GoTo defied odds when it pushed through with its initial public offering (IPO) in April 2022, a time when most capital raisings were shelved because of the ongoing war between Russia and Ukraine, as well as rising interest rates.

But the company still raised $1.1 billion during its closely watched market debut, making it the fourth highest capitalised firm in Indonesia.

For Patrick Cao, president of GoTo Group, the strong reception reflects investor confidence in Indonesia’s economy and the company’s dominant position to serve the robust household consumption and appetite for fintech adoption.

GoTo was formed by the merger between ride-hailing giant Gojek and e-commerce leader Tokopedia in May 2021. It provides ride-hailing services, e-commerce, delivery, and financial services to its estimated 100 million active users through an integrated ecosystem.

In the first quarter of 2022, the company saw its gross revenues rise to IDR 5.2 trillion ($345 million) a 53% increase from the same period a year earlier, fuelled by growth in its on-demand and e-commerce services. But GoTo also reported a threefold increase in losses in the first quarter to IDR 6.6 trillion ($440 million) from IDR 1.9 trillion ($127 million) in the comparable period, attributed to the fact that figures in the first quarter of 2021 did not include Tokopedia.

After it’s successful IPO, GoTo wants to focus on “quality of growth and a clear path to profitability,” according to Cao. This means enhancing their offerings in Indonesia, its main market, while grooming its operations in Singapore and Vietnam for “long-term growth”.

In line with this, new financial products like buy-now-pay-later and lending will also be introduced into the GoTo ecosystem to gain new users and retain active customers. More partnerships with banks are also eyed to enable mutual access to customer bases and add more payment options.

The following key points were discussed:

• Multiple touchpoints to drive future profitability
• New payment solutions are on the horizon
• More partnerships with banking partners to be pursued
• Indonesian economy is resilient and consumption is vibrant 
• Going “deep and broad” in the Indonesian market

The edited transcript of the interview:

Foo Boon Ping (FBP): Good afternoon, everyone. And welcome to another The Asian Banker RadioFinance session. And today, we are very happy and very excited to be speaking with Patrick Cao, the group president of GoTo Group, the largest technology platform in Indonesia, and is the combination of merger between two e-commerce giants Gojek, the ride-hailing company, and Tokopedia, the e-commerce platform.

Could you walk us through some of the priorities that the group has put in place since your public listing?

Patrick Cao (PC): Thank you as well for hosting. As we mentioned, on the first quarter (Q1) earnings, the priorities are focused on three areas. The first is around high quality, sustainable growth, the second around path to profitability, and the third is around leveraging our unique ecosystem synergies to accelerate the first two focus areas.

In terms of high quality, sustainable growth, I think as a result of each of the company's focus areas, and the merger, we're now able to service the majority of household consumption, primarily focused on the Indonesian market.

Multiple touchpoints to drive future profitability

As a result of that, combined with the resilience of the Indonesian economy, combined with very strong gross domestic product (GDP) per capita growth in Indonesia and across the region, we're really able to service the digital daily life requirements of our customers that comprise consumers, merchants and driver partners, in a way that's been very much accelerated by the pandemic.

That puts us in a strong spot because we have the ability to engage in multiple touchpoints. With any given consumer, we're able to serve their digital daily life needs and we can do it in a very unique way that's quite different from a standalone or single-use case player.

If you think about it from the consumer perspective, whether you're looking to have a ride to work or to a meeting, order food, or groceries, buy your general goods on e-commerce, pay and have that delivered, within one ecosystem, we're able to achieve all of those things.

The way that we've set up the ecosystem allows us to grow more than one business at a time. For every dollar of investment or every dollar of promotion, that concept of multiple engagement points is very strong. Imagine buying groceries on Tokopedia, delivered with GoSend and paid by Go-Pay.

That's a very powerful way to build a business. We're a beneficiary of that. The second thing is, the markets that we operate in.

Indonesia has been very resilient. Our focus on the mid-affluent customer, during COVID as well as during these even more unprecedented times, allows us to be very resilient.

As you rightfully mentioned, that's translated into very strong year- on- year growth of the top line, both from a gross transaction value (GTV) and revenue perspective. That’s the first area of focus. The second is around that path to profitability.

We've always been very focused on building an enduring, self- sustaining business, individually and together. If you look back at our roots, we've always been the underdogs. We've never had as much cash on the e-commerce or on-demand side as our peers.

We've always been very focused on a large market like Indonesia, very focused in terms of building product-led innovation. You've seen that in a few instances, or many instances over the course of the last few years that I can get into. What that means in terms of path to profitability is we can take the ecosystem approach, combined with the synergies to be able to continuously optimise, while growing the business very meaningfully.

