The Future of FinTech in Indonesia

Guest Post - 13 October 2015

As a country with vast internet penetration and high middle class growth, Indonesia will definitely be a market for FinTech industry, sooner of later. There should be a collaboration between Fintech companies and banks and financial institutions, so that its functions can optimally reach the people. The government should also support the development as well, so that the rules can be clearly set.

FinTech is a fusion between finance and technology. The vast tech development helps startups to build their innovative financial product. In many countries, startups’ financial innovation is proven to be effective in not only generating new innovative solutions for consumers, but also challenging the prominent financial industry.

According to a survey by McKinsey in March 2015, Asians are currently shifting to online banking. Consumers in the region are really open to move from offline to online services, as long as the offer is attractive enough to steal their attention.

In Indonesia, the vast geographical condition, poor financial product penetration, and fruitful middle class growth form a formidable market for FinTech development, not to mention the progressively decreasing smartphone price.

FinTech's contribution

More and more FinTech startups are emerging nowadays. CekAja, AturDuit, and HaloMoney rise, facilitating consumers to pick the right online financial products. There’s also an online personal loan vendor which promises fast processes.

FinTech has a huge potential in Indonesia as it provides a solution which isn’t offered by conventional banking institutions. There are several reasons that back this belief.

First, FinTech offers speed. With big data, algorithm, and online process, decisions may be taken in seconds. Users may fill out forms online using user-friendly technology designs. The loan proposal is processed without any face-to-face meeting.

Wonga, England-based online loan vendor, processes online loan proposals in seconds. In Indonesia, an online loan startup can grant applicant’s proposal in an hour. It’s way better than what conventional banking and multifinance institutions can do.

Second, FinTech can offer a solution that no conventional bank can’t. Due to the big sum of operational cost that it must spend, conventional bank is highly limited in terms of the minimum amount of loan and return period. Meanwhile, people sometimes need more than that.

FinTech enters the market by offering better loans, thanks to their simpler and more efficient operations and technologies. For instance, an online loan vendor in Jakarta may offer Rp 1.5 to 2 million to be returned in 10 to 30 days.

Third, FinTech companies utilize big data comprehensively. One of FinTech’s strength is data management. In term of loans, credit scoring is used since the very beginning and in every step of decision making process.

The use of big data makes te decision making process faster and more accurate, as well as cost-effective since the process is run automatically with very least intervention.

Interestingly, the data used is no longer limited to finance and demography, but also data taken from social media.

In some countries, consumer’s habit on social media is found to be related to character and quality of the loan. It seems that social media will be an essential indicator to evaluate whether someone is worthy enough to get the loan or not.

Collaboration and regulation

FinTech has two homework, which are collaboration and regulation. Collaboration with banks and financial institutions will help each focuses on each own strength, so that they may give the best service to the people.

For example, the e-cash and e-money services which are massively promoted by banks nowadays can be used as an alternative when it comes to online transaction. One of app-based ojek services even allows users to pay the service using e-cash.

However, financial regulation needs to catch up with the growth. The regulation of signing up for e-cash, for instance, must include a face-to-face phase between loan vendors and consumers. Meanwhile, in online transaction, that phase has been eliminated, substituted by other means of verification.

In finance industry, regulation is very important as a proper one will guarantee the delivery of consumer protection and healthy financial system. The players need to sit together and discuss about how they should act and identify the business pattern as well as risks that exist within the segment.

Sooner of later, FinTech will be mushrooming in Indonesia. When the time comes, it’s way better to be prepared.


Disclosure: This guest post is written by financial blogger Rio Quiserto. Rio manages personal financial blog called Duwitmu and can be reached at @duwitmu.

Translated by Rifki Aria Nugraha

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