Indonesia Country Commercial Guide
Learn about the market conditions, opportunities, regulations, and business conditions in indonesia, prepared by at U.S. Embassies worldwide by Commerce Department, State Department and other U.S. agencies’ professionals
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Financial Services (Financial Technology)
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Overview

Indonesia is in the midst of a digital transformation process that will reshape not only the economy, but society. Estimates project an expanded digital economy could add as much as $2.8 trillion U.S. dollars to the Indonesian economy by 2040. The financial sector is a leading area for commercial opportunity from U.S. business with strong indicators. In 2022, there were total value of USD 51.9 billion e-commerce transactions in Indonesia. Indonesia, one of the largest and fastest-growing economies in ASEAN, is experiencing a significant surge in the adoption of digital payments. The country’s population of over 270 million, combined with widespread use of smartphones and government efforts to increase financial inclusion, have created a favorable environment for the growth of new and innovative payment systems.

Bank Indonesia has required digital payment services to use standardized QR codes to ensure all banks and electronic wallets are interoperable. QR payments have more than tripled in each year since standardization; and in 2022 it reached IDR 98.5 trillion. Indonesia has 22.4 million registered merchants, far ahead of the rest of ASEAN countries and that number is set to double to 45 million in 2023. Fixed broadband subscriptions in Indonesia were reported at 13.4 million subscribers in 2022.

There are various Indonesian FinTech companies in Indonesia. Generally, it is dominated by startup companies, such as payments, retail investments, leading or lending, financial planning, crowdfunding, remittances, and financial research. Indonesia’s fintech sector has continued to be relatively active in the past year despite the drop in fresh funding channeled into the digital economy sector globally. According to data made available by Indonesia’s Minister of Communications and Informatics (KOMINFO) in December 2022, despite a 60% year-on-year drop in funding into Asia’s digital start-ups, transaction values in Indonesia’s fintech sector grew by 39% year-on-year, the second highest growth rate among G20 countries during the COVID-19 pandemic.

The following are the most fast-growing Indonesian FinTech companies according to IDC financial highlights:

  • Ajaib (digital mutual funds)
  • Kredivo (e-commerce and digital financial technology)
  • Modalku (P2P lending)
  • OnlinePajak (tax online application)
  • OVO (e-wallet)
  • GO-PAY (e-wallet)
  • DANA (e-wallet)
  • Spenmo (cost management software)
  • Pace (online payment platform)
  • Whiz (fintech for teenagers)

The fintech industry in Indonesia is regulated by two government entities, Bank Indonesia (BI) and the Financial Services Authority (OJK). Bank Indonesia oversees monetary policy and the payment ecosystem, while OJK oversees peer-to-peer lending, crowdfunding, digital banking, financial data security, insurance technology, and financial consumer protection. Both agencies have financial technology divisions and engage regularly with industry players and maintain long-term strategies that encourage development of the financial technology sector.

Some of efforts are underway to further develop the financial services sector in Indonesia, including:

  • OJK implemented a national action plan titled “Digital Financial Innovation Road Map and Action Plan 2020-2024”. The plan is aimed at developing a supportive and comprehensive digital financial ecosystem to ensure that the financial services industry is competitive, resilient to change, and fit for the future.
  • OJK also launched the “ Master Plan for the Indonesian Financial Services Sector (MPSJKI) 2021-2025”, which focuses on the role of the financial services sector in supporting the post-pandemic economic recovery of Indonesia; and
  • In support of the MPSJKI 2021-2025, OJK also released the 2020-2025 Indonesian Banking Development Roadmap (RP2I) which focuses on strengthening the competitive advantage of the financial services sector, encouraging the use of emerging technologies such as AI, promoting technology cooperation between businesses, advancing financial education, and improving regulations, licensing and supervision through digital solutions.

Leading Sub-Sectors

E-money digital wallets: The value of e-money transactions increased by 30.84% in 2022 to IDR 399.6 trillion. Based on Q1 2023, the top E-wallet players in Indonesia were GoPay, OVO, DANA, ShopeePay, LinkAja, Doku, Sakuku, i.Saku, and Octo Mobile.

E-Money Transactions in Indonesia from 2018-2023

Period20182019202020212022
Value47,198,616145,165,468204,909,170305,400,000399,600,000

Source: Bank Indonesia (value in millions of IDR)

FinTech P2P Lending: As of July 2023, there were 95 conventional peer-to-peer (P2P) and 7 shariah peer-to-peer (P2P) lending companies, according to statistics compiled by OJK. Bank of Indonesia projects for E-money to grow 23.9% in 2023 to IDR 495.2 trillion from 2022.

The four main segments contributing to the strong growth of Indonesia’s fintech sector are:

  • Digital Banking

While the digital banking sector began to slow down in 2023 as the impact of the “funding winter” started to affect Indonesia, over the previous year, the trend is more fintech groups and digital platforms acquiring smaller Indonesian banks with the intention of turning them into digital banks, and their subsequent fundraising rounds. This trend is in line with the OJK’s long-term policy of consolidating the number of banks in Indonesia to make them more manageable from a regulatory standpoint. Some of the banks being acquired by fintech groups and digital platforms are rural banks rather than commercial banks.