During earnings, both incentives and sales and marketing were able to be optimised quarter-on-quarter that resulted in quite meaningful improvements in both contribution margin and earnings before interest, taxes, depreciation, and amortization (EBITDA).

The natural question is, how did we do that? The first is, in terms of our very large base of users, being able to cross-pollinate more and more by cross-selling and upselling across the on-demand, e-commerce and payments use cases.

Secondly, is to be able to leverage the dedicated on-demand fleet that we have from Gojek to be able to continuously improve the delivery experience while making it more cost-efficient. Third, is being able to leverage our fintech business, GoTo Financial to improve customer behavior as well as improve on conversion and retention.

I think those combination of things will allow us to do and build path to profitability in a very meaningful and differentiated way. We look forward to investing in that in the subsequent quarters. We have our next earnings in second quarter (Q2), around August. We can demonstrate that we can consistently do this in a very differentiated way.

BP: In terms of growing gross transaction value and revenue, GoTo has demonstrated your ability to do so. It's done very well, growing 53%. In terms of growing your user base as well, providing that as one-stop or multiservice capability. In order to further monetise the transaction, value and your data, one way is through your GoTo Financial, though finance financial products with better margins.

In that space you've introduced buy-now-pay-later (BNPL), you also bought a bank which you aim to turn into a digital bank. Tell us how that will add to the path of profitability, specifically for GoTo Financial, how it will help to monetise a lot more of the data and financial flows.

New payment solutions are on the horizon

PC: GoTo Financial as a few components. Payments is the first. We have one of the largest consumer payments businesses in Indonesia, especially when integrated with Tokopedia, which is the market leader by GTV.

Payments business is very powerful because we have a number of very captive use cases to grow and deepen the payments adoption and penetration, which from a digital perspective in Indonesia, continues to be quite early, especially as it's largely a cash-driven economy.

Having captive use cases allows us to build behaviours in a very meaningful way. Again, very differentiated because whether it's grocery or food or rides or commerce, online or offline, you can leverage your wallet to pay for the majority of the things that you need.

The other differentiation on the consumer side is that we've also very recently received our e-wallet licence. Not only can you top up and pay with cash using e-money, increasingly you'll be able to tokenise more of your other payment methods to make digital payments even more seamless and easier.

The second is that, while a lot of our peers focus only on the consumer side, we're also very focused on the merchant side. We have one of the largest payment gateways, Cloud POS, disbursement engines and business solution tools. You can create a virtuous cycle for both the consumer and the merchant side. That's important because what you want is to be as ubiquitous as possible for payments so that the merchant becomes your evangelist.

By having digital payments, they're able to understand their customer better and be part of that formal digital economy that they wouldn't otherwise have access to if they were not digital. That's the consumer and the merchant payments side.

With that kind of depth of ubiquity, with the captive use cases, we have very powerful credit scoring. The scoring plus the payments, and the captive use cases allow us to bridge, to create very powerful financial services, products like lending.

We integrated buy-now-pay-later on Tokpedia in the fourth quarter (Q4). The growth has been quite strong because you've got a good mix of both high and low frequency use cases, high medium and low average order values, that caters to buy-now-pay- later very well.

In the future and in subsequent quarters, you'll see us also launch instalment. The idea being you can pay now, you can pay later or you can pay in instalment. The richness of payments and lending, lends itself to create an even stronger customer behaviours in captive use cases like e-commerce because it helps increase conversion retention, frequency and spend per user.

All of those things are very powerful network effects for our business. Our strategy around banking, to be clear, we own a minority stake in a great partner through Bank Jago. We, by no means have a banking ambition or banking licence. That relationship is very symbiotic because by combining each of our areas of expertise, by being able to build one of the best joint products, we can link consumer payments and merchant payments and fintech with banking. And we can improve the credit score, we can improve the know-your-customer (KYC) and product experience and it creates a very powerful funding partnership as well as financial inclusion partnership.

More partnerships with banking partners to be pursued

BP: Does it also mean that it opened the opportunity or the possibility of working with more banking partners as well, affording your platform for them to access customers and for you to also access their products and services, as well as funding?

PC: That's correct. If you look across the ecosystem, we are a marketplace of marketplaces. On the payment side, we work with almost every payments methodology in country. Similarly, with Tokopedia on the fintech side.

What you see between us and Jagois a very strategic partnership in terms of products, in terms of knowledge and technology sharing. I think that digital first DNA that we both have, and the sort of progressive nature of the way that we approach customers from a digital perspective really help to accelerate a lot of that development.

You'll see us continue to work with many partners. And that's just our DNA. That partnership that we have today with Jago is very strategic to really be able to link the best of fintech and digital banking to create very powerful products for all customers.

