As COVID-19 accelerated the growth of fintech and the adoption of digital banking services in 2020, the financial services industry underwent rapid transformation. According to industry observers, the progress of digital adoption, which typically takes five years, occurred in a matter of ten months during this time.
Fintech is now a crucial component of the country’s financial services sector. In the post-pandemic new normal, even more, digital financial services, mostly provided by fintech, can be expected as the business community moves to meet growing demand from digital natives and smartphone users in Indonesia and its regional neighbours.
The Minister of Communication and Informatics believes that the financial technology sector, or fintech, can be a driving force in the growth of Indonesia’s digital economy. He noted that the opportunities of fintech are determined by the reach and amount of funding available.
Fintech lending services reached 27.2 million people, or 10% of the population, in August of this year, according to the Ministry of Communication and Informatics. Furthermore, the sector lent Rp14.95 trillion last year, making Indonesia the second most successful ASEAN country in terms of attracting fintech investment, after Malaysia, Singapore, Thailand, and Vietnam.
Investment in Indonesia totalled approximately US$178.48 million, accounting for approximately 20% of total ASEAN fintech investment. The ministry also ascertained that score of fintech corporations in Indonesia was becoming stronger in terms of funding, beginning with the pre-series and progressing through the early and late stages.
Furthermore, the minister stated that players in the financial technology industry still had a lot more potential because a certain segment of the population still did not have optimal access to modern banking services. He estimated that 50% of the population of six ASEAN nations did not yet have a bank account or were underbanked, citing a Fintech Industry Outlook in a Southeast Asian study.
“This is where companies, considered healthier and better in quality, will be capable of receiving a higher valuation in the next round of funding, while corporations that are on the other side of the spectrum will have difficulty in attracting investment to drive recovery efforts,” the Minister added.
Moreover, the fintech industry was still afflicted by a slew of digital issues, including fraud, information hacking via the sniffing method, and money mule schemes in which perpetrators ask victims to transfer money to someone else’s account. The ministry has proposed precautionary measures to ensure that the fintech industry grows in tandem with the bolstering of Indonesia’s digital economy ecosystem.
OpenGov Asia earlier reported on the development of the financial sector. About three decades ago, banks began to adopt digital channels such as phone, SMS and/or mobile banking which is more of a “conventional” digital payment. Now as the digital economy is driving the growth of Indonesia’s entire technology sector, Indonesian citizens must use digital payments to support the country’s economic growth.
Despite massive growth in smartphone adoption and rising demand for digital banking, the majority of countries continue to rely heavily on cash. Some Indonesians do not own a bank account, demonstrating that cash is still necessary for financial inclusion. Cash is also deeply embedded in the economies of many developed markets.
Therefore, tech firms are now offering new digital financial services, such as e-wallets or e-money, which were previously integrated with e-commerce platforms. The trend was accelerated when the COVID-19 pandemic struck in early 2020, limiting people’s mobility.
Ultimately, Indonesia stands to benefit greatly from the digital revolution. To ensure development, the country’s public and private sectors must prioritise investments in digital technologies to improve infrastructure, expand penetration, and increase productivity. The resulting economic impact—USD 150 billion per year by 2025—is too large to pass up. Implementing a comprehensive digital strategy will enable Indonesian businesses to thrive in the digital age and propel Indonesia’s economic growth to new heights.
