Can FinTech Succeed in the Indonesian Market?
Image courtesy of Central Banking.

Can FinTech Succeed in the Indonesian Market?

Before COVID-19, FinTech was booming in Indonesia. What will happen now?

Nearly $110 billion is expected to flow into fintech firms throughout the next five years. A new report explores the place of fintech in Indonesia, with a young population and a large potential market.

FinTech in the Indonesian Climate

A June 1 report touches on the growing fintech sector within Indonesia and explores how it will be impacted by COVID-19. The fintech industry has always been an innovative one, and this innovation has been put to the test during the global pandemic. The report suggests that the sector has fared better than traditional financial institutions during the pandemic and offers lessons to be learned.

Despite the challenges posed by COVID-19, it is noted that the current economic climate in Indonesia is beneficial for fintech. For instance, a majority of the country’s population is of working age, representing 60%. However, 70% of this population find themselves unbanked, which is a trend that has also been recorded in Brazil.

Fintech firms in Indonesia intend to capitalize on the favorable population demographics as the younger people constitute a prime lending opportunity. This also extends to small and medium enterprises, 76% of which are open to digital payments. Just like their citizens, however, a majority of them struggle with accessing proper banking and credit services.

In terms of revenue, $110 billion in digital transactions are expected to go through fintech firms in the next five years. This is partly due to the fact that 48% of the population of Southeast Asia resides in Indonesia. Needless to say, fintech appears to be on a great path for the foreseeable future.

A common theme, both within Indonesia and other countries such as Brazil, is a greater accessibility of the capital markets. In the past, these markets were available only to very wealthy investors, but now, everyday people are able to access the market. This, of course, can be partially credited to fintech.

For business owners, this can mean access to loans for expansion and ease of conducting day-to-day activities. For individuals, this could mean simply being able to open bank accounts. There are also innovative fintech offerings that improve on already-existing systems by offering benefits such as insured interests to savings accounts.

Fintech Seeing Global Adoption Amidst COVID-19

While the ongoing pandemic has brought up new challenges for many business sectors, fintech has thrived nonetheless. Banks in Hong Kong, for example, are embracing the tech on a large scale. It has been estimated that up to 77% of banks in the region see fintech as having potential for use.

Some of the benefits that have already been recorded are a greater cumulative reduction in cost-to-income ratio and a larger cumulative rise in ROA. It should be considered that the banks in question do not consider fintech a threat to their place in the market. Instead, they seem to approach the sector in the spirit of collaboration.

Even COVID-19 does not appear to slow down the development of fintech as it has seen greater adoption even in the midst of the outbreak. This can be partially credited to the fact that institutions and consumers alike have been forced to move their operations to the digital space. As a result, many are turning to fintech solutions to ease the transition.

Once lockdown measures end across the world, it is then expected that the growth will continue. If anything, COVID-19 has revealed the importance of a contactless world, and fintech can help to facilitate this. After consumers and institutions have gotten used to the convenience of these solutions in lockdown, they are unlikely to return to their previous systems.

Do you think fintech will succeed in Indonesia? Will its progress continue post-lockdown? Let us know your thoughts below.

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