Brick by Brick: Building the Open Banking Infrastructure of Southeast Asia

Occasionally we’ll share memos we wrote about startups. Here’s one from earlier this year that I particularly like from Southeast Asia.

Date: February 10, 2021
From: James Lu
RE: Seed Investment into Brick

Introduction

Brick is an Indonesian fintech company that makes the process of building in-app financial services extremely simple for app developers without the need to interact with financial institutions or specialized integration service providers. Brick is a banking infrastructure layer that provides developers with the application programming interface (API) keys they need to create easy and accessible experiences for their users. Developers can begin by signing up for a free sandbox account. The company has released four core APIs and secured their first live customer prior to raising a seed round which exemplifies the company’s go-to-market potential. They are currently working on rolling-out additional functionalities such as bank statement verification, user income insights, and address verification.

Market Opportunity

Brick’s vision is to be the in-app financial services development tool of choice for both existing consumer tech companies as well as future fintech apps. The company believes that financial services will comprise an increasingly larger share of consumer tech revenues. This can be seen with existing consumer tech companies such as Shopee (ShopeePay), Tokopedia (Mitra), and Traveloka (TravelokaPay) offering more and more financial services to their end users.

Currently, tech companies in Southeast Asia (SEA) have limited access to financial APIs. For customers to invest, get insurance, and/or get credit, users must fill in long forms, manually upload documents (e.g. proof of address), and go through time consuming bank transfers. This is a high-workload process for both users and the internal operations teams of these companies. The process is tedious, manual, and error prone, which leads to increased operating costs, customer churn, and potential fraud — all of which threaten a company’s bottom line.

COVID-19 has emphasized this problem by forcing many bank clients into fewer branches. Due to this, digital-ready banks have experienced large increases in online and app account sign-ups representing customer sentiment towards finding alternatives to the existing system.

There is a large untapped SEA market opportunity. There are currently 590m adults and mSMEs (micro, small, and medium enterprises) collectively, 438m internet users, and 219m users that have a digital spend. Brick is focusing on their initial addressable market of these 219m users. At a cost to customers of US$0.54/month (Rp. 7,500) per connected user with an average of 3 digital accounts, this represents a potential annual revenue of US$4.26 billion dollars.

Product and Revenue Model

Brick currently offers four core APIs which allow tech companies to integrate the most requested financial services into their apps. The company has obtained their license from the Ministry of Communication and Information Technology and their system is now live.

Developers simply need to integrate the “Brick widget,” a single line of code, into their web or mobile app. These APIs have many use cases such as personal and business finances, payments, lending, onboarding, and wealth management throughout the customer journey:

1. Identity Verification API — Can be used for customer onboarding
2. Transaction API — Can be used to better understand customer financial behaviour
3. Bank Account Verification API — Can be used to check accounts prior to disbursements
4. Real Time Balances API — Can be used for just-in-time financial advice and products

Brick uses a system-as-a-service model (SaaS) with three different price points based on usage: 1. Free — a sandbox environment, no support
2. Startup — usage-based pricing at US$0.54/month per user account, dedicated support 3. Enterprise — US$535+/month, 24/7 premium support and integration assistance.

Competitive Landscape

Brick lacks direct competitors in SEA; however, Indonesia-based Brankas is the closest with their “Direct”, “Disburse”, and “Statement” offerings being similar and complementary to Brick’s. Brankas offers its products in Indonesia, the Philippines, and Thailand (beta). They are developing a full-stack system “Open Bank” targeted towards larger customers. Brick is offering its product in Indonesia and beta-testing in Singapore.

Functionality-wise, Brankas focuses on traditional fintech applications, primarily the payments & lending segment, allowing customers to implement direct bank-to-bank account transfers for their users and removing the need for them to leave their customers’ platforms. Use cases include e-wallet top-ups, e-commerce payments, loan and insurance payments, and payment collection services. Brick enables embedded fintech in non-financial applications as well as wealth management and other fintech applications. Although both target similar customers, their current offerings have minimal overlap. However, Brankas should be closely monitored as they could develop additional API functionalities with their existing bank coverage.

This difference in functionality is reflected in their pricing models. Brankas also operates on a SaaS model, charging US$0.10 per payment (“Direct” and “Disburse”) and US$0.50 per bank statement retrieval (“Statement”). Brick charges US$0.54/month per connected user account.

