The Emergence of Fintech in Indonesia

Financial technology, or more popularly called ‘fintech’, can be defined as a phenomenon in which technology and financial features go hand in hand in altering the traditional financial institution business models and discovering solution alternatives to customers’ financial experience.

Like other businesses, fintechs are established to answer consumers’ needs, challenges and wants. In this case, the emergence of financial technology is no exception. There are at least four main challenges surrounding the potential and necessity of fintech in Indonesia.

Firstly, the large amount of unbanked population. It is estimated that only 40% of Indonesia’s 250 million population currently have access to banking services. Secondly, the large amount of underserved small to medium enterprises. SMEs need funding to expand their wings, yet many of them do not have the necessary financial history nor collateral to secure bank loans. This presents an untapped market for fintech companies.

The third challenge is inefficient banking infrastructure. The number of bank branches, which is estimated at 10 bank branches per 1,000 square kilometers is far too low to serve Indonesia’s vast geography. This is connected to the fourth challenge, which is geographical barrier. The fact that there are remote and inaccessible areas in the country poses an even greater challenge for bank penetration.

But at the same time, such challenges provide a greater opportunity for fintech.

Fintech bring benefits?

As an industry, financial technology is divided into various sectors pursuant to the financial solution it is trying to provide. The payment sector is by far the largest, accounting 43% in total.

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Source: The Emergence of Fintech in Indonesia | GIV – Indonesian Perspective to Global Audience