An Overview of Financial Technology in Indonesia

Introduction

The fourth industrial revolution (Industry 4.0) will definitely contribute to an extensive and profound impact on almost all business sectors. FinTech is one of the cutting edge technology in Industry 4.0 realms. The integration of key stakeholders such as customers, machines, including information and communication technologies (ICT) are kept connected through Industry 4.0 in order to achieve ever-changing management of complex business processes (Bauer et al., 2015). In relation to the flexibility it offers, Kiel et al. (2018) stated that Industry 4.0 intends to tackle the contemporary challenges by enhancing business competition globally, managing volatile markets and demands which will be needed in dealing with dynamic, challenging requirements.

FinTech is one of the emerging sectors in Industry 4.0. The scope of FinTech is very broad, it covers almost every aspect of the financial system. There are new capabilities and modes in insurance, money transaction, digital security, investment, data analysis, crowdfunding and etc. It offers various user-friendly products that provide a positive customer experience and at the same time reduce transaction costs. FinTech has existed for many years and there is an enormous gap from when our society started establishing the system. Sandel (2016) stated that the existing financial services organizations are making a considerable investment in FinTech, while also investing in and collaborating with promising strategies that can deliver additional value. Globally and Indonesia in particular has seen the growing usage in online trading and online banking that resulted in the expansion of e-commerce. It has changed many aspects of the way society is living now.

Indonesia has become one fastest growing financial system in the world. The financial landscape in Indonesia can be categorized based on funding, lending and performance trends, and drivers. FinTech has created alternative financial ecosystems available both for customers and businesses. It exists to compete with the traditional and established financial sectors in the form of services, products, and deliveries. In the next five years, it is expected that US$500 billion will be invested to develop the necessary infrastructure for FinTech in Indonesia. Since 2015, FinTech’s startups in Indonesia have grown up to 78% with their increasing markets for lending, cards, and payments (Cekindo, 2018). Amartha, GoPay from Go-Jek, Finansialku, Midtrans, T-Cash, and Doku are among visible FinTech companies in Indonesia that offers financial services.

The established banking and the financial sector in Indonesia is dominated by the Big Four Banks, three are state-owned banks - Bank Mandiri, Bank Rakyat Indonesia (BRI), and Bank Negara Indonesia (BNI), and one private bank – Bank Central Asia (BCA). Indonesia Banking statistic stated that the big four take up 41% of national leading (Cekindo, 2018). Next, larger commercial banks are CIMB Niaga, Danamon, Permata, Maybank Indonesia, Bank Tabungan Negara (BTN), and Panin Bank with 16% retail and corporate lending in Indonesia. While other smaller commercial banks are 33% of national lending are 9 branches of foreign-owned banks, 12 joint-venture banks, 27 regional development banks, 13 Shariah Banks, and 44 conventional banks (Cekindo, 2018). In addition, there are 1,630 Rural Banks (BPRs) and Micro Finance Institution (MFIs) those are 2% of the national lending in Indonesia. Finally, Multi-finance Companies – 8% of their national lending are built up to more than 200 multi-finance companies in Indonesia. These companies are licensed to offer leasing, consumer financing, credit card financing and other lending services these companies are Adira Dinamika Finance, Clipan Finance, BFI Finance and Astra Sedaya Finance (Cekindo, 2018).