Opportunities in Indonesia’s FinTech Sector

  • Indonesia’s FinTech industry is one of the most competitive and dynamic in ASEAN, as evidenced by the emergence of four unicorns and one decacorn in the industry.
  • The fintech industry is one of the most funded sectors and is dominated by peer-to-peer (P2P) electronic lending and payment platforms.

Indonesia’s FinTech industry is one of the most competitive and dynamic in ASEAN, as evidenced by the emergence of four unicorns and one decacorn in the industry. The country is home to 20% of all fintech firms in the Southeast Asian bloc, which are expected to generate $ 8.6 billion in revenue over the next five years, despite its infancy.

The fintech industry is one of the most funded sectors – along with e-commerce – and is dominated by peer-to-peer (P2P) lending (50%) and electronic payment (23%) platforms. ). Although more than 300 fintech companies operate in Indonesia, foreign investors will find that the industry has yet to reach its potential. One factor is that 60 percent of the country’s workforce is in the informal sector and that many micro, small and medium-sized enterprises (MSMEs) have little access to finance from banks, as they operate themselves. also mainly in the informal sector. .

P2P loan

Many local MSMEs have business models that are not compatible with the characteristics of banks’ financial products. This includes aspects such as loan program payment terms, forms of collateral, and credit quality, among others.

Foreign fintech companies can bridge this gap with new financing models that can serve Indonesia’s 47 million underbanked adults and 92 million unbanked adults. In 2020, P2P loans reached US $ 7.7 billion from 160 FinTech companies officially listed by the Financial Services Authority (OJK). This covered over 26 million borrowers across the country.

These microloans are popular due to their convenience as it normally only takes 24 hours for funds to be disbursed, and the terms and term are small and short – borrowers typically receive no more than $ 100. These are normally returned within a few weeks as there are often huge interest charges.

Electronic wallets

Electronic money transactions grew 173% in 2020 and have become indispensable for Indonesian consumers. The country is expected to be the next battleground for digital payment applications, with Indonesia possessing many key characteristics essential for the adoption of digital payment systems.

Some 196 million people have access to the Internet and the smartphone penetration rate is 60%; above 51 percent of the ASEAN region. In addition, the middle class now comprises 20% of the population, a key segment of the growth of the digital economy.

Local players still dominate the market (over 30), and GoPay, OVO, Dana and LinkAja are among the pioneers in the industry. 58% of consumers have used GoPay, an electronic wallet developed by Decacorn Gojek. The company has partnered with Bank Jago to expand its e-wallet services, which recorded a gross transaction value of $ 12 billion in 2020. GoJek has raised $ 1.2 billion in funds to tackle his rival Grab. It is also currently in talks with local e-commerce giant Tokopedia over a possible US $ 18 billion merger.

Grab also has ambitious plans for Indonesia and the region. It owns shares in the Indonesian digital payment platform OVO and is used in more than 115 million devices in more than 300 cities. OVO plans to merge with another local digital payment platform, DANA, backed by Ant Financial. If done, the deal would help Grab in its battle for market share with Gojek.

Since loosening investment rules in 2016, foreign investors from SoftBank to Alibaba have entered the Indonesian domestic market and compete with local companies like Tokopedia, providing consumers with a wider variety of services to competitive prices.

For foreign investors in the e-wallet industry, it is essential that they deliver a customer-centric experience to enable customers to pay with the local payment method of their choice, ranging from mobile banking to payments via convenience stores. Indeed, if Indonesia has a high penetration rate of smartphones, a significant part of its population is unbanked.

Largest e-wallet apps in Indonesia based on total number of downloads

Cloud technology and big data analytics

Indonesia is embracing high-speed, large-scale cloud technology and has attracted investment from the world’s biggest tech companies. In a report compiled by the Boston Consulting Group, the public cloud market in Indonesia is expected to experience a compound annual growth rate of 25% – reaching US $ 800 million by 2023. The growing number of digital natives and the Expansion of digital unicorns is changing rapidly Indonesia is emerging as one of the fastest growing public cloud markets in Asia-Pacific.

Alibaba gained a first-mover advantage over rivals Google, Amazon Web Services (AWS) and Microsoft, launched its second hyperscale data center in January 2019. Google Cloud launched in Jakarta in June 2020, and AWS will invest 2, US $ 85 billion to build data centers in the Indonesian province of West Java by the end of 2021. Microsoft revealed in early February 2020 that it plans to build data centers in the country as well.

Managing big data will be key to maximizing the future of Indonesia’s cloud technology industry. Big data will be of great importance in understanding consumer trends in the country, especially in registering digital footprints through social media platforms. Many MSMEs use Facebook and Instagram to reach their consumer base. These platforms have 140 million and 77 million users respectively as of 2020. It is estimated that the total number of social network users will reach 256 million by 2025.


About Us

The ASEAN Briefing is produced by Dezan Shira and associates. The company assists foreign investors throughout Asia and has offices throughout ASEAN, including Singapore, Hanoi, Ho Chi Minh City, and Da Nang In Vietnam, Munich, and Esen in Germany, Boston, and Salt lake city in the USA, Milan, Conegliano, and Udine in Italy, in addition to Jakarta, and Batam in Indonesia. We also have partner companies in Malaysia, Bangladesh, the Philippines, and Thailand as well as our practices in China and India. Please contact us at [email protected] or visit our website at www.dezshira.com.

About Ethel Partin

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