The financial technology (fintech) industry in Southeast Asia, particularly in Indonesia, is on the verge of significant expansion. Despite considerable progress in financial inclusion, challenges persist, especially the gap between access to financial services and understanding them.
Emerging trends like embedded finance, blockchain, and open banking are expected to further transform the industry. By tackling these challenges and leveraging the region’s digital potential, fintech can continue to drive economic growth and enhance financial access for millions.
The Rising Fintech Landscape in Indonesia
Recent data from a 2023 report by Google, Bain & Company, and Temasek highlights that the fintech industry’s potential reached US$293.2 billion in 2022. This figure is projected to escalate to US$841 billion by 2030. The surge in fintech users and the substantial increase in digital transactions have propelled fintech to new heights in Indonesia.
Factors Fueling Fintech Growth
Several key factors contribute to the rapid growth of fintech in Indonesia:
A. Post-Pandemic Digital Shift
The COVID-19 pandemic in 2020 accelerated the adoption of digital technologies, making online financial services more essential than ever.
B. Improved Internet Accessibility
Enhanced internet access across the country has enabled more people to utilize fintech services.
C. Increased Financial Literacy
Efforts to improve digital literacy, especially regarding finance, have made the population more receptive to fintech solutions.
D. Financial Inclusion Campaigns
Various campaigns aimed at promoting financial inclusion have raised awareness and usage of digital financial services.
The Gap Between Inclusion and Literacy
Despite advancements, the National Survey of Financial Literacy and Inclusion (SNLIK) conducted by the Financial Services Authority (OJK) and the Central Statistics Agency (BPS) in 2024 revealed significant disparities:
- Financial Literacy Index: 65.43%
- Financial Inclusion Index: 75.02%
- Sharia Financial Literacy Index: 39.11%
- Sharia Financial Inclusion Index: 12.88%
These numbers indicate that while access to financial services has improved, understanding and effectively using these services remain challenges.
Importance of SNLIK 2024 Findings
The SNLIK 2024 serves as a critical tool for:
A. Policy Formulation
Providing a foundation for OJK and stakeholders to develop financial policies tailored to consumer needs.
B. Improving Welfare
Aiming to enhance the overall welfare of the population by addressing gaps in financial literacy and inclusion.
C. Strategic Planning
Guiding future programs to boost financial literacy and inclusion effectively.
Promising Future as per EV-DCI 2023
The East Ventures – Digital Competitiveness Index (EV-DCI) 2023 emphasizes the promising future of fintech in Indonesia:
- 32% Increase in Digital Transactions compared to 2019.
- 17% Rise in Financial Literacy.
- 20% Growth in Financial Inclusion.
These statistics reflect significant progress in both awareness and access to financial services.
Driving Forces Behind Fintech Adoption
Key drivers include:
A. Demand for Accessible Services
A growing need for financial services that are easy to access and use.
B. Technological Adoption
Fintech companies adopting advanced technologies to offer innovative services like online loans, digital payments, and investments.
C. Supportive Infrastructure
Enhanced digital infrastructure facilitating smoother transactions and services.
Insights from Industry Leaders
AFTECH’s Perspective
Aries Setiadi, Executive Director of the Indonesian Fintech Association (AFTECH), highlighted fintech’s role in economic digitalization during an event with OY! Indonesia, Bank Danamon, and BRI in early 2024:
“The development of fintech is a catalyst for the digitalization process of the economy throughout Indonesia. Indonesia’s vast digital economic potential is supported by equitable infrastructure, as seen with 215 million internet users in the 2022-2023 period, and 28.98% accessing economic, financial, and business content.”
He also noted the surge in fintech adoption reflected in the high volume of digital transactions:
“The increase in fintech adoption is evident from the high number of digital payment transactions. Electronic Money (EU) transactions increased by 43.45% year-on-year to reach IDR 835.84 trillion and are projected to rise by 25.77% year-on-year to reach IDR 1,051.24 trillion in 2024.”
OY! Indonesia’s Commitment
Jesayas Ferdinandus, CEO & Co-Founder of OY! Indonesia, emphasized collaboration with AFTECH to educate businesses on fintech usage:
“OY!’s cash and non-cash payment solution innovations continue to be developed to provide a safe and integrated transaction experience, optimizing business efficiency and customer transaction flows in Indonesia. As an innovation initiator, OY! is working with AFTECH to educate on the use of fintech and implement appropriate payment solutions for business people and owners.”
Growth of Fintech Companies
According to the 2023 Annual Members Survey by AFTECH, the number of fintech companies has consistently increased since 2016:
- Online Lending Sector: 102 companies.
- Digital Financial Innovation: 84 companies.
- Digital Payment Service Providers: 39 companies.
Government Support and Regulations
Government regulations play a pivotal role in fostering fintech innovation:
A. Supportive Policies
Regulations like OJK Regulation Number 13/POJK.03/2018 support the growth of the fintech industry by outlining guidelines for peer-to-peer lending activities.
B. Reaching the Unbanked
Policies aimed at expanding financial services to unbanked communities, especially in remote areas.
C. Enhancing Efficiency and Transparency
Regulatory frameworks ensure financial transactions are efficient, fast, easy, and transparent.
Impact of Fintech Innovation
Fintech innovation has led to several positive outcomes:
A. Financial Inclusion
Successfully reaching previously unbanked communities and providing them with access to financial services.
B. Economic Efficiency
Streamlining financial transaction processes, making them more efficient and user-friendly.
C. Accessibility
Making financial services accessible anytime and anywhere, enhancing convenience for users.
Continued Expansion and Aggressive Growth
Fintech in Indonesia is not just growing; it’s expanding aggressively:
- Revolutionizing Financial Access
Changing how people access and use financial services, making them more user-centric.
- Increasing Digital Literacy
A more digitally literate population is more open to adopting fintech solutions.
- Economic Impact
Contributing significantly to the country’s economic growth by facilitating transactions and financial management.
The Road Ahead for Fintech in Indonesia
The future holds promising prospects for fintech in Indonesia:
A. Technological Advancements
Integration of technologies like blockchain and open banking will further enhance services.
B. Collaborations and Partnerships
Increased collaboration between fintech companies, banks, and regulatory bodies to create a more robust ecosystem.
C. Consumer-Centric Services
A focus on creating services that meet the specific needs of different consumer segments.
Conclusion
Indonesia’s fintech industry is poised for remarkable growth, with the potential to transform the nation’s financial landscape. By addressing challenges in financial literacy and inclusion and leveraging technological advancements, fintech can continue to drive economic growth and improve financial access for millions. The collaborative efforts of industry leaders, supportive government regulations, and an increasingly digital-savvy population are key to unlocking fintech’s full potential in Indonesia.
