February 26, 2024

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Fintech outperform banks in Indonesia

The role of information and communications technology has been redefined at the onset of the global COVID-19 crisis. Pre-pandemic, ICT was already considered a critical backbone of emerging markets but this was made more apparent today as organisations struggle to get back on their feet and recover from the massive impact of the pandemic.

According to a recent report, the popularity of reloadable wallets has prompted tremendous growth in electronic money payments in at least three large Southeast Asian markets. The digital ecosystem in Southeast Asia is being rapidly developed thanks to key sectors like e-commerce, ride-hailing and entertainment – mainly gaming.

In 2019, itself, electronic money transactions in the region, excluding the Philippines, reached US$ 26 billion. While bank payment services continue to dominate Singapore, Malaysia and Thailand, data indicates that nonbanks are surging in the Philippines and have replaced banks as primary payment providers in Indonesia.

The report ‘Southeast Asia E-Money Market Report’ shows that Indonesians favour payments through financial technology (fintech) platforms over banks. In fact, fintech payment services in Indonesia are the largest in Southeast Asia where digital wallets (e-wallets) from fintech contribute around 72% of electronic money transactions in the country. The total transaction value was US$ 10 billion.

This preference has, in turn, driven a wide range of online transactions including e-commerce, education and entertainment. The services most frequently used include money transfers, bill payments and purchases. Fintech companies in Indonesia have built physical and digital infrastructure to facilitate easy transactions on a platform.

The fintech associated with a leading e-commerce online shopping platform contributed more than 10% of electronic money transactions in Indonesia. However, other research maintains that an established payment gateway is still leading.

Fintech has been greatly boosted in Indonesia by the rapidly increasing number of smartphone users and comprehensive connectivity. A survey by the Indonesian Internet Service Providers Association (APJII) also showed that the number of internet users in the country reached 196.7 million as of the second quarter of 2020. The number increased to 8.9% compared to 2018. S&P estimates that the use of fintech as a payment option in Indonesia continues to increase.

Not to the outdone, banks definitely plan to broaden their portfolio with digital offerings and services. “About 15 banks are very aggressive in exploring digital services,” said Governor of Bank Indonesia (BI) Perry Warjiyo Bank Indonesia. The governor agreed that digital service transactions were given a major boost by the rocketing use of e-commerce during the pandemic.

He estimated that bank digital service transactions reached IDR 27,036 trillion (US$ 2,000 trillion) last year while this year the value is predicted to be IDR 32,206 trillion (US$ 2,284 trillion). Warjiyo pointed out that this figure was much higher than the nominal gross domestic product (GDP), so BI would adopt a highly aggressive approach in digitising the payment system.

Supported by online transactions the total digital banking transactions which were estimated last year at Rp253 trillion (US$ 18 trillion) are expected to climb by 33.2% to reach Rp337 trillion (US$ 24 trillion) this year.

The Financial Services Authority (OJK) noted that the accumulated lending by financial technology companies (fintech lending) reached IDR 155.9 trillion (US$ 11 trillion) as of 2020. The Indonesian Joint Funding Fintech Association (AFPI) targets to provide loans this year at IDR 86 trillion (US$ 6 trillion). If this target is achieved, then the disbursement of financing by fintech lenders will reach around IDR 241.9 trillion (US$ 17.3 trillion) by the end of 2021.

Perry governor outlined four aspects for all banks to take into account while striving to drive open banking.

  • transformation of technology infrastructure, wherein all banking service systems are interconnected, for instance, services related to treasury, credit, and funds
  • building a data warehouse from various information systems owned by the bank, including the metadata of depositors and debtors
  • development of business models based on information technology systems and metadata owned by the bank to offer interactive services online to customers, he explained.
  • changing the mindset, right from the highest levels of the company to subordinates, in bringing about digital transformation

Acknowledging that “the corona pandemic is accelerating the digitalisation of the economy and finance”, Perry said economic growth and digital finance were extraordinary.


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