Unlocking the Full Potential of Fintech in Indonesia by Following the Example of Friendly Countries

China and India are two countries that are often compared to Indonesia when discussing technological and digital developments. Because there are some similarities, especially in terms of population.

Actually, Indonesia is going through a phase that the two countries had previously gone through years ago. So what steps they previously took can be a reference for Indonesia.

From the results of the 2016 IFFC conference, basically there are five characteristics of the Indonesian market that offer opportunities for companies fintech. Starting from favorable economic conditions, large market while financial penetration is still low, consumers who are enthusiastic about technology, innovative startups and attractive industry profitability.

Along with these opportunities, there are a number of challenges that Indonesia must face. For more details can be downloaded at this link.

One of the challenges is push know your customer (KYC) digital. KYC Process face-to-face is actually an obstacle to the potential for digital financial solutions and currently does not exist tools able to overcome it, considering that digital KYC has its own risks.

In overcoming this, perhaps Indonesia can follow the example of Spain and England. They determined that financial institutions could use each other's data between business groups. Thus, customers who already have an account at one bank can open an account at another bank without a face-to-face KYC process.

The customer is only required to transfer funds of US $ 1 from the bank account that has been held for validation and certify that the KYC process has been carried out for opening a new account in the name of the same customer.

India presents Aadhaar, the world's first digital ID infrastructure. Aadhaar provides ID online via a special PIN. The authentication process for financial transactions is carried out in various ways (biometrics, demographics, and one time password from a registered mobile phone or email), stored in cloud, can be done anywhere in India.

All requests will be submitted to Central Identity Data Repository which acts as the sole source of verification truth. Aadhaar is proven to be able to help customers visit grocery stores in rural areas and withdraw cash from bank accounts connected to the Aadhaar network, or visit Public Distribution Outlets (PDO) to obtain subsidized rice/wheat from a food account linked to Aadhaar.

next challenge, push experimentation through regulatory sandbox. Actually in Indonesia, there are already regulatory sandbox which is presented in Bank Indonesia Fintech Office when it was launched some time ago. The concept is exactly the same as what Monetary Authority of Singapore (MAS) when forming regulatory sandbox.

MAS establishes a regulatory framework that allows companies and financial institutions to experiment with solutions fintech. However, the scope and duration are well defined, complying with the existing regulatory framework.

Since its launch in June 2016, this platform has encouraged financial and non-financial institutions to experiment with solutions fintech. This allows the company to offer products to specific customer groups for a certain period, as long as they comply with the requirements set by the MAS.

After time sandbox ends, the company can offer a wider range of products if MAS and the company are satisfied with the test results obtained and can meet the relevant legal and regulatory requirements.

Perhaps India is the ideal example for fintech Indonesia

Central Bank of India (Reserve Bank of India) do many innovative things to support development fintech in the country, by establishing an adequate infrastructure platform for efficient and cross-operational payments.

They founded Immediate Payment Service (IMPS) to offer an electronic fund transfer system between banks real-time 24/7. Then, launch United Payments Interface (UPI). That is, the general design and interface standard application to facilitate the transfer of funds between banks without the need to ask for an account number or bank code.

All Android users who have accounts with UPI partner banks can download the UPI application to make transactions E-commerce in a manner person-to-person using a virtual address like (name)@bankname. UPI is built separately from IMPS.

The Central Bank also launched Aadhaar Payment Bridge, to assist the smooth transfer of welfare fund payments to citizens who are entitled to receive it. Customers do not need to open an account at a different bank to obtain these subsidies and allowances; they just need to open one account and be connected to Aadhaar number.

Disbursement of subsidy funds will be automatically sent to the bank account without the need to inform the customer's bank account details to the government.

Not only that, the Central Bank initiated the launch PaymentBank of 2014. PaymentBank is a new model bank category with looser KYC requirements. Account opening can be done with only one document that proves the customer's address. This document is permanent or local, which can be verified by registration letter/by telephone.

It's just that the account is required to have a maximum deposit and balance of not more than US $ 1,500 at all times. Loan and credit card offers are not valid for these accounts, but can offer products and services such as ATM, debit, online and cards mobile banking.

The efforts of the Central Bank of India should be appreciated. Because basically, regulators all over the world play a more active role in encouraging innovation fintech by seeking to strike the right balance of “too low” vs. “too high” regulation.

How regulators can create an environment that is more encouraging to new players, while continuing to work to balance the risks attached to these innovations.