Brankas raised $US1m as part of Plug and Play Indonesia’s first batch and raised an undisclosed Series A in November of 2019 with no news since; their estimated ARR is <US$1m.

Outside of SEA, there are open-banking API companies in Mexico (Belvo — Series A, US$13m), Brazil (Quanto — Series A, US$15M), Abu Dhabi (DAPI — Pre-seed), Nigeria (Okra — Pre-seed), and India (Series A, US$19m). Given their stage and location, they pose no immediate risk.

Why Should We Invest?

Sales and Marketing
Brick has targeted the developer community in hopes of getting them to develop new fintech apps using their system. In October 2020 they launched a “Brick Startup Package” for

Indonesian startups that provided the platform to selected startups for free for 6 months with no minimum fees or set-up costs. Considering their minimal-to-no marketing spend, their traction has increased significantly with their first live customer as well as 33 additional sandbox-approved customers . This represents a potential annual run rate (ARR) of >US$1.2m.

Additionally, the company has integrated with the seven largest Indonesian banks: BCA, BNI, Bank Bri, Mandiri, Bank Permata, Bank Danamon, and BTPN/Jenius and is in the process of integrating with BTN as well. Through this, the company is the Indonesian market leader in bank coverage with 99.98% coverage over 270m users. This further emphasizes their goal of being the financial API provider of choice for developers.

Team
The team is comprised of two co-founders. Gavin Tan (CEO) and Deepak Malhotra (CTO). Gavin has deep fintech expertise and was previously general counsel to Aspire. Aspire graduated from the Y Combinator Winter 2018 batch and is SEA’s first business neobank bringing banking to underserved SMEs. Prior to Aspire, he was at OOjiBO, a mobile & agent banking solution provider in Indochina. He leads sales, regulatory, strategy and partnerships efforts at Brick.

Deepak is a serial entrepreneur who started at Paypal as a software engineer, co-founded Mesh Internet, and then co-founded SlicePay. At Mesh Internet he developed and scaled the P2P marketplace platform to US$1m ARR in sales. At SlicePay, he was the CTO, and helped guide the company in targeting customers underserved by traditional banks such as startup employees, students, and freelancers. SlicePay has raised US$33m with more than 275k members and over US$9m in transactions. He leads the product and engineering efforts at Brick.

Brick is backed by fintech leaders including Shefali Roy (Truelayer), Kunal Shah (Cred), Reynold Wijaya (Modalku), Giovanni Casinelli (Aspire), Prajit Nanu (Nium), and Liu Tianwei (xfers).

Both Gavin and Deepak have deep sector knowledge regarding fintech innovation pain points and have developed Brick to provide the ideal financial services development system of choice.

Market Trends & Tailwinds
One of the largest market tailwinds is the increasing adoption of open banking around the world. Open banking is the use of APIs that enable third party developers to build apps and services around financial institutions. Open banking provides benefits such as increased financial services innovation, financial institution agility, and enhanced customer data analytics while providing a seamless experience to platform users.

Many countries have implemented or are implementing open banking regulations and initiatives: PSD2 in the EU, the Open Banking Project in the UK, as well as standards published in Australia, Bahrain, India, and Hong Kong. In the US, Plaid has created an open network without a government requirement. Although no formal regulations have been published in SEA, Bank Indonesia has announced an open banking framework is being developed to create a unified national payment system by 2025 and the Monetary Authority of Singapore has been encouraging banks to adopt APIs since 2016 and launched the API Exchange in 2018.

The other massive tailwind is SEA’s massive underbanked population of citizens and mSMEs in conjunction with the rapid growth of its internet economy. Traditional banks are less focused on serving individuals and mSMEs which has resulted in 70% of the population being unbanked and 50% of mSMEs left unserved or underserved by traditional financial institutions. Together with an internet economy that is expected to grow to US$300b by 2025 (2020: USD$105b), this is a massive space that has yet to be tapped into. Numerous companies, both domestically and foreign have rushed to fill the space. Domestically, examples include OVO and finAccel; Globally, there is Transferwise and Revolut. These companies and many others have made large strides in filling the space left by financial institutions, however they have concentrated on traditional fintech applications such as payments and lending.

