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Indonesia Offers a Fresh Battleground for Fintech

Indonesia Offers a Fresh Battleground for Fintech
E-payments on the rise in Indonesia © Akira Kodaka

On the back of President Joko Widodo's digital economy ambitions, the top two fintech sectors -- e-payment and Peer-to-Peer lending -- have been enjoying exponential growth in the past few years.

The value of e-money transactions grew sixfold between 2012 and 2017 to 12.3 trillion rupiah ($840 million). The amount of P2P loans disbursed doubled to 6.2 trillion rupiah between January and May this year alone.

The president has set a target of making Indonesia the largest digital economy in Southeast Asia by 2020. This entails an annual e-commerce transaction value of $130 billion and the creation of 1,000 tech startups with a value of $10 billion, among other things.

Indonesia's e-payment market is growing crowded as companies rush to tap the country's vast unbanked population. Image: Akira Kodaka
Indonesia's e-payment market is growing crowded as companies rush to tap the country's vast unbanked population. Image: Akira Kodaka

 

This has translated into government support for ride-hailing apps like Go-Jek and Grab despite continued resistance from conventional taxi operators, as well as assistance for fintech startups.

The freewheeling atmosphere has been intensified by well-heeled investors from outside Indonesia who are pouring money into the market, turning four of the country's startups into unicorns.

Since its launch of mobile wallet Go-Pay in April 2016, Go-Jek, Indonesia's first unicorn, has raised more than $2 billion through three funding rounds.

In August 2016, it raised $550 million from KKR, Warburg Pincus, Sequoia and other private equity funds. In February, it closed a $1.5 billion funding round from investors including Tencent HoldingsJD.com, Google, Temasek and local conglomerate Astra International. In April, German insurance company Allianz Group announced a $35 million investment in Go-Jek.

For some drivers, Go-Jek is their first step towards the formal financial sector. Image: Akira Kodaka/Nikkei Asian Review
For some drivers, Go-Jek is their first step towards the formal financial sector. Image: Akira Kodaka/Nikkei Asian Review

But not all is rainbows and sunshine. Worried about potential systemic risks to the economy, Bank Indonesia has enacted policies some see as restricting market access.

In May, the central bank issued a regulation capping foreign ownership in e-money providers at 49%, which may explain its suspension of some e-wallets like TokoCash and GrabPay, a mobile wallet originally used by Singapore-based Grab, since they submitted license applications late last year.

The ban on cryptocurrency payments has also forced Jakarta-based blockchain startup Pundi X to postpone its domestic ambitions. The company -- whose mission is to become "the Walmart and 7-Eleven of cryptocurrency" and "make buying cryptocurrency as easy as buying bottled water" -- is expanding aggressively elsewhere.

Kiosks in a traditional market in south Jakarta now offer e-payment options. Image: Akira Kodaka
Kiosks in a traditional market in south Jakarta now offer e-payment options. Image: Akira Kodaka

 

It recently announced the opening of a South America head office in Brazil and sales of its point-of-sales devices for cryptocurrency transactions in Colombia.

 Despite lingering regulatory risks, Indonesia Fintech Association chairman Niki Luhur believes working together with regulators is the best solution.

"They care about consumer protection, systemic risk, shadow banking, terrorism financing ... all things that we care about as well," Luhur told Nikkei in May. "Sometimes the issue is communicating with the same vocabulary."

 


Source : This is part of a story originally published in Nikkei Asia Review

Indah Gilang Pusparani

Indah is a researcher at Badan Perencanaan Pembangunan Penelitian dan Pengembangan Daerah Kota Cirebon (Regional Development Planning and Research Agency of Cirebon Municipality). She covers More international relations, tourism, and startups in Southeast Asia region and beyond. Indah graduated from MSc Development Administration and Planning from University College London, United Kingdom in 2015. She finished bachelor degree from International Relations from University of Indonesia in 2014, with two exchange programs in Political Science at National University of Singapore and New Media in Journalism at Ball State University, USA. She was awarded Diplomacy Award at Harvard World Model United Nations and named as Indonesian Gifted Researcher by Australian National University. She is Researcher at Regional Planning Board in Cirebon, West Java. She previously worked as Editor in Bening Communication, the Commonwealth Parliament Association UK, and diplomacy consulting firm Best Delegate LLC in USA. Less
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