How Fintech Transforms Indonesia's Finance Sector

Disruptive innovation is rapidly permeating all sectors, including finance. Have you heard of fintech? Financial Technology (Fintech) collaborates financial services with evolving technological innovations.

According to the Boston Consulting Group (BCG), developing countries in the Asia-Pacific region, including Indonesia, are experiencing rapid growth in fintech due to a large underbanked population, a high number of SMEs, and the increasing tech-savviness among young people.

In line with BCG's statement, data from the East Ventures Digital Competitiveness Index (EV-DCI) 2023 indicates that the fintech sector in Indonesia has a promising future, potentially driving transaction values. So, how will financial technology make breakthroughs and advancements for the financial future in Indonesia?

1. Fintech Synergy with Banks

Source: freepik

Fintech offers various conveniences in banking access, from individuals to companies, including digital payment systems, P2P lending, crowdfunding, micro-financing, and market comparison/aggregators. Fintech aids in enhancing and automating processes, enabling banks to provide more satisfying services and adaptive solutions.

According to ATOS – LookOut Industry Trends Banking data, fintech has triggered significant positive changes in banking. It has increased bank operational profits by up to 30%, with two-thirds of financial transactions conducted online, and enhanced inclusivity by reaching approximately 2 billion unbanked individuals via mobile.

The synergy between fintech and banking demonstrates that banking services can be accessed quickly, flexibly from anywhere, and at affordable rates. To capture the market and boost profits, banks must adapt and provide personalized products and services, prioritizing customer proximity, privacy, and consent.

2. Increasing Digital Economy Contributions

Source: freepik

The digital economy refers to economic activities utilizing digital technology, including e-commerce, transportation, and hospitality. Fintech investments in Indonesia from 2020-2022 reached USD 3.2 billion, quadrupling compared to the 2017-2019 period (Boston Consulting Group data).

Established e-commerce ecosystems can leverage fintech to strengthen and scale their businesses better. The success of fintech in Indonesia is attributed to the widespread and inclusive use of digital payment platforms across various sectors.

Since the pandemic, online shopping preferences have surged, supporting contactless transactions. The presence of platforms facilitating the shift from offline to online transactions has accelerated customer transactions and increased operational efficiency. Notably, digital wallet usage for e-commerce transactions has solidified fintech's role in supporting Indonesia's e-commerce growth and overall economy.

53% of e-commerce users prefer digital wallets as their payment method, reinforcing fintech's role in supporting Indonesia's e-commerce growth. Additionally, the use of mobile POS integrated with various digital payment methods for online transactions shows promising growth.

3. Increasing Number of Fintech Companies

Source: freepik / macrovector

Looking back over the past few years, the number of fintech companies in Indonesia was relatively small. However, there is now a surge in fintech companies due to the vast market potential in Indonesia, promising positive impacts on the country's economic growth.

According to the Boston Consulting Group, the number of fintech companies in Indonesia has significantly increased over the last decade, from 51 companies in 2011 to 334 in 2022. Additionally, data from East Ventures shows a significant 83% growth in fintech from 2021 to 2022, indicating investor optimism towards fintech's potential and development in Indonesia.

4. Fintech Technological Advancements Provide Lending Platforms

Sumber: freepik / tirachardz

Lending platforms offer solutions for entrepreneurs seeking to start, expand, or diversify their businesses but face funding constraints. The future of lending remains bright, as economic growth improves, increasing the potential for credit usage.

Fintech can offer lending solutions to over 50% of Indonesia's adult population, who are unbanked or underbanked. Online-based lending can penetrate geographical and accessibility barriers, providing financing to a wider audience.

Online-based lending platforms have become more accessible and user-friendly, offering features like pay later options to facilitate users' access to various needs. ESB offers fintech solutions for F&B business suppliers through ESB Capital, providing easy qualification and rational interest rates, eliminating funding obstacles for culinary businesses.

In conclusion, fintech has the potential to transform conventional business models into modern ones, aligning with technological advancements. Collaborating with fintech can enhance financial inclusivity, accelerate economic growth, and provide optimal customer service by simplifying processes.