How Indonesian fintech companies are boosting financial inclusion


Indonesia’s financial technology (fintech) sector is one of the most dynamic and competitive in the world, as evidenced by the emergence of four unicorn companies – start-ups valued at over $1bn – and one decacorn, valued at over $10bn. These new tech giants include one digital payment firm, OVO, while the rest offer a number of integrated payment options in e-commerce, ride-hailing and delivery services, and travel bookings. Surrounding them is a fast-growing ecosystem that is helping expand financial inclusion to previously underserved segments of the country.

Investment comes from a range of domestic and international sources, both public and private. Global backers, including Google and China’s Ant Financial, have entered into joint ventures in Indonesia. “Generally speaking, fintech platforms are not yet profitable,” David Wake, lead adviser of financial services at PwC Indonesia, told OBG. “At the moment they are still in growth mode, trying to get people in the door.”

Structure & Oversight

Lawmakers and regulators tasked with overseeing the fintech scene are eager to reap the rewards of innovation, but remain sensitive to the risks and are ready to protect consumers. Bank Indonesia (BI), the country’s central bank, regulates payments systems. In an example of recent oversight, in January 2020 it capped fees for payments using QR codes and established standards to ensure interoperability. Consumers who use just one payment system can conduct transactions with other systems as well, rather than having to maintain multiple accounts.

Most fintech matters outside the payment system are handled by the Financial Services Authority (OJK), which categorises fintech licensees along with other non-bank financial services companies in the country such as lending companies and insurers. Fintech firms must comply with the regulations for non-bank financials; however, they may also enter the market through a regulatory sandbox – available since 2018 – that allows for innovation by young companies. Under this system, fintech firms register with the OJK and operate in the sandbox’s light-touch regulatory environment for one year prior to applying for a licence. The regulation also mandates that firms join the Indonesia Fintech Association, one of two trade industry groups. The second is the Indonesian Fintech Lenders Association (AFPI). BI also offers a sandbox system for the payment companies it regulates, with a required participation period of six months prior to application for a licence.

Moving forward, regulators will need to strike a careful balance between efficient oversight and bureaucracy. “The biggest challenges for Indonesia’s fintech sector are related to regulation and oversight. Bureaucracy slows the market, and the impact on our industry is substantial,” Teddy Tee, CEO of local digital payment start-up Cashlez, told OBG.

Policy & Priorities

As Indonesia’s legal and regulatory framework continues its rapid pace of development, the government is making plans to step up data protection, and in January 2020 it submitted a bill to Parliament aimed at protecting consumer information. The bill would replace the scattered bits of existing regulation on data privacy and increase protection against the illegal use of personal data stored on phones. For example, reports of privacy breaches include collections companies sending messages to debtors’ contacts to shame them into paying back loans.

Fintech may have a positive role to play in this regard, as new developments such as blockchain technology could help with privacy concerns. “Blockchain takes power away from centralised institutions such as banks and governments, and returns full control of data to consumers,” Reiner B Rahardja, CEO of Tokoin, the biggest blockchain company in Indonesia, told OBG. “This technology provides new solutions that guarantee greater privacy and data security, ensuring the protection of sensitive information.”

Indeed, the government sees fintech primarily as a powerful tool for financial inclusion, and not as a threat to consumers. According to BI, as of November 2019 Indonesia had 83.1m financially excluded people and 62.9m businesses unable to finance operations, many of whom are in remote areas. These needs will likely become more acute as a result of the economic disruptions of Covid-19. This increases the challenge for brick-and-mortar financial services firms but is less of an obstacle for online alternatives. “Now that fintech firms have emerged to compete with conventional multi-finance companies, the credit process has been accelerated, as face-to-face meetings with customers are no longer a necessity,” Margono Tanuwijaya, president director of local non-bank financial company FIF Group, told OBG. “This has benefitted consumers and forced conventional multi-finance firms to innovate.”

In November 2019 BI published the Indonesia Payment Systems Blueprint 2025, the long-term plan for modernising and digitising the country’s payment systems. The system is a mix of programmes and reforms to enable private sector solutions, ensure transparency and use public oversight to guide processes. Its goal is to ensure reliable payment services and transparency in areas like banking and data management.

