Why Cross-Border Payments Are Asia’s Next Big Tech Frontier — Insights from an Indonesian Unicorn

Key Concepts

• Xendit: An Indonesian "Unicorn" (startup valued at over $1 billion) providing online payment processing services in Southeast Asia, aiming to unify fragmented payment systems.
• Stripe of Southeast Asia: A common moniker for Xendit, highlighting its role in simplifying online payments for businesses in the region.
• Fragmented Payment Landscape: The diverse and often unintegrated nature of payment methods in Southeast Asia, contrasting with more card-centric systems in Europe.
• Unbanked Population: A significant portion of the population in Southeast Asia lacking access to traditional banking services and credit cards.
• Alternative Payment Methods: Non-traditional ways of making payments, such as cash-based payments at convenience stores, QR code payments, and digital wallets.
• Hyper-localization: The strategy of tailoring services and operations to the specific needs and nuances of each local market.
• QR Code-Based Payments: A prevalent payment method in Southeast Asia where users scan a QR code with their banking app to initiate a transaction.
• Cross-Border Payments: The movement of money between different countries, a key area for Xendit's future growth.
• Stablecoins: Cryptocurrencies designed to maintain a stable value, often pegged to a fiat currency, with potential for faster and cheaper cross-border business transactions.
• Artificial Intelligence (AI): Technology being integrated into Xendit's operations for automation, efficiency, and improved customer success.
• Customer-Driven Expansion: Xendit's strategy of expanding into new markets based on demand from existing customers.

Xendit: Unifying Southeast Asia's Payment Landscape and Expanding Globally

This episode of Beyond the Valley, sponsored by the Singapore Week of Innovation and Technology by Enterprise Singapore, features an interview with Tessa Wijaya, co-founder and COO of Xendit. Xendit, often referred to as the "Stripe of Southeast Asia," is an Indonesian unicorn that provides online payment processing for businesses across five markets: Indonesia, the Philippines, Thailand, Malaysia, and Vietnam, with plans for further expansion.

Xendit's Core Offering and the Problem it Solves

Xendit simplifies online payments for businesses by offering a single integration point to accept payments through various methods. This is crucial in Southeast Asia, where the payment landscape is highly fragmented and significantly different from more card-centric regions like Europe. A key challenge Xendit addresses is the large unbanked population and limited access to credit cards in Southeast Asia. This necessitates alternative payment methods, such as cash payments at over-the-counter locations (e.g., 7-Eleven), QR code-based payments, and other digital wallets. Xendit aggregates these diverse options, enabling businesses to accept payments seamlessly, even from customers without traditional banking infrastructure.

Challenges and Strategies for Growth

The primary challenge for Xendit has been the hyper-fragmented nature of payments in Southeast Asia. This requires Xendit to be "hyper-localized," necessitating deep integration with every single bank, digital wallet, and over-the-counter payment point in each market. To overcome this, Xendit adopts a strategy of establishing a strong local presence by hiring local teams who understand the market intricacies, regulatory landscapes, and partnership requirements. This "heavy footprint" approach involves extensive groundwork, including direct engagement with financial institutions and retail partners.

Key Trends Driving Growth

QR Code-Based Payments: This trend is a significant driver of growth in Southeast Asia. Unlike card payments, QR code payments typically involve directly pulling funds from a user's bank account to another's. This method has seen widespread adoption, mirroring its success in markets like China with WeChat Pay and Alipay.

Cross-Border Payments: As Southeast Asia becomes more consolidated, cross-border payments are emerging as the next major growth area. Xendit aims to facilitate these transactions, making them quick, efficient, and cheap for businesses.

Future Expansion and Innovation

Latin America (LATAM) Expansion: Xendit is looking to expand its horizons into Latin America, aiming to unify its similarly fragmented payment systems. This expansion is driven by customer demand and Xendit's core competency in handling alternative payment methods.

Focus on B2B: Xendit currently focuses on business-to-business (B2B) services, emphasizing its "nerdy" approach to building robust, secure, and high-uptime technology. The company does not foresee entering the consumer payment space, viewing it as having a different DNA and requiring a different strategic focus.

Stablecoins for Cross-Border Payments: Xendit sees significant potential in stablecoins for facilitating cheaper and faster cross-border B2B payments. While acknowledging the current early stage of stablecoin adoption in Southeast Asia, Xendit is piloting their use for money movement. They view stablecoins as a crucial component for connecting Southeast Asia with the rest of the world and believe they are "here to stay." Xendit positions itself as an aggregator and connector, rather than an issuer of stablecoins.

Lessons from Early Crypto Experiments: Xendit had an early foray into Bitcoin for cross-border payments for domestic helpers in Southeast Asia about ten years ago. However, they learned that they were "10 years too early" and that introducing such a novel concept to a market with lower financial literacy and limited financial infrastructure was too significant a leap. This experience reinforced the importance of understanding local needs and adjusting to them, which they have successfully done with their fiat-based payment solutions.

Regulatory Landscape for Crypto: Xendit believes that widespread crypto adoption in Southeast Asia will be challenging due to regulatory hurdles, including concerns around Anti-Money Laundering (AML) and money laundering. Countries are keen to monitor money movement, which may limit the immediate opening up to broader crypto use.

Customer-Driven Expansion Strategy: Xendit's international expansion is primarily customer-driven. When existing customers request Xendit's services in new regions, the company considers expansion. They also strategically target markets where their expertise in alternative payment methods is most valuable, avoiding regions heavily reliant on established card-based systems.

Entrepreneurial Background and Lessons Learned

Tessa Wijaya's entrepreneurial journey began with a sandwich shop venture in Jakarta called "Food Criminal" during her high school years. She describes it as an "easy way to learn to be an entrepreneur" with a low barrier to entry and cost. However, she learned a critical lesson: the importance of testing your product. Overly confident in her product, she failed to adequately test it with potential customers, leading to its closure within a year. This experience underscored the need to adjust to local needs and validate product-market fit.

The Role of AI in Fintech

Xendit is leveraging AI to enhance efficiency and automation within its B2B operations. Applications include improving customer success by enabling agents to better understand complex products, and automating tasks like transaction reconciliations. While Xendit utilizes some internal tweaks, they primarily rely on off-the-shelf external AI tools for implementation.

Future Outlook for Xendit

Xendit's long-term dream includes becoming a public company, but their immediate focus for the next 5-10 years is on problem-solving within payments and identifying new growth avenues.

The next major wave of disruption in Southeast Asian payments is expected to be the simplification of payment experiences, moving beyond current QR code and bank account-based methods towards more seamless, one-tap solutions akin to Apple Pay in Europe. This is particularly relevant as the barrier to entry for debit and credit cards remains high and expensive in Southeast Asia, making alternative payment methods the preferred choice.

Looking ahead to the next year, Xendit anticipates further expansion into other parts of Asia, a greater focus on cross-border payments, and continued innovation in the payment space.