fintechThis year promises to be an exciting one for Indonesia’s fintech sector. While it still focuses on two main verticals—electronic payment and peer-to-peer (P2P) lending—the Indonesian fintech sector has grown to cover other verticals, such as aggregators, innovative credit scoring, financial planning, and project financing. Lawyers talk about what’s on the horizon for this booming industry.


Indonesia provides fertile ground for innovation in the fintech sector. Apart from having the world’s 16th-largest economy, it is also the fourth-most populous country with 274 million people, of whom 84 percent are below the age of 54. More importantly, Internet penetration stands at 67 percent, while financial inclusion is far from optimal.

To address this, the government has introduced rules in areas including peer-to-peer (P2P) lending, digital payments, and, most recently, open banking, in hopes to encourage innovation and improve financial inclusion. The efforts have paid off, and Indonesia is home to 322 fintech companies, in addition to 125 registered but unlicensed online lenders, according to December 2020 report from Fintech News Singapore.

According to Thomas Choo, a Singapore-based TMT partner at Clyde & Co, the Indonesian fintech startup landscape remains heavily concentrated in the online lending space, which accounts for half of all fintech startups in the country. “Online lending is followed by e-payments, blockchain and crypto-currencies, and investment/personal finance. Other segments represented include insurtech, crowdfunding, point-of-sale (POS) services, and financial comparison,” he notes.

Choo points out that the past few years have seen early signs of consolidation and several M&A deals. “These include GoJek’s $130 million acquisition of POS services provider Moka, and Ovo’s purchase of local startup Taralite to enter the online lending space,” he says. “GoJek also expanded aggressively across Southeast Asia in 2020 in its bid to become another regional super app, with M&A activity in Vietnam and an imminent merger with e-commerce provider Tokopedia.”

Meanwhile, In the online lending sector, there has been an uptick in down-stream services, such as artificial intelligence for credit scoring and alternative lending solutions, says Choo. “Additionally, P2P lending volume continued to grow in Indonesia. We can expect this trend to continue, given the market share of online lending. But a few interesting areas to keep an eye on including online trading and cryptocurrencies which we expect to see huge growth in the region,” he adds.

Elsie Hakim, a Jakarta-based banking and finance partner at ABNR, agrees that the fintech industry is continuing to grow in Indonesia, especially in terms of the number of players. “Indonesia’s Fintech Association (AFTECH) recorded an increase in companies engaging in the digital financial innovation (DFI) sector last year, especially DFI in the aggregator, credit scoring, and innovative financial planner clusters,” says Hakim. “Other sectors that also emerged are insurtech, financing agents, and e-KYC. However, overall the most growth and trend are still held by the aggregator sector.”


Lawyers feel that the Indonesian authorities and/or regulators have made major contributions to the fintech industry by enacting laws and regulations on fintech and other sectors related to fintech. “The existence of laws and regulations has provided legal certainty to all fintech players and stakeholders,” says Hakim. “The laws and regulations on fintech have legitimated the implementation of the fintech industry’s business activities and created a barrier that separates the financial services provided by fintech companies and those provided by conventional financial services companies.”

“Existing laws and regulations on fintech are far from perfect, given the industry in Indonesia is still at an early stage. We believe the Indonesian authorities and regulators are aware of that fact and will likely flesh out the laws and regulations.”

— Elsie Hakim, ABNR

However, there remains work to be done. “Existing laws and regulations on fintech are far from perfect, given the industry in Indonesia is still at an early stage. We believe the Indonesian authorities and regulators are aware of that fact and will likely flesh out the laws and regulations,” says Hakim.

Choo agrees. “Indonesia fintech startup discourse often includes the process of regulations in Indonesia being too slow and too ambiguous,” he says. “The government still needs to take steps to ensure clearer regulatory requirements and a better environment for fintech startups—to boost the confidence of fintech startup founders and investors in Indonesia. Overall, starting a fintech company in Indonesia requires patience, mainly because of the process involved in getting licenses from the Financial Services Authority (OJK) of Indonesia and the Central Bank of Indonesia.”

He further points out that as Indonesia remains one of the highest unbanked populations in the world, very few SMEs in Indonesia have access to credit because of the deficiency of credit history, statements or collateral. “And yet these same SMEs account for a significant portion of the total GDP in Indonesia. The government needs to support the expansion of fintech so they can help more SMEs access loans and scale up their businesses. Supporting SMEs is important for the Indonesian economy, given their massive contribution,” says Choo.


Hakim at ABNR says there are a number of areas that her firm has been working on related to the fintech industry.

“Lately, we have been assisting one of the biggest consumer electronics and mobile communications companies for some interesting deals and types of work, including: (i) the acquisition of an Indonesian peer-to-peer lending company, and (ii) advising on business models or structures of peer-to-peer lending, aggregator, supply chain finance, payment gateway, prepaid cards,” she says.

Choo at Clyde notes that the Indonesian fintech market has been quite hot in the last couple of years.

“We have seen (and been involved in) a broad spectrum of work in this sector, ranging from early-stage technology venture funds that focus their investments in strategic digital disruptors in Indonesia to Indonesian start-ups (in P2P, robo-advisory and e-payments) seeking access to capital,” he says. “In a significant majority of deals I have done, the trend is for the Indonesian startups to have a holding company in Singapore to gain access to capital and be ready for regional expansion.”

And 2021 is shaping up to be very eventful as well. “The fintech industry, especially the fintech lending sector, might face a greater challenge in 2021,” says Hakim. “The OJK is now preparing a new regulation on fintech lending that will supersede existing OJK Regulation No. 77 of 2016 on Information Technology-based Money Lending Services. Based on our understanding, the draft regulation is more comprehensive compared with the OJK Reg. 77 and will incorporate some major changes, such as an increase in the minimum issued and paid-up capital of a peer-to-peer lending provider from 2.5 billion rupiah ($175 million) to 15 billion rupiah; foreign shareholding requirements for new peer-to-peer lending providers: a foreign shareholder entity must be engaged in financial services, while individuals may only acquire shares in a peer-to-peer lending company through capital market transactions; simplification of license authorisation from two phases to one; and mandatory funding to productive sectors.” She adds that once the OJK enacts the draft regulation, these requirements must be fulfilled by existing and new players, “assuming the provisions survive.”

Choo expects to see a significant increase in valuation for Indonesian start-ups in this space this year, with a few heavily-backed ones to go public this year either in the U.S. or in Indonesia. “We should also see more clarity by the Indonesian government on the legality of cryptocurrency, in particular the trading of these assets and associated investment platforms, which in turn may trigger a broader adoption of cryptocurrencies in the region,” he notes.


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