Fast-Growing Digital Financial Services in Indonesia
10 June 2022
Author by Nida Amalia

Fast-Growing Digital Financial Services in Indonesia

Various products make it easier for people to manage their financial assets when developing Digital Financial Services. These products can include tools to collect money, get money loans, and invent money through investment schemes. Along with its development, the types of financial services currently exist are very varied and provided by various institutions, ranging from banks and non-bank institutions to financial technology startups (fintech) in Indonesia.

Along with technological transformation, these financial products are also starting to go digital to make it easier for the public. Almost all types of financial services already have a representation in an application. The following are some of the most popular that are used in Indonesia:

It is undeniable that financial services have become an important part of people's lives. Based on their use by the public, there are several types of financial services that are currently popular, including:

Deposit Based Service

Deposits and savings are becoming the most basic financial product for years. Although the most popular is banking (either conventional or sharia), there are several other units that people can also use to save their money, for example, through cooperatives or BPRs. Savings can start from the manual method by saving money in a particular place at home to entrusting the money to be deposited with certain institutions.

To provide more convenience, the government has also prepared a regulatory umbrella that is regulated by credible institutions ranging from Bank Indonesia, the Financial Services Authority, to the Deposit Insurance Corporation.

Regarding digitalization, banking services have also transformed. One of the features that may already be very familiar to the public is mobile banking or internet banking, allowing users to manage transactions via their mobile phones. Long before that, people were also used to transacting with computers through ATMs (Automated Teller Machines) and SMS Banking.

banking transformation from traditional to digital
banking transformation from traditional to digital 

In the last decade, banking has overgrown to produce the new concept of a "digital bank." Unlike conventional banking, which relies heavily on branch offices for operations and administrative activities, digital banks rely entirely on applications, from the account opening process to meeting transaction needs. Some digital bank service providers do not even have branch offices to sell their services. In Indonesia, digital banks are regulated through POJK No.12 & No.13/POJK.03/2021.

Examples of well-known digital bank applications are Neo Commerce Bank, Jenius, blu by BCA Digital, Bank Jago, SeaBank, LINE Bank, etc.

Payment Based Service

The following most popular financial product is cashless payment services. The innovation started from a payment model with a debit/credit card through an EDC (Electronic Data Capture) machine in retail stores, then developed into an e-money system—either chip-based or server-based. Chip-based e-money is shaped like a debit/credit card, except that there is no need for repeated authentication to perform transactions, which is enough to be attached to a particular device equipped with NFC (Near Field Communication) technology.

The next development is server-based e-money, embedded in an application on the user's smartphone. It can be used (in payment) through a direct connection to the application or scanning the special QR code provided. In addition to being a standalone payment option, e-money is now also widely applied as a native payment system in digital applications to make it easier for users to transact. The regulation that oversees these financial products is Bank Indonesia Regulation Number 20/6/PBI/2018 concerning Electronic Money.

Examples of widely used server-based e-money services are OVO, Gopay, Dana, ShopeePay, LinkAja, and others.

Loan/Financing Based Services

Loan/financing-based financial services provide convenience for individuals or businesses in obtaining loan funds for specific purposes. These can include consumer financing, home purchase financing, vehicle purchases, education, etc.

The business models also vary, ranging from unsecured loans and loans with collateral to loans with shorter tenors. Initially, loan services were processed through bank offices or other related institutions, but with the existing innovations, credit can be obtained easily through different mediums, such as credit cards.

Digital applications related to loans/financing are also developing. Various derivative services can be used by the public, such as cash loans, p2p lending, and paylater. The digital application is used to facilitate loans in the form of cash and financing to purchase certain goods. As of April 2022, 102 fintech lending companies are operating in Indonesia.

Some of the popular fintech players that provide loan/financing services are KoinWorks, Akulaku, Kredivo, Amartha, etc.

Investment Based Service

Along with the increase in financial literacy and inclusion in Indonesia, the public's need for financial products has also grown. One that is now becoming popular is investment services or wealth management. In the previous era, the public's investment model commonly carried out was through the purchase of gold or savings deposits. But today, digital investment services provide a wider choice of instruments to complement existing investment options.

In Indonesia, several parties regulate investment services, including OJK (Financial Authority Services) and BAPPEBTI. The investment instruments that have been accommodated through digital applications include gold, stocks, mutual funds, crypto, state securities, and equity crowdfunding. It is undeniable that its adoption is still in its early stages, although it has very fast traction. For this reason, education is also an effort that is still being encouraged by stakeholders.

Some investment applications that are currently widely used include Seed/Stockbit, Magic, Bareksa, Pluang, and so on.

In general, the following is a list of popular financial services and their derivative products that are widely used by the public today:

list of popular financial services and their derivative products
list of popular financial services and their derivative products

The Role of Open Finance in the Financial Ecosystem

In presenting digital products, financial institutions need to prepare an adequate infrastructure. This is because the financial sector has strict regulations requiring its players to have high system reliability, security, and data privacy standards. With these needs, Open Finance services help financial businesses adapt to the digital realm.

The Open Finance platform will provide many benefits for service developers. Open Finance utilizes Open API standards with a high level of interoperability. That is to say; the service can be implemented in various development environments with unique use cases with the same API. This is especially relevant now that there are already standards that the regulators have set for Open API in the payment system.

In developing fintech applications, developers will be faced with high complexity. During operation, financial applications must carry out strict user identification, ensuring the validity of the uploaded identities. Here, the developer must apply an e-KYC service that validates the data entered into the regulator's database. With manual development, developers need to connect their application services to the Dukcapil database system — for example, for ID card validation.

Not to mention, if the data reading process will be carried out automatically, the developer needs to prepare an artificial intelligence function so that the application can read the scanned/photo results from the uploaded identity card. Machine learning mechanisms are also required in the detection process to prevent fraud.

Open Finance simplifies this by providing a ready-to-use e-KYC infrastructure. Developers only need to connect one API to get all the features mentioned above, so they don't have to do the development manually or one by one. That's just one feature; other processes still require a special touch. For example, there needs to be a credit scoring mechanism for income validation in the loan service onboarding process.

The Role of Open Finance in the Financial Ecosystem
The Role of Open Finance in the Financial Ecosystem

With Open Finance, apart from making the development process faster, it also ensures convenience for the users. Service providers such as Finantier pay close attention to the UI/UX aspects that will impact the application interface. For example, in the e-KYC process, Finantier provides an Instant Verification mechanism, which makes the series of registration and validation processes take only 3 minutes using steps that are pretty easy for new users to follow.

Contact us for Open Finance services