Indonesia presents a fascinating tapestry of financial progress and innovation woven by Fintechs, Banks, and Telcos.
Indonesia’s fintech sector has significantly evolved over the past decade, diversifying and improving its various payment domains, such as;
Independent fintech players like GoPay and OVO’s decision to offer e-money in e-wallets represent why the fintech sector continues to dominate in digitising cash transactions against its banking and telco counterparts.
By aggregating payment terminals into one terminal, these products present a cheaper alternative to traditional POS systems for ‘warungs’ (small family-owned businesses) in Indonesia.
The earliest players in this field were conventional Indonesian Banks. In 2005, Bank Danamon, BTPN, and Bank Mandiri launched their respective micro-loan initiatives to attain this newfound market. Yet, one challenge stood in the way for Indonesia’s banks.
All of their programs were delivered physically and operated through conventional branch networks. This made them expensive, as they relied on frequent customer visits. However, early on, these banks’ high profit margins had become an inspiring tale for the new wave of Indonesia’s fintechs.
Fast forward to 2023, and over 100 registered fintech leaders are transforming the lending landscape. While fintech lenders continue to compete with commercial banks in the SME space, their success in lending stems primarily from the unbanked and micro-segments where competition is scarce.
One key feature of Fintech loans is the short loan tenure. Lasting around 90 days, these loans do not require collateral, incentivising high customer engagement. Although, it should be noted their interest rates are kept higher than those offered by banks. To counteract this, fintech lenders were primarily funded by individuals and non-bank institutions. This helped fintechs manage themselves during their early phases of development.
However, during the pandemic, fintechs found themselves in a tight spot. This is where banks stepped in for the fintechs, becoming their major funders. The cost of funds for traditional banks was lower than that for Fintechs. Hence, the overall unit economics worked better for banks.
The Indonesian financial sector witnessed the entry of two types of digital banks.
Over the last few years, banks have focused on launching new innovative services for the youth and underserved segments. Moving forward, banks should aim to employ innovative solutions that expand beyond these segments.
As banks and new-age fintechs assert their dominance, the role of telcos may seem uncertain. Despite being pioneers of payment innovations such as T-Cash’s “LinkAja” e-wallet app, their innovation trajectory has stagnated. Fortunately, telcos still retain a considerable advantage due to their extensive distribution networks and retail touchpoints.
This advantage provides telcos with 2 potential approaches to consider:
The Indonesian fintech landscape is poised at a fascinating juncture, with the unfolding developments anticipated to shape its trajectory over the next few years. While traditional banks wield influence, the agility of emerging fintech players in embracing innovation is noteworthy. Traditionally perceived as slower in this space, telcos now face the imperative to innovate swiftly, driven by the immense opportunities at stake. As the narrative unfolds, the intricate interplay between established banks, agile fintech startups, and the evolving strategies of telcos will undoubtedly chart the course for the future of Indonesia’s financial technology landscape.