As a country with vast Internet penetration and high middle-class growth, Indonesia will definitely be a market for the fintech industry, sooner or later.
There should be a collaboration between fintech companies, banks, and financial institutions so that their 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. This vast tech development helps startups to build innovative financial products. In many countries, startups’ financial innovation is proven to be effective not only in generating new 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 a move from offline to online services, as long as the offer is attractive enough to steal their attention.
In Indonesia, the vast geography of the lands, poor penetration of financial products, and substantial middle-class growth combine to create a formidable market for fintech development, not to mention the progressively decreasing smartphone prices.
A great number of fintech startups are emerging nowadays. The rise of CekAja, AturDuit, and HaloMoney help facilitate consumers in picking the right online financial products. There’s also an online personal loan vendor which promises fast processes.
Fintech has huge potential in Indonesia as it provides solutions which are not offered by conventional banking institutions. There are several reasons that back this belief.
Firstly, fintech offers speed. With Big Data, algorithms and online processes, decisions may be made 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, the England-based online loan vendor, processes online loan proposals in seconds. In Indonesia, an online loan startup can grant the applicant’s proposal in an hour. It’s way better than what conventional banking and multi-finance institutions can do.
Secondly, fintech can offer solutions that no conventional bank can. Due to the considerable operational costs that they have to spend on, conventional banks are highly limited in terms of the minimum amount of loans and the return period on them. People sometimes need more than that.
Fintech enters the market by offering better loans, thanks to simpler and more efficient operations and technologies. For instance, an online loan vendor in Jakarta may offer IDR 1.5 million (US$110) to IDR2 million (US$147) to be returned in 10 to 30 days.
Thirdly, fintech companies utilise Big Data comprehensively. One of fintech’s strengths is data management. In the case of loans, credit scoring is used from the beginning and in every step of the decision-making process.
The use of Big Data makes the decision-making process faster and more accurate, as well as cost-effective since the process is run automatically with very little intervention.
Interestingly, the data used is no longer limited to finance and demography, but is also taken from social media.
In some countries, the consumer’s habits on social media are found to have a correlation to the 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 work to do on two fronts – collaboration and regulation. Collaboration with banks and financial institutions will help each party focus on its own strength so that they may offer the best service to the people.
For example, e-cash and e-money services which are massively promoted by banks nowadays can be used as an alternative when it comes to online transactions. One of the app-based ojek services even allows users to pay for the service using e-cash.
However, financial regulation needs to catch up with 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 transactions, that phase has been eliminated, substituted by other means of verification.
In the finance industry, regulation is very important as it will guarantee the delivery of consumer protection and a healthy financial system. The players need to sit together and discuss how they should act and identify business patterns as well as risks that exist within the segment.
Sooner or later, fintech will mushroom in Indonesia. When the time comes, it’s way better to be prepared.
Also Read: Indonesia launches association for fintech service
The article The Future of Fintech in Indonesia has been republished from DailySocial.