Micro, small, and medium enterprises are the pillars of the Indonesian economy. The country has nearly 65 million small businesses, which altogether contribute 61.07% of GDP, according to data compiled by the Ministry of Cooperatives and SMEs. Even so, only 21% of them have adopted online solutions. Now, a number of startups, like BukuWarung, are racing to digitize Indonesia’s MSMEs.
BukuWarung was founded in 2019 by Abhinay Peddisetty and Chinmay Chauhan, who now serve as the firm’s CEO and president, respectively. The co-founders drew inspiration from their parents, who own small stores in their home country, India. “My mom runs an optical store back home, and Chinmay’s mom is a tailor. We are well aware of the struggle and hustle that our parents had to go through on a daily basis as small business owners,” Peddisetty told KrASIA.
Peddisetty and Chauhan are familiar with Indonesia’s tech scene. Before starting their own venture, the pair worked in numerous Southeast Asian tech companies like Carousell and Grab. “We’ve spent a lot of time building products and businesses in Indonesia, especially in payments and financial services, over the last eight years. That exposed us to a lot of MSMEs’ problems here,” Peddisetty said.
Today, BukuWarung has 6.5 million registered merchants across 750 cities, mostly in tier-2 and tier-3 locales. The startup has so far raised USD 80 million from investors like Goodwater Capital, Valar Ventures, Rocketship.vc, Indonesia’s East Ventures, and Ravish Naresh, CEO of India’s Khatabook.
KrASIA recently spoke with Abhinay Peddisetty about BukuWarung’s business strategy.
This interview has been consolidated and edited for brevity and clarity.
KrASIA (Kr): What benefits are available for merchants that join BukuWarung’s network?
Abhinay Peddisetty (AP): We help them run existing businesses more efficiently and grow those businesses so they can earn a higher income. By simply digitizing bookkeeping activities, merchants save a significant amount of time compared to when they did it with pen and paper. On the payments side, merchants previously sent payment reminders to customers via SMS or WhatsApp. When we launched our payment link and claim features, merchants received their money faster. Apparently, customers feel the need to pay immediately when they receive payment claims, and it is easy for them to make these payments online. The features speed up the process by four times.
With Tokoko, we enable merchants to build an online presence and get exposure on platforms like Facebook, WhatsApp, and Instagram.
Kr: What is your strategy to introduce BukuWarung’s services to MSMEs in tier-2 and tier-3 cities?
AP: These users are already on digital platforms like Facebook and WhatsApp, so they are used to mobile apps; we introduce changes in activities that are familiar to them. They were already doing bookkeeping manually on a daily basis. This is different from, say, having to teach them how to order cars online, which would be a new behavior.
We had to understand the merchants’ problems and frustrations and offer solutions to those challenges. We say, “Hey, you’ve probably lost this much time and money because of common problems like damaged books or customers who don’t pay on time.” When we reach out to them, we explain our solutions and values, so we are able to build trust quickly. Moreover, our app is simple and easy to understand, so it doesn’t take long for merchants to learn how to use it.
Kr: Tell us about your business model. How does BukuWarung make money?
AP: There are a few ways we earn revenue. Our total processing value from payments is very high. We charge merchants on payments after they’ve been using our app for bookkeeping for a while. We are at a place where we can start charging for some services because merchants need reliable service.
The next revenue channel is lending. We have started to roll out a lending service, and there were zero non-performing loans in the first batch of experiments. We work with some major fintech lenders, but we can’t disclose their names.
Kr: What are the differences between the micro-retail landscape and SMEs’ digitization in Indonesia and India?
AP: While there are many similarities, there are also many differences in how SMEs digitize India and Indonesia. For instance, India has a real-time payment system called the Unified Payments Interface, or UPI, which is not available in Indonesia. Therefore, we proactively invested in building a strong payment infrastructure so that merchants can perform transactions easily. As a result, we’ve done about 2.4 billion in annualized payments in the span of seven months.
In terms of the commerce and retail ecosystem, India is very democratic. Different players compete for mindshare. Meanwhile, Indonesia’s market is fragmented. You wouldn’t find the same kind of products from one merchant to the next. In Indonesia, small-scale manufacturing is common, and logistics are difficult, so most merchants have their own producers or suppliers. The unique opportunity here is that these MSMEs are at the cusp of digitization. They are already aware of digitization, thanks to big players like Tokopedia, Bukalapak, Gojek, and Grab. Small business owners use those platforms as consumers, and now they are starting to use digital solutions for business needs.
Kr: What’s next for BukuWarung?
AP: In the future, you can expect us to be a lot more aggressive on payments solutions. We aim to have 9 million merchants on board by the end of this year, and we aim to digitize 20 million merchants by the end of 2022.