Fintech in Indonesia: 2017 in Review and the Outlook for 2018

The year 2017 has been an exciting year for many fintech startups in Indonesia. Throughout the year, there have been at least more than 40 new fintech startups that came into existence and are now trying their luck in Indonesia’s financial scene, along with the other 140 or so fintech companies that were established earlier. These statistics are published by the DailySocial in its Fintech Report 2017.

There is no doubt that Indonesia’s fintech industry has established itself among the leading industries in the country. Investments into Indonesian fintech startups are booming; a number of startups even managed to secure a series A round of funding this year. The fintech sector is growing and new products are being launched.

Let’s take a look at what 2017 has brought for three of the most popular fintech sectors in Indonesia and their outlook for 2018.

Online Lending

Peer-to-peer lending is one of the most popular fintech sectors in Indonesia; as many as 17% of fintech businesses in the country operate an online lending platform that acts as a matchmaker between investors or lenders with borrowers.

Many of these platforms enjoyed a high growth in 2017. Some are set to be a household name in the peer-to-peer lending industry, such as Modalku, Investree, Mekar and Koinworks. Not to mention, many other new names were introduced that offer innovative business models and services.

Also worth noting is the rise of online lending platforms that target Indonesia’s 58 million units of micro, small and medium-sized enterprises (MSMEs). The MSMEs make up 99.9% of the total business entities in the country and employ 114 million people. Last year, the sector contributed more than 61% to Indonesia’s GDP.

Among the P2P lending platforms that target Indonesia’s MSMEs is Mekar (PT Mekar Investama Sampoerna), which started the year by offering a peer-to-peer microlending service and just recently ventured into the world of crowdfunding, a service aimed for use by small and medium-sized businesses. So far, Mekar has catered to more than 9,000 borrowers, all of whom are owners of micro businesses and mostly are women.

In early 2017, the Financial Services Authority (OJK) began telling fintech companies to comply with its new regulation on online lending, issued in late 2016. The new regulation has proved to strengthen the fintech ecosystem in Indonesia by boosting public’s confidence on the relatively new online lending service, which is very much unlike the traditional loan schemes offered by banks or other conventional financial institutions.

2018 will still be a banner year for the fintech industry in Indonesia. Mekar’s CEO, Thierry Sanders, believes that the fintech industry in the country has a major potential to grow in the future, mainly in P2P lending and crowdfunding, which are Mekar’s main service.

Despite facing challenges from Chinese fintech startups that are more than ready to penetrate the Southeast Asian market in 2018, Sanders still expresses his optimism because he sees Indonesians MSMEs are increasingly ready to go online and digitize their business.

“All SMEs in Indonesia will run their business through their phones. Mekar’s focus right now is to facilitate people to find finance for their entrepreneurial dreams and connect them with those who want to invest their money safely,” Sanders said.

Payment Gateway

Startups in the payment gateway sector are dominating the fintech landscape in Indonesia. Around 43% of fintech startups in the country are offering online transaction services. Digital payment is making a big wave in Indonesia as consumers flock to online stores on marketplaces like Tokopedia and Bukalapak in droves.

Major banks are not lagging behind in providing digital payment services, the most popular ones are Mandiri Clickpay, BCA Clickpay and CIMB Clicks. And of course we need to mention Go-Jek’s mobile payment service, Go-Pay, which users can use to pay for the company’s on-demand motorbike service, its main line of business.

Go-Jek’s CEO, Nadiem Makarim, said his company will focus on developing its e-wallet business through Go-Pay next year. “2018 will be the year of Go-Pay,” Nadiem said as quoted by Liputan6.com.

Mobile payment services like Go-Pay and T-Cash from Telkomsel are starting to catch on with Indonesians. Financial Times Confidential Research (FTCR) researcher Andi Haswidi found in his survey of 1,000 respondents aged 18 years and over in 25 cities in Indonesia that about a third used mobile payments at least once between July to the end of September 2017.

Still, it seems like the road to a cashless society in Indonesia will take some time. In a different survey conducted in September of 5,000 urban adults in five Asian countries, including Indonesia, FTCR found that even though about 70 per cent had access to cashless payment systems, cash was still the number one choice, thanks to its perceived convenience

In 2018, the payment gateway industry will also face another challenge, including from Bank Indonesia, which has been cracking down on e-commerce companies that operate e-wallets without the right license.

Market Provisioning & Aggregator

Fintech platforms offering comparison on various financial products and services, also called market provisioning, experienced growth in 2017 as more Indonesians entered the middle class. One of them is CekAja, a popular fintech startup operated by C88 Financial Technologies, a Singapore-based fintech company. Another online portal for financial products is Cermati, which offers comparison on products ranging from credit cards, auto loans to insurances.

These comparison platforms are helping consumers find financial products and services that are most suitable to them. Furthermore, banks are also benefiting from these platforms that they can use to market their products to a large pool of potential clients.

In 2018, this sector has a potential to grow even bigger. A survey conducted by Daily Social for its Fintech Report 2017 found that almost 50% out of 991 respondents had never even heard of market provisioning and market aggregator fintech platforms. This means that there is still a very large market to tap into.

Indonesia’s Fintech Industry Remains Strong

The Indonesian economy has been supportive of fintech development as the country aims for financial inclusion and literacy. This is the defining factor that will strengthen the industry’s ecosystem in the years to come. Both investors and entrepreneurs who wish to introduce new startups in the fintech scene must harness this momentum. In 2018, it is high time that Indonesia recognize fintech as a valuable asset to the country.