Through this post, I would like to highlight how collaboration can help to improve public access to technology-oriented financial services. Financial Services Authority of Indonesia (Otoritas Jasa Keuangan or OJK) a government agency, which regulates and supervises the financial services sector, has finally issued a regulation on financial technology (Fintech) firms that run peer-to-peer (P2P) lending businesses in Indonesia. On the other hand Bitcoin penetrates deeper into Indonesian market, exciting times.
In August 2016 in Tangerang, Indonesia OJK was preparing for regulations to support financial technology businesses. Financial regulators were readying rules that were suppose to target financial technology businesses without limiting their room for growth as President of Indonesia pledges support for the this industry or known as infant industry in Indonesia.
Mr. President said, “I urge all parties to participate in Fintech, IT and financial technology. I will continue to discuss and allow for breakthroughs for digital applications, so as to increase our financial inclusion. Let us together build synergy,” during his speech at the Indonesia Fintech Festival & Conference in same week. For more details on Digital Money and its wonders read 2017 Year of Digital Payments.
The new law stipulates that such business units must be registered and have the right license to continue to do business. For registration, the OJK requires such businesses have a minimum capital of IDR 1 billion ($75,000). To be able to issue a business license, the authority needs companies to add another IDR 2.5 billion ($188,000) to their capital. Foreign ownership is limited to 85%. So this adds a layer of complexity for those looking to set up in Indonesia as they have to find a local partner.
FinTech in Indonesia
Fintech had a clear purpose at its inception ‒ putting the customer, not the product, first. Yet some posit that fintech is much less competitive and much more conventional than imagined. Rather than revolution it is simply an evolution of the status quo.
As per some survey on Fintech, which was done in mid 2016. Fintech companies think current regulatory processes in Indonesia were slow and unclear; hence working with the government was crucial. 5 areas with the highest demand for increased regulation were: Payment gateway, E-money or e-wallet, Know your client (KYC), Peer to peer (P2P) lending, and Digital signature.
During the event in August 2016, Bank of Indonesia (BI) and the Financial Services Authority (OJK) unveiled plans to issue rules before the end of the year to regulate fintech players’ activities in digital payment, lending, capital market actions and non-bank financial services so they could operate safely.
The burgeoning industry has seen an estimated 40 Trillion IDR (Indonesia rupiah) or $3 billion USD in transactions over the past two years. Indonesia is in the era of financial innovation, especially with the rise of technology development. Banking as a Service (BaaS) over banking as a Platform (Baap) are now got the path clear and can bounce with clear vision.
What I have observed and seen is the boosting cooperation and increase connections among Fintech companies in Indonesia are one of strategic objectives for government and associated regulators. The Financial Services Authority (OJK) has finally issued a regulation on financial technology (Fintech) firms that run peer-to-peer (P2P) lending businesses.
In contrast UK Finctech company Monese, a startup that offers a mobile banking app for immigrants and expats who might otherwise find it difficult to open a bank account outside of their originating country was able to raise $10million dollars in just few. The company plans to use the new capital to launch a Euro account, thus bringing its service to customers in European markets other than just the U.K., as well as roll out new functionality such as direct debit and credit services. Perfect combination of timing, usage, innovation and example for BaaP.
Financial Inclusion – FinClusion in Indonesia
In early 2016 Dutch Queen Maxima visited Indonesia in her capacity as the UN secretary-general special advocate for Financial Inclusion. As for the purpose, financial inclusion has been a pressing global issue in the past decade, where Indonesia is not exempt. Only around 36 percent of Indonesians connected to formal financial institutions, the inclusiveness of financial sector needs to be improved to create a sound and strong financial sector.
After actions in August and September 2016 to give time, attention and support to FinTech industry In December 2016, Fintech lending regulation raises concerns among business players. In addition, the result was showing that many fintech companies in Indonesia were finding it difficult to advance financial inclusion and that greater Indonesian market is largely unfamiliar or misinformed about financial concept. Therefore continued encouragement, collaboration and education to pave the way for creating a long-term fintech ecosystem in the country was required.
Now with announcement from OJK on FinTech regulations for P2P lending has started clear wave of it. The OJK regulations was suppose to publish details on minimum capital requirements for each sub-sector, “know your customer” (KYC) rules that will be much more relaxed than those applied to formal financial institutions, as well as good corporate governance standard practices, among other aspects. Simple regulations, including on market conduct, as there are a lot different types of Fintech services, which require different treatment in terms of regulations as per OJK commissioner for the non-banking (BaaP users) financial industry Firdaus Djaelani said. The capital rules should not kill the creativity of these fintech players.
Fintech has become synonymous with a movement for change, a mindset geared towards disruption. Consumer-facing fintech firms, armed with an implicit understanding that they represent the very best of ideological intentions, boomed.
The regulation, POJK No. 77/2016, requires a fintech company to have 1billion IDR (US$74,239) capital when it registers its business with the OJK and for this to rise to 2.5billion IDR when it applies for a business license. The figures are lower than the respective 2 IDR billion and 5 IDR billion stated in the draft regulation in December 2016. Fintech emerged from a desire to serve customers better and it needs to find a way back to that core purpose.
This is the reasoning behind the game plan. To tell the truth about what customers want fintech to be, admit the big problems to be solved, and support innovation that can make a realistic difference to people’s lives. The challenges though lie not in the numbers but in the structures behind the scenes of the world’s most talked about industry.
Billions have been invested in UK fintech during 2016 and the threat of Brexit appears not to have dampened finance accessibility for start-ups. Several new firms have closed funding rounds since the vote to leave the EU was announced in June, including Revolut who secured a £6.75 million investment from venture capitalists in London.
Fintech hype from 2015 & 2016 no doubt created a new understanding of what it means to deliver financial services, but now in 2017 it may become less competitive than intended due to the fact there are too many (just too many compare to what was required) start-ups are collaborating with incumbents, becoming subsumed into old systems.
Books + Other readings Referred
- Open Internet
- Hands on personal research work @AILabPage
Conclusion – Based on OJK’s review, at the moment there are 120 Fintech companies, which operate in Indonesia, that are under its supervision. In one of research in UK in this inaugural Starling report shows, from 2014 onwards, fintech has exploded into the mainstream. Yet despite millions of pounds invested in the latest fintech start-ups, and even though the number of billion-dollar valuations has established a stable of unicorns, the question of what is revolution and what is evolution remains.
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