to digital services.

Stripe Meets Plaid Meets …

One way to look at Xendit is as the Stripe of Asia because, like them, their platform consists of application programming interfaces (APIs) that help a wide range of companies process payments. You could also say that they are a bit like Plaid because they serve as the digital intermediary to integrate consumers’ banking data into their solutions. But that is something of a simplistic view since both Stripe and Plaid ride existing payments infrastructure within an established regulatory framework. Xendit had to build digital payments rails from scratch and build relationships with government regulators at the same time.

“You need to do the government relationship side rails to get the licenses to upgrade, and set up  the local partnerships.” Lo said. “And in each of our [Iindonesian] markets, there are different power dynamics than what exists in the U.S., and you have to understand those to be able to play well. There are lots of examples of companies who’ve tried and failed because they didn’t take that into consideration. Then you have to do product sales, marketing, et cetera. So you have to kind of combine all three. And I think that’s what a player like us can do because we’re local.”

Lo tells the story of a major company that had been trying to come to Indonesia for two years. Even though they worked with some of the region’s biggest banks, they couldn’t get regulatory clearance to operate. Xendit stepped in and not only got the clearance in six months, but also helped them create a product that was compliant not just in Indonesia, but also in the U.S. and U.K.

“It’s super fun building the infrastructure layer,” he said. “It’s thankless work at times because we’re not, you know, in the press every single day like Grab would be. But I think it’s more fun. I think it’s fun to watch these customers grow 90 percent the next month just because we enable them. Or watch businesses launch and scale at 50 percent month-on-month growth for four years. And they are able to do it without having to worry about all this info behind the scenes. So that’s a real impact.”