ISD Dialogue Series on Financial Technology: Managing Risks & Regulations to Improve Indonesia’s Fintech Sector

Jakarta, 16 February 2017

ISD Dialogue Series on Financial Technology: Managing Risks & Regulations to Improve Indonesia’s Fintech Sector

Jakarta, February 16 2017. The digital development continues to take place rapidly in Indonesia, which affects the digital transformation in various sectors including the financial technology (Fintech) services. Fintech is a technology software that provides services for the financial sector. Accenture’s research 2016 finds that the global investment for fintech increases significantly from US$4 billion in 2013 to US$23 billion in 2015. On another hand, fintech would find its relevance as the intermediator to support the Government of Indonesia in obtaining USD130 billion of online payment transaction in 2020, as stipulated in the e-Commerce Roadmap.

In Indonesia, the fintech industry has recently increased since the bank and regulation approaches have been more open, which implicates Indonesian banks to actively seek for new technology. At the same time, the regulators find that fintech is as a new paradigm to improve financial services in general. The fintech industry is still largely untapped even though it has a lot of room to grow. Currently, only 36 percent of adults have bank account and 49 million of small-medium enterprises are not yet “bankable.” A large number of people are still using non-banks platform to send money.

The fintech sector plays major roles in helping the Government’s focus to boost financial inclusion, especially to increase the banked population in the country. Nowadays, the fintech sector is dominated by the payment industry. However, the payment system is still inefficient as cashless payment is largely unavailable in most purchasing situations. Not only that, uncertainty in terms of investment, legal standing, and consumer protection are issues faced the players.

In response to those current issues, as well as to identify ideal policy environment in the emerging fintech sector, ISD collaborates with the Fintech Indonesia to present the ISD Dialogue Series on Financial Technology & 2nd Aftech Expert Gym. The dialogue features Michael Helleman (Australian Trade Commission) as the Keynote Speaker and Hendrikus Passagi (Senior Research Executive, Otoritas Jasa Keuangan) and Yosamartha (Fintech Office, Bank Indonesia) as the Speakers. Moderated by Ajisatria Suleiman (Executive Director, Fintech Indonesia), the dialogue attracts more than 80 participants from fintech players, researcher, and regulator. With 88 million internet users and 325 million mobile connections in hand, Indonesia’s fintech sector is perceived as the next big thing in the country.

“If the fintech sector in Indonesia is well managed, it will benefit customers and the economy at large. For customers, they will have more products and better services with lower prices. For the economy, fintech sector can support financial inclusion, shorten transaction chain, increase money velocity, and support monetary policy,” said Taufikurrahman, ISD Executive Director, while opening the dialogue.

Align with Taufikurrahman, Michael Helleman agrees that the management of fintech, especially from the policy makers, is key to grow and sustain the sector. Without government’s support, it would be impossible for fintech to emerge as the disruption to the traditional financial sector such as bank.

“Australian government is very serious in developing fintech sector. The Government has even appointed Sydney as the Financial Services Knowledge Hub in the Asia-Pacific region. We also facilitate Small-Medium Enterprises to enter fintech industry and export their services,” mentioned Michael Helleman.

According to Hendrikus Passagi, the main problem in Indonesia’s financial sector is the gap in financing national development, plus its high interest rate. Financial institutions could only inject IDR700 trillion to national infrastructure project while the funds needed have reached IDR1,600 trillion. The fact that 60% of credit or lending are centralized in Java Island causes the velocity of money to remain low outside the Island. Therefore, fintech is the leading solution to fill this gap.

“I believe the Government realizes this situation. That’s why the President Jokowi-VP Kalla Administration announced the National Movement of 1,000 Start-ups. The Government believes that the maximum use of technology, including fintech, is critical in succeeding national development,” said Hendrikus Passagi.

Meanwhile, he says that fintech payment and crowdfunding are the quick wins to the current trend. This is also the main background of the Peer-to-Peer Lending Regulation released by Otoritas Jasa Keuangan. He expects that the release of this regulation would create sustainable fintech ecosystem in Indonesia.

Yosamartha from Fintech Office Bank Indonesia shares about the Four Pillars of Fintech Office Bank Indonesia: act as a catalyst to enhance fintech sector, provide business intelligence, do assessment, and coordinate with all related stakeholders in Indonesia. In terms of impact to traditional banking sector, Yosamartha mentions that almost all traditional banks are moving forward to be universal banks as fintech has disrupted almost all transaction processes.

“Like it or not, the presence of fintech is sometimes perceived as a threat to traditional banks because fintech has been enabling non-bank institutions to do payment, lending, and stock offering. However, Bank Indonesia wants to embrace all stakeholders in fintech sector to ensure the customer protection and avoid the practice of money laundering,” said Yosamartha.