A Brighter Future: How Open Finance can help Indonesia's unbanked

A Brighter Future: How Open Finance can help Indonesia's unbanked

With Open Finance, Finantier is enabling companies to create the next generation of financial services - where anyone, anywhere can access them.

29 April 20213 min read
Tun Yong Yapby Tun Yong Yap
A Brighter Future: How Open Finance can help Indonesia's unbanked

An individual’s most valuable online asset is their data.

From your shopping cart preferences on Tokopedia to your daily searches on Google, data is generated every second we are connected to the internet. It probably understands you better than anyone else.

Unfortunately, the current relationship with our data is a one-sided one.

While we allow platforms to retrieve our personal data, the information collected is not utilised in a way that could benefit consumers. Companies are afraid of sharing their customer’s data with others, for fear of competition.

This results in our data being stored in silos and creates a problem as companies do not have a holistic overview of our digital identity.

Besides handicapping the creation of more personalised products, we could also be denied access to certain services due to the lack of personal information.

However, this can change -- beginning with Open Finance.

Benefitting from our own data

Defined as the consented and secured exchange of personal data between financial institutions, Open Finance connects different sets of financial data to each other, enabling them to ‘speak’ to one another.

This allows our data to be synthesised in a way that benefits us.

Building on the concept of Open Finance, Finantier’s products enable fintechs and financial institutions to understand their customers better and increase access to financial services for the unbanked in Indonesia.

Our Identity Verification tool aggregates data from a wide range of Indonesian financial platforms to enable companies to verify the identities of their users in a faster and more efficient manner.

By accessing the data of alternative financial platforms such as P2P lenders, it allows companies to authenticate the identities of the unbanked, allowing them to access financial services that were previously only available for banked users.

Opening up financial services for all

Let us take our friend, Siti for example.

Siti lives in the outskirts of Surabaya. Like many of her neighbours, she does not have a bank account. Instead, she handles the finances of her small warung business through a digital wallet app.

Previously, Siti was unable to apply for bank loans for her warung as banks did not have sufficient information about her identity to conduct the necessary background checks.

This impeded her livelihood as her warung business was affected by the lack of capital.

However, with Finantier’s identity verification tool, Siti would not be denied access to the necessary financial services. Instead, the bank can access her data from the digital wallet app to conduct identity checks before processing the loan.

With the loan, Siti would be able to grow her business and provide a better livelihood for her loved ones.

Indonesia has one of the highest concentration of SMEs worldwide. How can we better provide them with the necessary financial services to support their growth? (Image Credit: Oliver Wyman)

A fairer approach

Apart from verifying identities, our Credit Scoring feature also enables financial platforms to better gauge the ability of their users to repay.

By analysing an array of financial data ranging from transactions to loan repayments on different platforms, the model is able to more holistically ascertain the creditworthiness of an individual, preventing discrimination against the unbanked.

Back to Siti’s case, she was previously denied a loan at another bank due to her poor credit history.

However, unbeknownst to the bank, she has constantly repaid her loans from P2P lending platforms and her business is cash flow positive.

Finantier’s credit scoring model bridges this information gap, allowing banks and incumbent financial institutions to offer financial services for the unbanked in Indonesia.

Accelerating financial inclusion

Providing financial services for the unbanked in Indonesia is a mammoth task, considering close to 140 million (or half of the population) do not have or lack access to banking services.

Beyond fuelling an economic divide, disparity in access to financial services can also create a social gap, where the underprivileged are unable to utilise the financial resources to improve their quality of life.

However, the government - through the financial services authority / Otoritas Jasa Keuangan (OJK) - has been working hard to address this increasing divide.

Through a series of multi-year plans targeted at increasing financial literacy, authorities managed to raise the financial inclusion rate to 76 per cent in 2019, up from 67 per cent in 2016.

Countries only benefit when economic growth is inclusive and reaches all rungs of society.

Achieving financial inclusion goes beyond economic benefits for Indonesia. It also prevents a host of social problems from emerging - such as high unemployment rates and civil unrest.

Open Finance is the key enabler for financial inclusion to happen.

By placing the benefits of personal data back into the hands of individuals, Finantier is enabling companies to create the next generation of financial services - where anyone, anywhere can access them.

In Summary

✅   As personal financial data are stored in silos, individuals are not benefitting from it.

✅   This results in a information mismatch that restricts financial services for the unbanked.

✅   Open Finance solves this problem by connecting data from different platforms, enabling companies to offer financial services for the unbanked.