What you need to know about Fintech Business in Indonesia

1．Southeast Asia’s financial technology (Fintech) market

　Southeast Asia’s financial technology (Fintech) market is among the fastest-growing in the world, with estimates placing expected market growth to reach up to US$100 billion by 2020.
　As the largest economy in Southeast Asia, Indonesia has the advantage to attract investors and become prominent leader in digital global sector. The president, Mr. Joko Widodo himself has set a target of making Indonesia the largest digital economy in Southeast Asia by 2020. This target apparently is reinforced by investors from outside Indonesia who are pouring money into the Fintech market, turning one of the country's startups into unicorns.
　Since the launching of its mobile wallet Go-Pay in April 2016, Go-Jek, Indonesia's first unicorn, has raised more than $2 billion through three funding rounds - $550 million from KKR, Warburg Pincus, Sequoia and other private equity funds, $1.5 billion funding round from investors including Tencent Holdings, JD.com, Google, Temasek and local conglomerate Astra International, and lastly a $35 million investment from German insurance company Allianz Group¹.

　Up to 2018, fintech Singapore news report identifies at least 167 Fintech companies operating in Indonesia – which is mainly dominated by payments and lending Fintech services².

Photo source: http://fintechnews.sg/20712/indonesia/fintech-indonesia-report-2018/

2．Government Authority

　Fintech Indonesia business scene is primarily regulated by Bank Indonesia and Otoritas Jasa Keuangan (OJK). Bank Indonesia’s which originally has the main function over monetary policies, has now taken supervisory the roles as license issuing authorities for certain Fintech business running payments function under its control, considering that it has a big direct impact on the monetary stability. While OJK, as the government financial supervisory authorities oversees, the non-bank financial sectors, among others, P2P Lending, Equity Crowdfunding, Insurtech.

3．Newly regulated sectors

　Fintech has entered a new era in Indonesia, most apparently when the peer-to-peer lending scene in Indonesia is finally regulated. Since then, financial technology-related services started to become more popular with the increasing numbers of Fintech startups over the years. This constant development/innovation of Fintech business models by entrepreneurs caused the regulators to adopt new sets of regulatory frameworks related to financial technology sectors:
　Equity Crowdfunding. Another newly regulated financial technology business in Indonesia is equity crowdfunding³. The regulation which was enacted towards the end of 2018 provides companies (particularly start-up companies) as issuers with an alternative for fundraising by way of offering equity securities directly to investors via an online platform operated by an equity crowdfunding operator.

Fundamental principles of equity crowdfunding:

・may involve only offering of small amounts of shares or non-share equity securities by the relevant issuers to retail investors,
・offering must be done through a licensed organizer within a maximum period of 12 months,
・total funds collected through the offering is no more than IDR10 billion (US$710,000), and
・the issuers must not be public companies, hence must not have a total number of shareholders that amounts to more than 300 parties, and have paid-up capital amounting more than IDR30 billion.

　The implementation of equity crowdfunding related to negative list issues remains unclear.

Cryptocurrencies

　Despite of still being considered as an unauthorized payment instrument under certain regulations regime, cryptocurrencies in Indonesia are finally has been acknowledged by the government as digital assets that can be used for investment purposes, and are determined to be commodities that can be traded in the Indonesian futures exchange⁴.
　On a separate note, to show the strong support of the government to the development of the FinTech business, OJK introduces new policy through the issuance of the new multi finance regulation, POJK 35⁵ in 2018. This new regulation allows multi finance companies (MFCs) to cooperate with Peer to Peer lending companies and Venture Capital Companies and to extend cash loans (consumer cash loans; and working-capital cash loans) directly to borrowers, which is hopefully would reduce the tense between multi finance companies and certain FinTech business models in the past.

4．Challenges

4-1．Existing Business Operators

　Resistance from existing business players, from example banks, multi finance companies, transportation companies, who consider FinTech startups as potential threads. This is partly due to lacking of regulatory control of FinTech startups, creating gap, between activities of those players which are heavily regulated as opposed to FinTech lending business players which tend to have more flexibilities and options in determining their operations or business policies.

4-2．Fintech Regulatory environment

　Despite of the efforts by the government to always cope with the changes in FinTech markets, big part of FinTech startups still think that the process of regulations in Indonesia is too slow and some requirements are ambiguous. In order to boost the confidence of FinTech startup founders and investors in Indonesia, the government still need to take steps further to create a better regulatory environment for FinTech startups. Another issue, starting a FinTech startup in Indonesia may take time, mainly because of business license process held by OJK or Bank of Indonesia may not be as simple/straight forward as it would have seen.

4-3．Infrastructure

　Most parts of Indonesia - particularly outside the big cities, do not have adequate infrastructures which enable people living in these areas to have access to digital services, hence challenges for FinTech companies to expand its market or customer base. 

Click here for Japanese translation article.

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[1] https://asia.nikkei.com/Spotlight/Cover-Story/Indonesia-offers-a-fresh-battleground-for-fintech.

[2] http://fintechnews.sg/20712/indonesia/fintech-indonesia-report-2018/.

[3] OJK Regulation No. 37/POJK.04/2018 on Information Technology-based Crowdfunding Services via Public Offerings.

[4] Minister of Trade Regulation No. 99 of 2018 on the General Policy of the Implementation of Futures Trading in Crypto Assets, which is implemented in further detail by the Commodity Futures Trading Regulatory Agency (BAPPEBTI) Regulation No. 5 of 2019 on the Technical Provisions for the Implementation of the Physical Market for Crypto Assets on the Futures Exchange.

[5]OJK Regulation No. 35/POJK.05/2018 on Multi-finance Activities (“POJK 35”), replacing the previous OJK Regulation No. 29/POJK.05/2014.

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The information provided in this article does not, and is not intended to, constitute legal advice and is for general informational purposes only. Readers of this article should contact an attorney to obtain advice with respect to any particular legal matter.