Will Indonesia’s booming fintech scene weather the COVID-19 storm?

• Fintech industry in Indonesia was experiencing mammoth growth just before COVID-19 – will digital financial services be able to outlast the pandemic?
• Data shows the fintech sector is vast & multifaceted in Indonesia – and holds valuable operational insights that can help fintech startups weather the uncertainty of the coronavirus

Taking risks and bucking the expectations of regulators and customer alike, fintech has undeniably changed the stuffy world of finance. It is the face of change is a long-established industry.

In the face of a global pandemic, it’s perhaps of little surprise that this forward-thinking, risk-tolerant sector is, on the whole, embracing the disrupted market and turning it to its own advantage.

Where their established competitors may be faltering – moving operations to a remote workforce, for example, or handling a spike in demand for online banking with branches closed – the core tenets of fintech are seeing them weather market conditions with agility

Adapting to a tumultuous business landscape and being brazen in taking calculated business risks to offer customers a better experience is a key takeaway that companies can learn from fintech startups, especially the fintech startups of Southeast Asia.

In this region, more than 70 percent of the adult population is either ‘underbanked’ or wholly ‘unbanked’, according to the 2019 e-Conomy SEA report co-produced by Google, Temasek, and Bain & Company. This shows the sort of opportunity that fintech startups in the region are looking to capitalize on, even faced with the adversities caused by the coronavirus, and the inherent physical and technological restrictions faced by large segments of the population in this region.

Before the pandemic, Indonesia’s rising digital financial services had been poised to capitalize on the substantial potential of its burgeoning economy. Over 60 percent of the population are within working age, representing a vast amount of potential beneficiaries of fintech lending initiatives.

The same goes for small-medium enterprises (SMEs) in Indonesia, where a survey found that 76 percent of SMEs already accept or will accept digital payments in the next three years– but 80 percent of SMEs say that they lack access to affordable credit facilities.

With nearly half (48 percent) of southeast Asia’s population residing in Indonesia, the survey estimates that at least US$110 billion out of an expected US$1 trillion worth of digital transactions in the next five years will represent huge revenue opportunity for fintech lending companies in Indonesia.

Pandemic or no pandemic, this region is proving very fertile ground for the new wave of financial technology startups.

Fintech players in Indonesia

Given the fractured financing landscape in a country as big and underdeveloped as Indonesia, technology-supported funding models have quickly gathered pace. Different lending models such as peer-to-peer (P2P) microtransactions, productive vs consumptive, offline to online (O2O), and others are being championed by different local fintech startups.

One of the most popular fintech pioneers was established in 2010, known as Amartha, a P2P micro-lending platform. Amartha’s system allows for smaller loans to be made out to small collectives of borrowers not exceeding 15 to 20 people. The microloans and micro memberships mean the service can easily be established in more remote regions, away from major cities where loans are more accessible.

Another popular fintech platform is financial comparison portal CekAja.com, which lists and compares hundreds of different online and offline financial services including credit loans, credit cards, entrepreneur loans, instalment payments, as well as credit and financial advice for a variety of loan schemes.

E-wallet Go-Pay, meanwhile, comes from the same team as popular local ride-hailing and ‘super app’ Go-jek. Go-Pay is in fact hosted in the same app, and besides using the e-wallet to make a variety of digital payments and credit transfer facilities, it can also be utilized to pay for Go-jek rides.

An e-wallet like Go-Pay is also popular because it can be conveniently reloaded at minimarts, petrol kiosks, even ATMs around the country– a useful service in a nation where digital connectivity is still mostly centered around its urban centers, as the rest of the 1.905 million square kilometer land mass is spread over several large islands and archipelagos.

So will Indonesian fintech startups be able to weather the impacts of the COVID-19 outbreak? While the majority of fintech service providers will definitely be affected to some degree, several of the unique operational conditions of digital platforms in the country will prove themselves robust enough to withstand the present turmoil and eventually be able to help prop up the digital economy in the long term.

For instance, payment system providers could extend free credit transfer facilities to their trusted merchants, while P2P lenders can lower interest rates for their customers. Comparison sites like CheckAja.com supply free financial advice and help inform users of financial assistance plans, discounts, and promotional offers.

Many industry observers also believe that since fintech organizations have already embraced digital and information technologies, fintech players are already best-positioned to stay on track as the physical world is heavily ravaged by pandemic-related fallout.

What is interesting here is that other enterprises should likewise embrace digital transformation initiatives, and sooner rather than later, if they have not already. For one thing appears clear: operations that are increasingly looking towards digital-first will stand a much better chance at survival – indeed, maybe even growing – beyond a major disruptive event like this pandemic.

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