Few things are as important — or as difficult and costly — for digital financial services (DFS) providers in emerging markets than building agent networks that on-board customers and drive use of their services. It can be particularly difficult to incentivize agents to actively use and promote DFS, as there are often limited use cases for DFS, the agent has to invest in liquidity and the commissions from facilitating transactions tend to be relatively low. In Indonesia, BTPN is tackling this challenge with a solution that uses open APIs.
In 2015, BTPN created a mobile banking service called BTPN Wow! to bring banking services to regions that lacked branches. BTPN invested heavily in building an impressive network of over 250,000 agents, mostly small “mom ‘n’ pop” stores. Yet the network was suffering from obstacles that are all too familiar to many DFS providers: it was costly to operate, and active use by both agents and end-users was a huge challenge.
BTPN knew it had to do something to lower costs and encourage agents and end-customers to use the product.
Field research with agents and end-customers led to a new idea. BTPN had always conceived of BTPN Wow! as a savings service, and it had been offering agents a commission when they helped customers to open accounts and make deposits or withdrawals. However, the company's research suggested that enabling agents to offer a wider variety of services to end-customers could boost commissions and increase agent activity and engagement. Facilitating access to e-commerce providers was identified as a potentially appealing service for agents and their customers. Agents had been interested in e-commerce but found that it was costly. They are price sensitive due to their limited working capital and income, and the small order sizes and distribution costs in their areas made e-commerce too expensive.
BTPN realized that by connecting BTPN Wow! to e-commerce platforms that provided access to a curated network of trusted online sellers, it could give agents and end-customers more reasons to use BTPN Wow! It saw that e-commerce companies also had strong incentives to participate, as they faced distribution and payment infrastructure challenges in many parts of the country. These companies also had a consumer trust problem and stood to benefit from association with BTPN’s extensive network of local agents.
BTPN began working with e-commerce partners to test an agent restocking platform that enabled agents to order a wide array of products from multiple vendors based on customer demand. Importantly, the app enabled agents to group their orders and get discounts. Group ordering had already proven successful for e-commerce providers in other markets, such as Pindoudou in China, which has more than 300 million users. The concept test phase showed that agents would not facilitate customers’ orders until they tested the service and trusted it.
For this idea to take off and reach scale, agents would need to be able to order from a wide variety of vendors from the start. Many vendors would need to be able to plug into the platform quickly. This meant that BTPN would need to rethink its approach to APIs. Until then, it had approached software integrations one at a time through a long, grueling process. Its vision for BTPN Wow! would require a standard set of open APIs available to third parties. Moreover, Bank Indonesia just launched the Indonesia Payments Systems 2025 vision, which encourages banks to standardize and open their APIs to enable integration between banks and fintechs. For BTPN Wow! it made sense to start with its agent network.
Working with CGAP, BTPN set about transitioning to an API approach that is expected to reduce integration time from six months to 16 days by the end of the year. The project has three steps, starting with strategy definition and business planning. In this phase, the team worked with leadership to fine tune the strategy, clarify the value and cost of open APIs and produce a high-level plan for the coming months.
The second phase entailed doing market research and iterating ideas through experiments in design sprints, which led to many useful insights. The team is now at the end of the third phase, which is to finalize the minimum viable product and prepare to submit an application to the regulator.
We learned several lessons from this process. The first is that it is important for IT and business teams to work as a single, cross-functional team so that each understands the other’s role and needs. Also, while external experts can be extremely valuable, internal teams need to own the process and work closely with external experts. In our case, the initial IT infrastructure and product design were largely completed by external consultants offsite. The product was transferred to internal teams, who were not part of the solution design process but were expected to deliver on it.
We also learned that taking an agile approach, in which a team can act and iterate quickly, is key. At various points throughout this process, we realized that we had over-complicated our IT infrastructure or included features that agents didn’t value or that didn’t give the platform a competitive advantage. At one point, we had incorporated a complex shipping module into the design that partners quickly deemed to be unhelpful. Quick design sprints allowed us to correct course before going farther down a wrong path. Overall, an agile approach can simplify the development process, reduce cost and time to market and generate early results that make it easier to get organizational support and funding.
BTPN Wow! is now testing the completed minimum viable product.