Performance & Growth

Indonesia’s internet economy is the largest and fastest growing in the region, according to the “e-Conomy SEA 2019” joint report by Google, Temasek and Bain. Fintech is part of Indonesia’s burgeoning internet economy, which was valued at $40bn in 2019 and is growing at an average annual rate of around 49%. This is forecast to reach a value of at least $130bn by 2025, fuelled largely by ride-hailing, digital payments and e-commerce. These services are increasingly integrating into super-app platforms capable of offering a range of goods and services. Meanwhile, sessions on e-commerce apps surged from 8bn in the first half of 2016 to 30bn in the same period of 2019, according to the report.

This rapid expansion is possible in part because Indonesia’s population, which stood at 268.1m in 2019, has proven enthusiastic about smartphone technology, with the number of internet users jumping from 92m in 2015 to 152m in 2019. As demand for services continues to rise, supply is well positioned to keep pace: Indonesia attracts a critical mass of domestic and foreign entrepreneurs with access to capital and interest in the market. The key players are establishing partnerships and beginning to coalesce into a number of distinct consumer-focused ecosystems offering a similar range of goods and services. Local ride-hailing app Gojek, Indonesia’s first unicorn, recently introduced GoPay as its e-wallet and continues to broaden its product offering. Singapore-based ride-hailing app Grab uses OVO as its e-wallet and has partnered with e-commerce platform Tokopedia. LinkAja is an e-wallet owned by a number of state-owned enterprises including wireless carrier Telkomsel. Ant Financial launched upstart competitor DANA in 2017, and is the e-wallet for online retailer Bukalapak, one of the country’s four unicorns and its largest e-commerce company.

As of October 2019 Indonesia’s fintech ecosystem had a total of 249 licensed companies, according to the OJK. The biggest market segment was peer-to-peer (P2P) lending, with 108 registered players. Second largest was the payments category with 65, followed by market provisioning with 20. This number is already growing: in early 2020 PwC estimated that there were 75 fintech payment companies. “As the market evolves, we predict interest from big players like WhatsApp and Google, which will test both the existing incumbents as well as regulators,” Subianto, partner and digital services co-leader at PwC Indonesia, told OBG.

Currently, the fintech sector appears to complement existing banks and conventional financial services, rather than disrupt them. Large banks are also using these tools, offering digital banking services to their clients and using fintech to optimise back-end processes. These moves enhance efficiency and cut costs. For example, Bank Central Asia has begun using technology to automate tasks and better deploy workers.


Pure fintech firms are continuing to refine their understanding of which services are needed, which ones currently work and what may be profitable in the future. With ride-hailing, food delivery and online shopping growing in popularity among Indonesian consumers, service providers have leveraged that strong consumer interest into another potential revenue stream in merchant services. “We have seen strong growth in the number of merchants leveraging our merchant services to engage with users, either issuing vouchers directly to users or creating loyalty programmes,” Dean Krstevski, COO at DANA, told OBG.

The fintech sector has gained substantial momentum through ride-hailing apps. Gojek was first to market in 2010 and has since created its own e-wallet, and new competitors have begun to establish partnerships with e-wallet providers and online retailers. Consumers can connect e-wallets to their traditional bank accounts to transfer rupiah into their online accounts, or they can deposit cash at physical loading points – typically convenience stores. With significant growth in e-wallets and consumers’ willingness to adapt, Indonesia’s transition to a cashless society is increasingly possible (see analysis). Although the country has not made any moves to formally pursue this, the role of cash is declining, and with the global Covid-19 pandemic causing many people to opt for contactless transactions to reduce the spread of the virus, the trend is likely to continue in the long term.


Beyond digital payments, another area of significant growth for fintech platforms is loans, where P2P lending is the most popular online option. Between December 2018 and May 2019 the monthly number of borrowers on fintech platforms increased from 4.3m to 8.7m. Loans tend to fall into two categories: personal loans, which are often used by consumers to smooth income variation or to finance purchases; and productive lending, which generally means working capital for micro-, small and medium-sized enterprises (MSMEs). Lending rates are capped by the OJK at 0.8% per day. Terms and maturities are usually small and short, with borrowers typically receiving amounts of less than $100 and paying it back in a matter of weeks in order to avoid accumulating huge interest charges.

There are 164 registered P2P lenders in Indonesia, but as of December 2019 only 25 had a licence to operate. In December 2018 the total loans disbursed through P2P platforms reached Rp22.7trn ($1.6bn), up around 645% from the previous year. In May 2019 the total rose to Rp41trn ($2.9bn), up 44% from the start of the year. Although the basic loan packages are similar to those available through the country’s many microfinance banks, P2P lending has taken off largely because of its speed and convenience. “It only takes 24 hours for loan disbursement to new customers,” Roberto Sumabrata, senior vice-president of corporate affairs at P2P platform UangTeman, told OBG. “It can take even less time for returning customers.”