At the head of these two tailwinds, Brick has positioned itself for the next wave of fintech applications such as wealth management, insurance technology, property technology, and other non-financial sector fintech applications, all of which require access to end-user financial data. Brick promotes customer-centric digital financial experiences and aims to be the infrastructure which these applications are built on.

Exit Analysis and Opportunities
Given that Brick is still early in its development and funding stage it is difficult to accurately gauge a likely exit for MHV. However, with a first-mover advantage in what its product offers and the potential to become the market leader as the fintech API of choice, Brick has the potential to achieve unicorn status. Financial API platforms are a proven model in other parts of the world. Plaid’s last private round had it valued at over US$2.6b (Visa’s acquisition of Plaid for US$5.3b was stopped), Finicity was acquired by Mastercard for US$825m, and Tink recently raised US$103m at a valuation of US$825m. At this size, MHV’s exit would likely be via IPO.

Alternatively, the more likely exit would be via acquisition. Historically, exits in SEA have been primarily via acquisition (153:10, 125:7 — acquisition:IPO split from 2017–2018). The SEA exit landscape has developed with unicorns becoming acquirers (Gojek, Grab, Bukalapak, etc.), growing corporate VC investments (e.g. Toyota’s US$1b investment into Grab), and growing global PE participation (China and SEA dedicated funds by Warburg Pincus, KKR, TPG, The Carlyle Group etc.). There are many options available to MHV during the growth of Brick starting at secondary sales and strategic acquisitions ranging up to PE buyouts.

Risks

While the company has made large strides at the pre-seed/seed stage in its product offering, bank coverage, and customer pipeline, there are still several risks that need to be monitored:

1. Increasing competition — while Brick lacks direct competitors, there is yet a market leader to be crowned leaving lots of space unaddressed. The company should focus on rapid expansion, prioritizing market share, to pre-empt new challengers. The company is currently focused on tech-savvy fintech startups as indicated on their website “providing fintech developers with the API keys they need… Made for developers”. While this is an ideal target market, similar to SendGrid’s original customer acquisition model, it is not limitless. The company needs to identify potential scalable marketing channels to reach customers outside of this archetype.
2. Inability to reach established enterprises — Brick’s strategy of targeting new tech companies and growing with them leaves a large portion of the market and high-value customers unaddressed. If Brick is unable to develop a go-to-market strategy that convinces larger existing organizations to switch their financial services infrastructure to Brick, the company’s ability to scale its platform in the future will come to an abrupt halt and significantly diminish their maximum potential.
3. Commoditization — there are some meaningful technical barriers to entry around developing financial services infrastructure at scale. The ability to deliver a high quality product that manages complex transactions on the back-end while appearing simple to customers and developers is a sophisticated process. However, putting together a basic fintech solution requires little engineering, relatively speaking, and so new entrants, or incumbents (e.g. financial institutions moving downstream), could compete with Brick on pricing, reducing margins and stealing market share.
4. Product localization — SEA is a unique market in that it is segmented from social, geopolitical, and regulatory aspects with each member country having its own perspective. To this effect, in Brick’s plans to expand throughout SEA, the company needs to dedicate resources to potentially hyper-localize their product and develop go- to-market strategies that acknowledge differences in each locale.

Further Diligence

Brick’s product has potential, but further diligence remains to be done in the following areas:

1. Unbanked population capture — The majority of SEA’s population is unbanked and Brick’s utility and potential is a direct function of how many people are banked. The API cannot pull data for bank accounts that do not exist. What can Brick do to accelerate the spread of banking services and capture newly banked users?
2. Technical due diligence
3. SEA expansion strategy — The company plans to cover SEA but member countries are unique from each other; what challenges does this pose to Brick vs. their capabilities?

Conclusion

Brick is a promising young company with a bold vision to democratize finance and streamline in-app financial services integration for developers. Their system simplifies the complexities of integrating with financial institutions while simultaneously providing access to all major banks in Indonesia. My recommendation to MHV is to proceed with a seed-stage investment in conjunction with conducting further diligence on the company and the data set prior to a Series A investment. Brick is closing their seed round on or around February 17, 2021.

You can find Gavin and Deepak’s company at https://www.onebrick.io/

As always, we’d love to hear your thoughts. Send us a message at yulumedium@gmail.com!