GoTo jumps into ‘buy now pay later’ fray as global scrutiny builds on sector

Indonesia’s biggest start-up GoTo is expanding its “buy now, pay later” loans as it pushes for profitability, despite growing regulatory pressure on companies offering similar services around the world.

Patrick Cao, president of the tech group that offers everything from online shopping to ride-hailing, said GoTo would launch more lending products to capitalise on Indonesia’s significant population of consumers who lack access to traditional credit.

GoTo and other tech companies in south-east Asia have been boosting investment in online BNPL services, with growing internet use driving demand for alternative sources of credit. Outstanding balances from digital lending in the region are projected to almost triple to $116bn by 2025, according to a report co-published last year by Google.

The BNPL boom in south-east Asia comes as companies offering similar products in developed economies are facing increasing scrutiny over profitability and the risks they might pose to vulnerable consumers.

“There’s a lot of demand in a very massive addressable market,” Cao told the Financial Times. “Indonesia has the fourth-largest population in the world . . . Credit card penetration ranges from three to six per cent and financial inclusion has a lot of room to grow.”

Asked how many of GoTo’s 100mn monthly customers the company was targeting with the credit facility, called GoPayLater, Cao said “as many as possible”.

As well as GoPayLater, which was launched in October and allows users to delay payments until the end of the month, he said the company will introduce a service to enable payments in instalments for high-value items such as mobile phones.

Cao was speaking after GoTo released its first annual results as a listed company, which showed losses before tax increased almost a third to $1.5bn in 2021. Since its first day of trading in Jakarta in April, the company’s shares have dropped more than 8 per cent.

As with its rivals in the region, GoTo is deepening investment in financial services as it seeks more profitable business opportunities. Chief financial officer Jacky Lo said during an earnings call that the company will “ramp up and extend more high-margin lending products” as it looks to “progress towards profitability”.

But after business boomed as a result of the rise of online shopping during the coronavirus pandemic, BNPL providers globally are coming under pressure as surging inflation hits the outlook for consumer spending.

Shares in Affirm, a US provider, have dropped 58 per cent over the past year. The chief executive of rival Klarna said last month he was shifting the Swedish business away from growth and towards short-term profitability as losses rise.

Because GoTo has captive users spending across a range of services, Cao said the company is more “powerful” than those that only offer credit for third party transactions. GoTo’s extensive data on its customers will also help the company generate better credit scores and “whitelist” users who can use the service safely, he added.