Regulating Indonesia’s Buzzing Fintech Space

Author: Safri Halding


*) oleh Safri Haliding, Analis Perusahaan Investment & Venture Capital, Komite Ekonomi Mata Garuda Institute

Fintech is all the rage in Indonesia. In terms of the development of fintech startups, Indonesia ranks second in ASEAN, after Singapore. The Financial Services Authority (Otoritas Jasa Keuangan or OJK) notes that there are currently 71 active fintech startups, either purely homegrown or from overseas.

These startups provide diverse products and services, including payment gateways, lending, banking services, insurance services, pawn shops, or online financial advisory. This has also led the OJK to pay more attention to the sector, with hopes of developing appropriate regulation.

Like in other tech sectors, the rapid growth of fintech is due to the increasing amount of internet users. According to the Association of Indonesian Internet Service Providers (APJII), in 2015 there were 88 million Internet users in Indonesia, and approximately 85% of them used the internet via their smartphones.

Indeed, high internet penetration has changed consumer behavior, from shopping and food to  transportation and banking. The internet is also increasingly accessible, with the availability of cheaper but still decent quality smartphones.

Financial Inclussion

Currently it is estimated that about 2 billion adults, or 42% of the adult population globally, are untouched by the formal financial system. In Indonesia, access to financial institutions is also relatively low. Data from the World Bank in 2010 shows that just about 52% of the Indonesian population use formal financial services; 79% of the low income population do not have access to formal financial services.

Fintech can therefore be developed to reach these millions of Indonesians by providing easier access to a wide range of financial products tailored to the characteristics of the community. These include e-cash/e-wallet, basic savings accounts, micro-insurance, and of course, microfinancing, particularly super-micro consumer financing with a ceiling that ranges from Rp 1 million to Rp 5 million.

Governments and other relevant parties should encourage the growth of fintech. Financial institutions, for one, can create synergy with fintech in order to improve competitiveness and strengthen access to formal financial services.

Nonetheless, some things need to be addressed. First, debureaucracy and regulatory simplification. Secondly, financial support and incentives for fintech startups by venture capitalists, or equity participation of government institutions by providing grants and loans, as well as tax incentives. Third and most important, the fostering of a fintech ecosystem through incubation programs and research centers.

Secondary market exit strategy

Unlike the United States’ NASDAQ, secondary markets are not available in Indonesia. The former Surabaya Stock Exchange (BES) was a secondary stock market, but was discontinued due to highly cost and low market infrastructure.

Providing a secondary market infrastructure is very important to support venture capitalists. If the exit infrastructure is not available, venture capitalists would then choose to list startups abroad, with better chances of gain from its secondary markets. Therefore, the Indonesia Stock Exchange, OJK, startup founders and venture capitalists should be sitting together to find best practices for this issue, such as a parallel stock exchange.

Fintech regulations

Fintech, like financial services in general, is a business of trust. Failures or fraud, among other things, would lead people to abandon fintech. An authority that oversees the fintech sector would make consumers more secure, and investors more confident.

However, regulating fintech during this nascent period may instead hinder its growth and development, especially if the regulations don’t fit. Therefore, OJK should conduct an in-depth preliminary study and may provide supporting regulations in order to create a fair and trustworthy environment for all stakeholders.

The regulations that will be issued by OJK should not be too rigid, so as to provide a balanced climate. Some regulatory concerns include business licensing, business operation, governance, supervision and inspection, reporting obligations, and equities.

All in all, the seriousness of OJK and other relevant parties to provide supportive regulations will hopefully bring strategic action, making fintech more interesting to achieve financial inclusion and boost economic growth.

Diterbitkan di Global Indonesian Voices, 17 Oktober 2016
Ilustrasi dari Pixabay/Dawfu


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