The queue of registered players awaiting evaluation by the OJK for a licence is long; however, regulatory oversight has proved crucial. Illegal P2P lenders have violated privacy rights, and some have even been accused of intimidation tactics and sexual harassment. The OJK shut down 826 illegal start-ups in the first eight months of 2019. “A number of fintechs have been shut down by the regulators, but illegal companies continue to be a challenge for the government,” Ravi Ivaturi, digital transformation adviser at PwC Indonesia, told OBG. The OJK also mandates that licensed fintech players across the financial services spectrum educate their customers about the perils of excess borrowing. Such efforts are increasingly a part of start-ups’ business models. “It is not enough just to educate,” Eko Pratomo, chairman of digital investment account and advice app Halofina, told OBG. “Companies must provide tools, and they need to be integrated into platforms.”

Regulators have also pushed P2P lenders to curb fraud in the system by screening applicants to ensure they are not using fake identification or inventing non-existent businesses to apply for working capital. In addition to using artificial intelligence-based software to evaluate loan applications, an offline verification process is sometimes required to confirm identification numbers and visit businesses or farms. The authorities believe the risks are manageable and do not obscure the potential upsides of P2P lending for financial inclusion and job creation in the country.

Like conventional lenders, P2P lending platforms have received a rising number of loan restructuring applications amid the Covid-19 pandemic, as the emergency measures implemented by the government have also affected their clients. According the AFPI, about 50% of the association’s members have received loan restructuring applications from clients as of April 2020.

Fintech Ecosystem

Beyond lending, Indonesia’s fintech ecosystem is also growing in the insurance and investment segments. Apps like Halofina and Tanamduit are establishing partnerships both between themselves and with investment firms to offer securities products such as mutual or money market funds, bonds and others, for the purpose of wealth management. Typically, they split the fees for trading these products with their partners. They also offer insurance products, including health coverage and mobile phone insurance. The fees that insurance intermediaries are able to charge make it profitable to act as an insurance agent on fintech platforms. Growth in insurance technology offerings could soon include motor and housing options. For companies branching out into these areas, investors and analysts will likely look to assets under management as a performance metric, as profitability is not yet expected.

Start-Up Environment

With participants in Indonesia’s fintech sector ranging from global tech giants to ambitious local start-ups, there is a growing number of financing options. International investment comes from Japan, China, Singapore and the US, among others. Domestically, investment comes from some of the country’s leading local conglomerates, including Indonesian media firm Emtek, Indonesia-based conglomerates Lippo Group and Sinar Mas Group, and the country’s largest state-owned banks. Bank Mandiri has established a venture capital fund, Mandiri Capital Indonesia, that has been allocated Rp1.5trn ($105.8m) to invest. Of that, between Rp100bn ($7.1m) and Rp200bn ($14.1m) will be sent to P2P companies as capital for their lending operations. Other lenders conducting loan channelling with P2P players include Bank Permata, which made a Rp150bn ($10.6m) commitment to Amartha – a company focused on female entrepreneurs – and Bank Rakyat Indonesia, which channelled around Rp200bn ($14.1m) to Investree.

For start-ups operating in Indonesia, the investment cycle mindset is somewhat different than that of Silicon Valley, in which entrepreneurs look to nurture ideas until they become established companies that can be sold to bigger competitors or exited via the stock market. “In Indonesia it is more likely to see start-ups looking to establish partnerships rather than sell their businesses,” Muhammad Hanif, co-founder and director of tanamduit, an Indonesian wealth management platform founded in 2017, told OBG.

For now, entrepreneurs in the early stages are seeking the ability to attract funding and chase growth – even if it delays profitability. Adjie Wicaksana, CEO of Halofina, believes that more options should be available for younger companies. “Venture capitalists want to invest in companies already generating revenue, so there is a gap at the earlier stages,” he told OBG.


Although Indonesia’s fintech sector remains in growth mode, many entrepreneurs are experiencing increased pressure from investors to reach profitability. The path to profit varies greatly by activity, and lending platforms will likely be the first to reach that point. This is due to their significant growth rate and the lack of a requirement to build customer loyalty through deep discounts and constant promotions. In other areas, patience should be expected as consumer use cases are built, partnerships are developed and platforms continue to rapidly expand.

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The Report: Indonesia 2020

Fintech chapter from The Report: Indonesia 2020

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