BP: You choose to do this in Jakarta Stock Exchange. Given what is happening globally in terms of the technology route, meaning a lot of the technology companies have experienced dramatic drops in share prices, especially those listed in the US. Having listed at Jakarta Stock Exchange, you are the fourth largest capitalised company, and anyone looking to tap on the growth of Indonesia you are one of the best bets. Looking back, did that buffer you in some way from what has been happening to some of your global peers?

PC: There are two fortunate dynamics about Indonesia. The resilience of the consumer and the economy. If you look at gross domestic product (GDP) per capita growth, you look at the stability of effects, you look at how the Jakarta Composite Index has outperformed most major indices. That's on the back of the strong foundation that we have in Indonesia. And so, whether it's trade surplus, whether it's the approach to foreign direct investment (FDI), in conjunction with the commodity supercycle, you're seeing the economy grow at all cylinders.

That creates very powerful dynamics and very strong customer behaviour to support ecosystems like ourselves that are servicing household consumption. The second thing is when we went into the stock market, a lot of the investors that we spoke to were also our consumers. They understood the benefits of the platform separately.

The compounding effect that you get by combining them and the work that we've done to integrate them into a very seamless and comprehensive offering over the course of the last year. That really helped pave the way for a smooth and successful listing. That's been translated in terms of the share price performance that we've seen to date.

Our ability to execute on products, as well as demonstrate the combination of solid top line growth and continuous cost optimisation, has really helped in terms of aftermarket performance and support.

BP: You mentioned earlier optimising incentive, and marketing. Some of your peers like Shopee, Sea Limited, have announced 10% cut in human resource, would you consider some of that?

PC: For us, we go about it in terms of cost optimisation in different ways. Our peers have different methodologies. We do it in a few ways. First is the ecosystem approach makes us quite unique in terms of the ability to leverage economies of scale. As an example, our on-demand fleet is able to deliver people, packages, food, grocery, etc. Basically, anything physical.

That high utilization allows us to improve delivery experience and lower the cost per kilometer that can cut across the entire business, which is a great benefit that we have, while maintaining flexibility and consistency of earning opportunities for our driver partners.

The second way is through promotion. Every dollar of promotion or investment can grow more than one business, so that's a unique way that we can gain efficiencies as well. Our focus on value-added services also creates a distinct advantage. You're seeing us build and work together with merchants to be able to provide stronger ads services. As part of that, provide them with more campaigns to grow and manage their business through merchant-funded promotions and campaigns. That gives us more efficiency as well.

Because we're only a year into our merger, we're streamlining operations more. That will result in some cost optimisation as well. Those combination of things are what we're focused on. It's still quite early days, there's a lot of room for us to continue to optimise there. That's how we'll be focused in terms of improving the margin and the bottom line.

BP: Going back to GoTo financials and consumer credit, the buy-now-pay-later industry has been criticized in terms of unrealistic margins, very aggressive pricing, to gain market share. That's driving down profitability. How do you optimise that business? Considering also that you just started in order to grow and be sustainably profitable at the same time?

PC: Again, with the number of captive use cases that we have, our ability to serve the majority of customers’ digital daily lives and household consumption, is very strong.

Therefore, it creates a powerful propensity to be able to have customers repay for any kinds of lending products that they take. That's bolstered by a credit score that is very rich and data-driven, quite differentiated from other players.

Those combination of things plus our thoughtful approach will allow us to build this very meaningfully for the long term in a very self-sustainable way. Building lending and fintech helps do two things. First, it can be a powerful revenue engine. The second thing is because it is an enabler of customer behavior and every use case, that also creates its own powerful network effects.

BP: Do you see margin improving? Globally, interest rates are going up. US Federal Reserve (Fed) has increased the funds rate by 75 basis points recently.

How is the inflation condition or the wider financial conditions in Indonesia, in Southeast Asia? There's been some shocks in the supply chain. But in a way, Indonesia seems to have been a beneficiary in terms of the commodity demand and pricing increasing. That has kind of benefited suppliers in Indonesia.

Do you see rates going up, margin improving? And to the extent aiding your margin for these financial services that you will be providing?

Indonesian economy is resilient and consumption is vibrant 

PC: Indonesia has been quite resilient. If you look at effects, the trade surplus and a number of other macroeconomic factors, we have benefited from this resilience. With what the government's done around the fuel subsidy and strategic moves to help control food prices, that's created more stability than other economies around the world.

Our customers are able to benefit from that. Our job as an enabler, in our mission to empower progress means that we need to keep a very close finger on the pulse of each customer, whether that be a consumer, merchant or driver partner. The way that we go about building our value-added services, including the lending business means that it needs to factor in the inflationary dynamics at any given time.

