The State of Fintech In Indonesia

4 mins read

2 February 2023

OJK has been actively developing policies to support the development of fintech in Indonesia and this means that businesses can expect fintech companies in the country to grow exponentially within the next few years.

The fintech sector in Indonesia has grown significantly during the last two years. The Covid Pandemic has sparked a surge in business growth across all fintech categories, including payments, lending, and investments. By 2025, based on current trends, digital payments are expected to reach US$351 billion, digital loan books to reach US$35 billion, and fintech investment AUM to reach US$28 billion. This has sparked greater investor interest than ever in the industry, and three of Indonesia’s four unicorns, Xendit, Akulaku, and Ajaib, are in the fintech sector.

The opportunity in fintech is still tremendous although adoption rates still only account for a small portion of the overall addressable market. 103 fintech companies in Indonesia on the Financial Services Authority’s official list totaled US$20,4 billion with only 26 million borrowers nationwide being insured by this. Additionally, the country has 63 million MSMEs, which account for more than 60% of its GDP, but estimates show that only 19% of these companies have access to financial products, leaving an estimated US$80BN credit gap.

Last but not least, despite the fact that there has been an increase in retail investors over the last three years, there are still only 7.5 million retail stock investors worldwide, or 4% of the world’s adult population. There is obviously a lot of space for expansion in terms of firms utilizing fintech solutions in these key sectors.

Fintech Sectors In Indonesia

Opportunities for investment in the various fintech areas go beyond merely funding fresh competitors who use comparable tactics. Through a variety of tactics, new items can be developed and presented as the market changes and consumers desire solutions that are unique. For instance, new interface layers that aggregate payment methods and enable single checkout, like Juspay of India, may become extremely popular as social commerce via chat takes traction.

There are chances to establish a business banking interface to help automate manual payment processes like invoice payment in addition to addressing the front-end customer-facing payment experience. Previously, reaching out to MSMEs mainly involved working with eCommerce marketplaces to get transaction data or working with SMEs that had already been banked to offer underwriting information. Companies like Bukuwarung, Majoo, and Ula have been able to gather data from which they may underwrite loans because of the increasing rise of MSMEs using technology for payment processing, monitoring their businesses, and buying supplies.

Outlook Of Indonesia’s Fintech Sector

Bank Indonesia and the Financial Services Authority oversee the fintech industry in Indonesia (OJK). Indonesia is preparing to encourage flexible, balanced, and effective regulation of financial innovation in order to stimulate innovation and healthy competition. For new technology and business models, regulatory modifications, including simplifications, are being considered.

The new fintech rules that Bank Indonesia released in December 2017 demonstrate its readiness to adopt fintech. These rules will enable millions of clients to gain access to funding based on an analysis of their transaction history by approving a number of technical platforms for financial transactions.

All types of electronic payments will be connected more affordably and effectively after the National Payment Gateway is put into place. This ought to aid in quickening the spread of fintech in Indonesia. OJK’s intention to create a regulatory sandbox so banks and fintech businesses can experiment with different strategies is another encouraging step. Sandboxes provide fintech businesses a limited amount of permission to test out new models and products on a small sample size of real people in a controlled setting.

The sandbox strategy provides for some flexibility, which is essential given how drastically new digital platforms are transforming industries. Finding the ideal balance will be difficult to avoid unintentionally creating quasi-monopolies by favoring sandbox players over non-sandbox businesses. A robust broadband connection is necessary for cloud-based systems to achieve significant efficiency savings, hence a good telecommunications infrastructure is essential. Installing the Palapa Ring Project’s national fiber network might be a significant step in closing the digital gap and fostering financial inclusion.

Finally, to engage potential clients and capitalize on one another’s advantages, fintech companies should concentrate on forming alliances with telecoms and other regional players. An effective strategy is for banks to invest in cutting-edge fintech businesses to support their rapid growth. Financial inclusion refers to the availability of resources for obtaining loans in order to expand a business, purchase a home, save for a child’s education, or make plans for your health and retirement. Fintech innovation has the potential to alter how individuals do business in Indonesia with the right rules in place.

Fintech potential is virtually limitless because financial transactions underpin essentially every transaction involving the exchange of goods or services between companies and customers. Even though only an estimated 33% of the population has access to a bank account, five of the top ten largest corporations by market capitalization on IDX are traditional banking institutions. In the next few years, this system is set to undergo a change as fintech projects ultimately give the unbanked and underbanked access to financial inclusion. Indonesia’s fintech sector has definitely entered its golden era.

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