Bank Neo Commerce (BBYB) has built up its customer base fast and garnered more than 6M users from its Neo+ app. The bank stated that it will launch its native digital lending product soon, which we suspect will be consumer loan products. For the post rights issue, BBYB would be trading at 3.4x PBV.

Fast-growing new customers. BBYB reportedly gained over 6M of customer accounts as of Sep 21. The bank’s third-party funds rose by 72.5% yoy (+30.2% ytd) to IDR 5.2T. BBYB’s strategy is to offer a high- interest rate of 6% for saving accounts and 8% for TD, which, in our view is actually customer acquisition and retainer costs, in addition to the referral fees the bank offers to its customers.

Still booked a net loss, but there is room for turnaround. BBYB posted a net loss of IDR 132.3B in 1H21, mainly due to the fast-rising marketing expenses (+1,650% yoy). We may see the bank’s marketing expenses remain high in the next 2-3 years. BBYB can potentially reach a net profit with a larger loan base by deploying the third-party fund faster (its LDR declined from 89% in Mar 21 to 74% in Jun 21) and more efficiently such as through P2P Lending. Going forward, we may still see a slight margin expansion as its 2Q21 loan yield was 15.9% and CoF was 8.3% p.a.

Customer onboarding process is a challenge. The biggest challenge for BBYB is the customer onboarding process as new customers still have to video call with the customer service for the KYC verification. As there is an explosion of new account opening, the queue reaches >3,000K customers, and the verification takes days. Hence, BBYB might need to change the verification method using a biometric system a.s.a.p. to expedite the process, albeit at a higher acquisition cost. It is not difficult for BBYB to change the system, but it may take time to build or connect to a third party’s API.

To launch a digital loan product soon. So far, new neo-banks are channeling their loans through P2P lending, including BBYB. However, the management stated that it will launch the digital loan directly to customers. In our view, backed by Akulaku, BBYB has the capability to launch native digital lending in terms of credit screening and market.