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The Development of Indonesia’s Digital Economy

Growth in the digital economy remained robust in 2021 as the COVID-19 pandemic pushed digital adoption further. Indonesia welcomed 21 million new users of online services during the pandemic, according to the e-Conomy SEA 2021 report.

The report showed that Indonesia’s internet economy will stay to be the biggest digital economy among the six Southeast Asian countries assessed. However, scrutiny of the relatively young industry has been growing as reports of scams, cyberattacks and high platform fees make the rounds, jeopardizing users’ safety and therefore also their trust in digital services.

In terms of size, Indonesia’s digital economy has grown, but there is much to be done when it comes to advancing the quality of the digital economy ecosystem.

– Bhima Yudhistira, Director, Center of Economics and Law Studies

The online lending industry was in the spotlight this year as the Financial Services Authority (OJK) closed down 593 unlicensed P2P lenders in 2021. The task force has pulled the plug on more than 3,500 such platforms since 2018.  While taking down illegal lenders addressed the criminal aspect of the issue, industry players needed to ramp up efforts to educate the public. Victims of illegal online lending are usually those with low digital and financial literacy, so lending platforms must increase education for the public.

Legal P2P lenders have also come under scrutiny for steep administrative fees or interest rates, and some have resorted to intimidatory debt-collection practices. In response, the Indonesian Fintech Lenders Association (AFPI) has lowered the cap on interest rates by more than 50% to 0.4% per day. News of scams and data theft have also tarnished the banking sector, and with 88% of consumers in the Asia Pacific region having actively used digital banking services this year, the data protection bill has become the talk of the town.

Indonesia currently has no regulation that authorizes law enforcement authorities to bring criminal charges against perpetrators of data breaches, theft or misuse. However, that could be about to change as the long-awaited data protection bill has made its way to the priority list of the 2022 National Legislation Program (Prolegnas).

Not passing the bill next year would be counterproductive, as each ministry and government body would then try to pass diverging or even conflicting rules. This would create confusion and uncertainty, especially for the digital economy.

Recently, the Indonesian Fintech Association (Aftech) published an ethics code on how its members should handle and protect user data on their respective platforms. The code to some extent fills the regulatory void amid sluggish progress on the data protection bill.

While the country has not seen any high-profile data breaches among digital service companies this year, the National Cyber and Encryption Agency (BSSN) did note that Indonesia logged 888 million cyberattacks in the first eight months of 2021. That marks an alarming increase from 190 million attacks recorded over the same period in 2020.

As reported by OpenGov Asia, OJK) wants to encourage banks to improve information technology governance and risk management. This is in line with the banking industry’s migration from the old banking system to digital banking. Banking Supervision Deputy Commissioner, OJK as previously stated, banks must anticipate issues such as customer data protection and exchange, the risk of customer data leakage connected to fraud, probable incompatibility of technology investments with business strategy, and others.

“The risk of cyber-attacks is one of the main risks that banks need to watch out for and mitigate in the digital era, considering the development of banking digitalisation increases the emergence of cyber security risks for banks,” said the Commissioner.

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