Indonesia’s Fintech Sector Sees Rapid Growth Amid Regulatory Challenges

JAKARTA - Indonesia’s fintech sector is experiencing rapid growth, with a surge in peer-to-peer (P2P) lending and expansion into new areas such as insurance and investment. However, the industry is also facing regulatory challenges and concerns over fraud.

P2P Lending Sees Significant Growth

According to data from the Financial Services Authority (OJK), there are 164 registered P2P lenders in Indonesia, but only 25 have received a licence to operate. Despite this, the total loans disbursed through P2P platforms reached Rp41 trillion ($2.9 billion) in May 2019, up 44% from the start of the year.

Speed and Convenience Drive Growth

P2P lending has taken off due to its speed and convenience, with loan disbursement times as short as 24 hours for new customers and even less time for returning customers. However, regulatory oversight has proved crucial, with the OJK shutting down 826 illegal start-ups in the first eight months of 2019.

Regulatory Challenges Persist

“We understand that a number of fintechs have been shut down by the regulators, but illegal companies continue to be a challenge for the government,” said Ravi Ivaturi, digital transformation adviser at PwC Indonesia. “It is not enough just to educate, companies must provide tools and they need to be integrated into platforms.”

Fraud Prevention Measures

To curb fraud, P2P lenders are required to screen applicants using artificial intelligence-based software and conduct offline verification processes to confirm identification numbers and visit businesses or farms.

Fintech Ecosystem Expands into Insurance and Investment

The fintech ecosystem in Indonesia is also growing in the insurance and investment segments, with apps like Halofina and Tanamduit establishing partnerships with investment firms to offer securities products. The fees for trading these products are split between the platforms and their partners.

Entrepreneurial Challenges

Despite the growth, entrepreneurs in the early stages of their companies are seeking funding and chasing growth, even if it delays profitability. “Venture capitalists want to invest in companies already generating revenue, so there is a gap at the earlier stages,” said Adjie Wicaksana, CEO of Halofina.

Path to Profit Varies by Activity

However, the path to profit varies greatly by activity, and lending platforms will likely be the first to reach that point due to their significant growth rate and lack of requirement to build customer loyalty through deep discounts and constant promotions. In other areas, patience should be expected as consumer use cases are built, partnerships are developed and platforms continue to rapidly expand.

Conclusion

Overall, Indonesia’s fintech sector remains in growth mode, with many entrepreneurs experiencing increased pressure from investors to reach profitability. As the industry continues to evolve, regulatory bodies will need to strike a balance between promoting innovation and ensuring the integrity of financial transactions.