It needs to factor in the margin of merchants, needs to factor in consumer confidence. We'll tweak the economics at any given time to accommodate all of those things. We also do it in a very personalised way when different customers will have different experiences, depending on their credit score and general customer behaviour.

In general, it will be a key consideration for how we factor in rates, how we go about building the fintech business. We'll be able to provide a bit more detail on that in subsequent quarters.

BP: How do you see the competitive space there? Your peers are working with partners, having the same goal as you, being more ubiquitous.

And the former banking system as well. We see now a lot of bigger banks buying smaller banks and wanting to be digital players themselves.

PC: We have the good fortune and benefit of serving the majority of household consumption. Our peers can serve a subset of that. Their ability to cover what we can is more limited.

All those captive use cases gives us a very powerful foundation to build a meaningful ecosystem and fintech business. Those combination of things make us quite differentiated. In terms of competition, this is quite a healthy time for the industry.

All the major peers in our region and around the world, have very clearly pointed to focus on a path to profitability, doing that in a more accelerated and thoughtful manner.

This gives us a very big opportunity to be able to accelerate our existing plans and do so at the same time as the markets in our competitors, but again, in our own differentiated way.

BP: Do you see the Indonesian financial space moving more towards now? There's a lot of use of open application programming interface (API), ecosystem building and so on. You’re a dominant player. How open are you in terms of moving towards this direction, open banking ecosystem, and potentially sharing some of this valuable data that you hold with some of your peers and some of the smaller players, that want to be in the same spot that you are in now?

PC: We are a partnership- driven ecosystem, and each of the platforms that we operate have the same DNA. If you talk about open APIs, that's how we've been operating for the past 10 plus years. Whether it's on the logistic side, or payments side, or the fintech marketplace that we built on Tokopedia.

That's part of our foundation in our DNA. When it pertains specifically to data, it's very important that we protect our customers’ data and align with the personally identifiable information (PII) and cyber and data regulation. That's something that we're very thoughtful about.

We continuously engage with the relevant stakeholders to ensure that we're on the right side. If players want to come and provide services to our customers, they are able to leverage our credit score, they can bolster that with their own unique sets of data. And that provides a very powerful opportunity.

BP:  In terms of the treatment by the regulators there, there's also greater equity between incumbent players and startup or fintechs.

PC: I can't comment on tax of individual companies in the sector but what I can say is the government and the regulators have been very progressive in terms of building the right frameworks to support companies in the fintech space, including ourselves.

The experimental sandboxes they built to promote and encourage innovation has been very productive. Everything that we're doing in conjunction with them has been quite effective. The environment that we're operating in is very productive.

Final question in terms of this focus on quality growth and a clear path to profitability. How would that impact your original business? You have big businesses in Singapore and Vietnam. Does it mean a greater focus in the market where you're more dominant, back in Indonesia? How would you continue to invest in the other markets, Singapore and Vietnam?

Going “deep and broad” in the Indonesian market

PC: We mentioned this during earnings in terms of continuing to focus on Indonesia and double down on that market. Number one, we have market leadership, number two, digital penetration, or each of our major use cases across on-demand, e-commerce and fintech continues to be in the early stage but is at a level of maturity where we can build very strong scalability and self-sustainability.

It makes a lot of sense to go deep and broad in the Indonesian market and to focus on the Indonesian customer. In terms of markets outside of Indonesia, we see Singapore and Vietnam as being very big markets with potential for the long-term. So we'll continue to invest there. But again, the primary focus will be on Indonesia, those other markets are for more for the long-term.

That being said, you've also seen us to be very disciplined. For markets where we didn't see the same kind of opportunity, return on investment (ROI), we divested those back in 2021, including our Thailand business.

We'll continuously evaluate the businesses and the companies that we operate in the portfolio to really orient ourselves around that quality, sustainable growth and that path to profitability.

BP: As you're going on a sustainable growth path towards profitability, does it necessarily exclude the potential for acquisition for greater efficiency economies.

PC: We did come off the back of quite a significant merger and it's only been a year plus. So our focus should be there. As we see opportunities, to the extent it bolsters our ability to accelerate path to profitability, and quality, sustainable growth, it's certainly something that we'll look at and evaluate very thoughtfully.

Then it goes around, doing things that support the key focus areas we talked about at the top of the hour. That should be the focus, whether it's merger and acquisition (M&A) or more organic strategic opportunities.

BP: Thank you, Patrick, for spending time with us and for your insights.

PC: Thank you, Boon Ping. Thank you for the time.