“Fintech” – an intersection of financial services and technology – is taking the traditional financial world by storm. Indonesia is no exception, with a fast-evolving ecosystem that includes a host of financial services offered by new generation fintechs.
The diagram below, by no means exhaustive, highlights a few of the fintech players covering a myriad of financial services like payments, credit, savings, insurance, and financial management.
Indonesia – Perfectly Placed to Reap “Fintech”
Indonesia is the fourth largest mobile market in the world with 339.9 million connections – a SIM penetration of 131%! 43% of Indonesians already own a smartphone. Furthermore, Indonesia is going “mobile-first” with 64.1 million out of a total of 88.1 million users accessing Internet through mobile devices. This is fuelling social media usage by platforms such as WhatsApp, Facebook, Blackberry, Line, Path, etc. This trend is also leading to explosive growth in electronic and mobile commerce, with big names such as Alibaba, Softbank, Sequoia, Rocket Internet, and Temasek backing local ventures. In contrast, only 36% of 250 million Indonesians have access to formal financial services.
Keeping these technological advancements in context, Indonesia is well placed to leverage “fintech” towards the cause of financial inclusion. Fintech innovations are providing a range of new opportunities to dramatically change four main financial service areas – payments, remittances, credit and deposit-taking.
Without access to formal financial services, many poor Indonesians continue to utilise informal services such as Arisan (ROSCAs), package saving schemes, and savings with individual agents.1 The bank deposit-to-GDP ratio in Indonesia (an indicator of deposit mobilisation) stands at 34.55% – much lower than Malaysia (130.25%), Cambodia (42.97%), and the Philippines (54.38%). This presents a big opportunity to all financial service providers, but especially new fintech players.
If we look at examples from other countries, Equity Bank in Kenya is one of the best examples of deposit mobilisation through digital banking services. After starting agency banking in 2011, the bank now mobilises 20%2 of its total deposits through a channel network of 25,388 agents, spread across the country. A dedicated team focusing on agency banking business and a client-centric business model based on the philosophy of “listening to customers” has made this possible. Other examples include, M-Pawa’s interest-bearing savings account in Tanzania, developed in collaboration between Vodacom and CBA and the Lock Savings Account offered to M-Shwari users in Kenya, where clients can move money from their M-Pesa account to save through a fixed deposit account that earns higher rates of interest.
Other examples include rural banks in the Philippines which were one of the first financial service providers to offer SMS reminders for commitment savings that allowed for dramatic increases in savings rates.3 This has been followed by new fintech players supporting banks to support increased savings behaviours in low-income customers such as Juntos. Similarly, there is also a significant potential to utilise SMS technology and/or messaging platforms to support goal-based savings in Indonesia. A case in point, is the common practice of saving to meet expenditures for major religious events like Ramadan.
A booming e-commerce sector, fuelled by large international investors, needs an intuitive online and offline payments infrastructure. However, a 2015 Bank Indonesia study documented that 89.7% of the transactions in Indonesia are in cash. This provides a tremendous opportunity. Consider the following payment process for purchase through a leading e-commerce portal for those with bank accounts: