2017 is expected to become a ground-breaking year for financial technology (fintech) players in emerging Asia, with the markets of Malaysia, Indonesia, Thailand and Singapore, known as MINTS, providing a major push for the industry. In the region, fintech players offer new approaches to keep themselves relevant in light of consumers’ needs while tapping opportunities to increase financial inclusion with mobile, flexible and customer-oriented features.
Fintech not only represents much-needed innovation for the financial services sector, but may well be the best chance of addressing a significant credit gap of close to US$300 billion per year experienced by more than 200 million micro, small and medium enterprises (MSME) across the region. With close to 45 percent of the regional credit gap faced by more than 50 million MSMEs in Indonesia alone, the country has the most to gain from the successful development of fintech.
Fintech is foreseen to produce significant and immediate impacts for MSMEs. The adoption of the latest advanced technology from mobile and internet-based innovation allows fintech operators to be much faster and more cost efficient than many existing financial service providers. Particularly Indonesia can benefit from this developmend, due to its immense MSME market and massive credit gap.
For example, crowdfunding platform Crowdo, which is already operating in Indonesia, is able to process working capital loan applications in a few hours without compromising on credit quality using its proprietary risk assessment model. Another people-to-people (P2P) lending platform, Amartha, which is also present in the country, is also able to reach out to unbanked communities by developing psychometric approaches and credit scoring technologies that allow unbanked clients to become credit-worthy loan recipients.
In an increasingly fast and competitive environment, this is a game changer for many MSMEs who either have limited access to financial services or cannot afford to wait a few months for the traditional bank application process. Therefore, the Indonesian Financial Services Authority (OJK), considering input from local fintech players, recently announced a new regulatory framework for the fintech industry. The new regulatory framework aims at balancing the best conditions for innovation against concerns about for example consumer and data protection. In addition, the Indonesian central bank has introduced a fintech regulatory sandbox, which allows for trials by start-ups and large financial companies.
It is clear that fintech offers great potential to Indonesia for more inclusive, economic development. Yet, appropriate policy support is needed to reap the benefits of fintech.