How Indonesia is preparing its fintech ecosystem

In 2015 it looked like Indonesia was in a lucrative position to be a fintech powerhouse in Asia. A wave of startups had flooded the market, providing everything from payment services to wealth management to everyday financial advice.

These budding companies were hoping to take advantage of fintech in its still relatively early stages, placing them in a good position for the future. However while several other markets for fintech are maturing, Indonesia still has many obstacles to innovation. This was the case in 2015 and 2016 but as we look forward into 2017, will things improve?

Indonesia’s Fintech Association (IFA) was set up in 2015 to foster growth in the space. At the end of 2016, it co-produced a study with research firm DailySocial that took the pulse of the Indonesian fintech space. While it examined funding and founders, its survey of 1,000 regular consumers in Jakarta and Java made for some startling results.

According to the report, 71.66% of respondents had never heard of fintech, which makes it rather unsurprising that 81.54% said they had never used a fintech product. A boon of companies sounds great on paper but crumbles when people don’t even know about them. Furthermore, as per 2014 World Bank statistics, only around 36% of Indonesians over the age of 15 has a bank account.

Of the fintech services that are being used, 81.08% of them are owned or run by traditional banks. Only 10.27% used non-bank related fintech products. Doku is by far the most popular non-bank fintech service in Indonesia.

Founded in 2007, the payments company has been on the scene much longer than many of the nascent startups and in many ways laid the groundwork for Indonesia’s current fintech landscape. Currently it boasts about 22,000 merchants and 1.4 million e-wallet users, according to figures it provided to IDG Connect.

“Trust in online payments and consistent education to accept new ways to pay are the two major challenges that we are currently facing,” explains Doku chief operating officer, Nabilah Alsagoff. “Most Indonesians are still comfortable and pretty much rely on bank transfer and COD as their preferred method of payments.”

One of Doku’s main aims is to make e-commerce systems easier to navigate for both customers and merchants, she says. The ultimate goal is to be a part of Indonesians’ daily payment habits via e-money, especially for the unbanked in a country of over 250 million where only 65 million are bank account holders.

But not only is access to customers a barrier, so too are laws and regulations. “Most fintech players feel that the regulation in Indonesia is still in [a] grey area. They’ve requested the authorities to create clearer regulation,” said the authors of the IFA/DailySocial report.

This isn’t unique to Indonesia. A regular complaint among fintech startups, regardless of market, is old school banking and financial regulations that they claim are stifling innovation. It’s created a push and pull between startups that want to try new things and regulators that are sceptical (sometimes rightly) about what the technology can do. In Indonesia, regulations have been too vague for too long but the government is aware of this.

“Overall, the government has been very supportive towards the growing e-commerce ecosystem,” counters Alsagoff, pointing to the Central Bank’s GNNT program, which supports startups and entrepreneurs forging towards a cashless society.

“Since then, the regulator has been working side by side with e-commerce industry leaders, related associations to get new insights and keep themselves updated with the industry trend.”

At the very end of 2016, Indonesia’s Financial Services Authority (OJK) passed a new peer-to-peer lending regulation that stipulates that fintech startups must be registered with the authority. The rules are aimed at instilling more consumer confidence in non-traditional lending services while “taking into account fairness and developments in the economy”. Meanwhile Indonesian authorities are in discussions with counterparts in South Korea to collaborate on programs for developing each other’s fintech ecosystems.

According to the Central Bank, there are around 142 fintech startups in Indonesia. Private sector money continues to flow into Indonesia’s fintech scene but it’s facing fierce competition with their neighbours in Southeast Asia. Singapore for example has invested hugely in fintech and is currently developing a major hub called Lattice80 to foster fintech startups from around the region while Accenture has launched its own fintech support programs in the city-state too.

Indonesia’s strides towards fintech ubiquity show that while intentions may be good, the reality is that developing a rich ecosystem is a very bumpy road.


Also read:
Indonesia: Two local cloud CEOs describe the tech scene
Indonesia is priming itself for a fintech future
APAC 2017: A petri dish for new technologies


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Jonathan Keane

Jonathan Keane is a freelance journalist, living in Ireland, covering business and technology

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