Thanks to President Joko Widodo’s digital economy ambitions, two key financial technology sectors – electronic payments and peer-to-peer lending – have enjoyed exponential growth over the past few years.
The value of e-money transactions increased six-fold between 2012 and 2017 to 12.3 trillion rupiah ($840 million). The amount of P2P loans disbursed doubled to six.2 trillion rupiah between January and May this yr.
The president has set a goal of creating Indonesia the most important digital economy in Southeast Asia by 2020. This involves annual e-commerce transactions price US$130 billion and the creation of 1,000 technology startups price US$10 billion, amongst other goals.
This has translated into government support for ride-hailing apps equivalent to Go-Jek and Grab, despite continued resistance from traditional taxi operators, in addition to aid for fintech startups.
The freewheeling atmosphere is being fueled by wealthy non-Indonesian investors who’re pouring into the market, turning 4 domestic startups into unicorns.
Since launching its Go-Pay mobile wallet in April 2016, Go-Jek, Indonesia’s first unicorn, has raised over $2 billion in three funding rounds.
In August 2016, it raised $550 million from KKR, Warburg Pincus, Sequoia and other private equity funds. In February, it closed a $1.5 billion funding round from investors including Tencent Holdings, JD.comGoogle, Temasek and native conglomerate Astra InternationalIn April, German insurance company Allianz Group announced a $35 million investment in Go-Jek.
But it’s not all sunshine and rainbows. Concerned about potential systemic risks to the economy, Bank Indonesia has introduced policies that some see as restricting market access.
In May, the central bank issued a regulation limiting foreign ownership in e-money providers to 49%, which can explain the suspension of some e-wallets equivalent to TokoCash and GrabPay (a mobile wallet originally utilized by Singaporean company Grab) since they filed license applications late last yr.
The ban on cryptocurrency payments has also forced Jakarta-based blockchain startup Pundi X to shelve its domestic ambitions. The company — whose mission is to turn into “the Walmart and 7-Eleven of cryptocurrencies” and “make buying crypto as easy as buying bottled water” — is aggressively expanding elsewhere.
The company recently announced the opening of its South American headquarters in Brazil and the beginning of sales of POS devices for cryptocurrency transactions in Colombia.
Despite the lingering regulatory risks, Indonesian Fintech Association president Niki Luhur believes one of the best solution is to work with regulators.
“They care about consumer protection, systemic risk, shadow banking, terrorism financing… all the things we care about as well,” Luhur told the Nikkei in May. “Sometimes the problem is communicating using the same vocabulary.”