  • Digital Payment

Fundraising and M&A in Indonesia’s payment sector have continued despite the “funding winter” observed in other jurisdictions. Some of these transactions have put Bank Indonesia’s most recent payment regulations to the test. Those regulations include Bank Indonesia Regulation No 22/23/PBI/2020, Bank Indonesia Regulation No 23/6/PBI/2021 on Payment Service Providers, Bank Indonesia Regulation No 23/7/PBI/2021 on Payment Infrastructure Providers, and Regulation of the Members of Board of Governors No 24/7/PADG/2022, issued in June 2022.

  • Digital Financing

In July 2022, the OJK finally issued long-awaited changes to the regulation of P2P platforms. The new regulation, OJK Regulation No. 10/POJK.05/2022 (POJK 10/2022), took effect on July 4, 2022, and replaced OJK Regulation No. 77/POJK.01/2016 (POJK 77/2016). There has been stronger co-operation between P2P lending platforms and banks; there has been a fall in loans channeled to productive sector; there has been increased interest in supply chain financing; there has been increased activity in the Early Wage Access (EWA) space – an increasing number of technology platforms are partnering with companies to allow the latter’s employees to withdraw part of their salaries earlier.

  • Digital Assets

In August 2022, Bappebti issued a new regulation which expanded the list of crypto assets that can be traded in Indonesia from 229 to 383. Indonesia’s regulators have been stepping up supervision and regulatory enforcement of crypto asset companies, prompting these companies to consider corporate reorganization. There are more activities relating to digital assets more broadly including companies’ increasing use of non-fungible tokens (NFTs) in their marketing campaigns, especially to appeal to younger customers. The Financial Services Omnibus Law provides that supervision over digital financial assets, including crypto assets, will be transferred from Bappebti to the OJK by January 12, 2025. During the transition period, the OJK will likely issue further regulations on digital assets.

Opportunities

Currently, FinTech Indonesia companies are experiencing very rapid growth. In just a few years, fintech startup companies in Indonesia have been growing in terms of number. Indonesia’s fintech sector is one of its promising industries. Indonesia is home to 20% of all fintech companies in ASEAN and is expected to generate USD 8.6 billion worth of revenue by 2025.

Fintech has experienced a notable surge in the new normal due to the COVID-19 pandemic. The potential of higher user penetration and a significant rise in digital transactions in the future has set the pace for the advancement of fintech. One of the primary drivers of fintech’s success in Indonesia is the rapid adoption of digital platforms. These platforms have simplified transactions such as e-wallet, internet banking, and Quick Response Code Indonesian Standard (QRIS), facilitating the shift from traditional offline to online financial activities.

Despite the impressive growth in the fintech sector, specific challenges must be addressed. According to OJK, an 8.3% gap exists between financial literacy and inclusion in the fintech platforms. It signifies that some individuals are aware of fintech services but need more means to access them. Between 2018-2022, authorities closed 4,432 cases of illegal fintech lending, underscoring the gravity of the issue. The Indonesian government has taken proactive steps to address challenges by implementing the National Strategy on Indonesian Financial Literacy (Strategi Nasional Literasi Keuangan Indonesia/SNLKI) for 2021-2025. The strategy aims to achieve 90% financial inclusion by 2024.

Under this strategy, several initiatives have been launched, including creating Massive Open Online Courses (MOOC) and providing a financial calculator on the OJK website for assessing financial health and devising sound financial plans. Fintech players, including companies and associations, have aligned their initiatives with the SNLKI strategy. Indonesian government and central bank are eagerly facilitating digital payment systems as these payments are more efficient and transparent.

The public’s high interest in digital transactions has motivated Bank Indonesia to continue accelerating and developing the digitalization of the payment system. Indonesian government is striving to make innovations related to digital finance. The targets are not only for the public but also for the government at the national and regional levels. One of the innovations carried out by the government is launching a domestic credit card for the government segment. The credit card with the branding Kartu Kredit Indonesia or KKI is a credit card-based payment instrument with domestic processing to facilitate the purchase of goods and services by the central and regional governments.

Another innovation in the fintech industry is the launch of the Cross-Border QRIS between Indonesia and several ASEAN countries. Cross-border collaboration in using local currency-based QR codes will facilitate payments for people in both countries to support trade and investment. The expansion of digital transactions is not only aimed at boosting transaction growth but also expanding the market share of business players, especially micro, small, and medium enterprises (MSMEs), through online shopping. MSMEs have become the government’s target for developing digital transactions, especially using QRIS. Until now, the use of QRIS has been dominated by UMKM (89%) with local products.

Resources

Interested parties may contact Commercial Specialist Yulie Tanuwidjaja at Yulie.Tanuwidjaja@trade.gov