AFTECH Survey: Pandemic Has Big Impact on Changes in Fintech Business Strategy

The Indonesian Fintech Association (AFTECH) revealed that 69% of its members were affected by the Covid-19 pandemic, which is still ongoing. In this annual survey, respondents stated that at least five impacts were felt.

Starting from a decrease in the number of users in some business models fintech; decreased sales for some business models; operational challenges, including lower productivity and efficiency; difficulties in fundraising; and delays in business expansion.

Then as many as 9% of respondents, including several loan companies online and digital payments, claiming to get new users and business opportunities during the pandemic. The rest, as many as 22% of respondents stated that currently the business is not fully operational.

This survey was attended by 52 respondents who are members of the AFTECH which was held at the end of March (beginning of the PSBB) and June (in the middle of the pandemic period). Meanwhile, this survey is part of the 2019/2020 Annual Member Survey which is routinely conducted by AFTECH and was attended by 154 respondents.

Furthermore, the survey results were presented by the General Chairperson of AFTECH Niki Luhur in a virtual press conference, explaining that for the expansion of the business model, respondents stated that before the pandemic occurred they had planned to expand the business model (87%). However, during the pandemic they decided to postpone it (59%) and some said they would continue (41%).

Next, for the decline in business is said to exist gap tall one. As many as 33% of respondents claimed to have a total transaction value of more than Rp80 billion, while the remaining 24% had a total transaction value of less than Rp500 million. "During the pandemic, the total transaction value has decreased due to a decrease in the number of users in several fintech business models and reduced economic activity," he said, Thursday (10/9).

The investment-raising plan has also been delayed. In the survey said before the pandemic, 46% of respondents tried to increase investment, while 25% had increased investment as much as needed, and 2% had raised more than needed.

The source of investment funds they are after is PE (28%), bootstrapped (23%), angel investors (19%), venture capital (13%), and the rest answered friends & family, government, and IPOs. The average total investment raised by these startups ranges from Rp. 500 million to Rp. 35 billion. “Therefore, the majority of fintech respondents are classified as series A and the categories above it.”

In responding to the change in strategy above, these respondents have taken a number of mitigation measures. The answers that were most voted on were strengthening cash management (43%); business model changes (9%); termination of employment (9%); postponement of business expansion and implementation of unpaid leave and salary deductions (2%).

Although their business is declining, it is said that this pandemic has driven the adoption of fintech services in several business models, including digital payments and loans online. According to BI data, the number of instruments e-money used has increased.

In April 2020, the number reached 412 million transactions or an all-time high. Meanwhile, the number of online loans disbursed in June 2020 reached Rp113,46 trillion, an increase of 152,23% compared to the same month last year.

The AFTECH survey noted that there were 55 initiatives for national economic recovery. For SMEs, the initiative is focused on reducing operational costs, through the application of lower interest rates, providing free transfer facilities, free digital signatures, monthly bill discounts, and merchant discount rate 0%. Next, free financial consultation programs, loan relaxation, and free service fees for various projects (especially in the health sector).

Meanwhile, for the general public, these initiatives include flexibility in providing financial services, providing PPE support, and providing free personal financial advice.

Follow-up survey

In his presentation, Niki said that since AFTECH was inaugurated in 2016 until now the number of members has grown drastically. Became 362 companies in the second quarter of this year from 24 companies in 2016. The majority of these members are filled by loans online (44%), IKD (24%), digital payments (17%), and crowdfunding services (1%).

There are more than 23 types of solutions fintech available in the market, from the beginning only digital payments and loans online now includes aggregator, innovative credit scoring, financial planners, crowdfunding services, and project financing. AFTECH alone now at the same time sheltering the IKDAccording to the latest OJK data, there are 86 IKD with registered status and are divided into 18 clusters regulatory sandbox.

Niki also said that digital payments had reached the “maturecompared to other types of business. Temporary loan online just entered the stagemature” in 2019. The rest, service fintech that are included in the IKD and ECF (crowdfunding service) clusters are still in the “growth".

According to the survey, fintech most serve the middle to lower economic segment of society. A total of 32% of respondents said that their users are individuals with monthly incomes ranging from Rp. 5 million to Rp. 15 million (32%) and under Rp. 5 million (22%). The age groups are 25-34 years (39%), 35-50 years (30%), and 18-24 years (20%).

The Jabodetabek operational area remains the main market share for fintech players (41%), followed by Bandung, Surabaya and Medan. Although still concentrated in big cities, the market has reached outside Java (23%).

One of the survey results that is quite interesting to observe is related to infrastructure and technology. It is said that there are five largest infrastructures in the fintech sector, namely: e-KYC (20,26%), cloud infrastructure (17,37%), open banking API (16,05%), payment gateway (14,21%), and database fraud (11,84%).

However, respondents stated that in the procurement of infrastructure there are still challenges. The three main challenges are high costs (31%), regulatory barriers (27%), and inadequate basic infrastructure (15%).

Next, in terms of talent gaps that match the needs, especially for work in the fields of data and analytics (23%), programming (20%), and risk management (15%). Despite this gap, 67% of respondents stated that they did not employ foreign talent.

Instead, they answered the challenge by doing in-house training (27%), recruiting talent from financial institutions (19%), and recruiting from similar companies (18%).