Types of Digital Financial Services Regulated in Indonesia
18 May 2022
Author by Nida Amalia

Types of Digital Financial Services Regulated in Indonesia

Types of Digital Financial Services Regulated in Indonesia

The financial industry is one of the business sectors that is tightly regulated by the government in almost all countries. The goal of regulation is to provide protection for consumers and the industrial ecosystem. The enforcement of this rule also covers digital financial services. This implies that every process of developing digital financial services must always follow the applicable laws.

In Indonesia, the Financial Services Authority (OJK) and Bank Indonesia (BI) are the two most important actors as regulators. Both are tasked with supervising, granting permits, and sanctioning business actors operating in the country.

Interestingly, the regulators are also quite aware of the dynamics of rapid technological development. This makes them always open to the digital financial service innovations that continue to emerge. For industry players, this is a breath of fresh air to keep working to produce new findings that can increase financial literacy and inclusion.

So far, several types of digital financial services have been regulated in Indonesia. Here's the full review:

Types of digital financial services

For convenience, this section will categorize the types of services based on the regulator that accommodates the related business model.

Types of digital financial services
Types of digital financial services

Digital Financial Services under Bank Indonesia

  • E-Money

Electronic Money is the value of money stored electronically in a media server or chip that can be moved to set up payment transactions or transfer funds. Based on the rules, this payment instrument has the following three criteria: (1) it is issued on the basis of the value deposited to the issuer, (2) the value of money is stored in a media server or chip, and (3) it is managed by the issuer is not a deposit.

  • E-Wallet

Electronic Wallets or Digital Wallets are electronic services for storing data on payment instruments, including cards and/or electronic money, which can accommodate funds to make payments. The limit of funds that can be accommodated in an Electronic Wallet is IDR 10 million.

  • Payment Gateway

Payment Gateway is a technology platform that allows merchants to process payment transactions with various instruments, including bank transfers, e-money, credit/debit cards, and virtual accounts.

  • QRIS

According to BI, the Indonesian Standard Quick Response Code (QRIS) is the unification of various QR codes from various Payment System Service Providers (PJSP). QRIS was developed by the payment system industry, together with Bank Indonesia, so that the transaction process with the QR Code can be easier, faster, and more secure. All Payment System Service Providers that use QR Code Payments must implement QRIS.

  • Transfer

Fund transfer services between banks or payment platforms are registered with BI. Currently, there are various mechanisms; one of the newest ones is BI-Fast, which allows transfers to different bank accounts to get much cheaper fees.

  • Remittance

Remittance is a fund transfer service that involves parties across countries. The process can be facilitated by banking or non-bank institutions that already have a license from Bank Indonesia.

  • Open API

Fintech infrastructure service providers for digital services provide financial feature support through standardized Open Application Programming Interface (API) connections. This service is also provided by banks and non-banks, including Open Finance platforms such as Finantier.

  • Identity Verification

Identity Verification is a platform that helps financial service providers verify and authorize their prospective customers' identities. The developer of this platform usually connects the system with the population database owned by the Directorate General of Dukcapil. In addition, Identity Verification is also equipped with biometric features to help process data validity.

Digital Financial Services at the Financial Services Authority

  • Fintech Lending

Fintech Lending is an electronic-based lending and borrowing service that connects individual and institutional lenders to individual or MSME borrowers. Currently, Fintech Lending is divided into two categories based on its designation, namely the Consumptive and the Productive Sectors.

  • Digital Bank

A Digital bank is a banking service that provides fully digital services, starting from the registration process, then e-KYC, and then transactions. Most digital bank operators do not have branch offices because all administrative processes can be done online.

  • Paylater

Paylater is a financing service for purchasing goods/services — in contrast to Fintech Lending, which provides cash loans. The use of the Paylater platform can be through online or offline merchants. It is generally embedded in the application for online merchants and can be found during the payment process. Meanwhile, it uses a QR code for offline transactions that can be found at retail outlets that have collaborated with certain Paylater providers.

  • Crowdfunding

Crowdfunding is a service aiming to raise funds from the public for a specific purpose. Currently, there are various forms, ranging from Securities Crowdfunding to Equity Crowdfunding. It has many applications, from social causes to fundraising for business projects.

Regulation of digital financial services

The various services mentioned above have their regulations issued by Bank Indonesia and the Financial Services Authority. Here is the rule mapping:

Regulation mapping of digital financial services
Regulation mapping of digital financial services

Digital Finance Innovation (Regulatory Sandbox)

In the midst of the fintech services that continue to develop, regulators are also trying to facilitate temporary rules through the Regulatory Sandbox. The Regulatory Sandbox is a secure, limited trial space to test fintech products, services, technologies, and business models. The process is that players with new innovations will be listed, then observed for some time. If the related business model is declared safe and potential, then it will be processed into a more mature regulation.

The Regulatory Sandbox at Bank Indonesia is regulated in PBI No. 19/12/PBI/2017 concerning the Implementation of Financial Technology. While in the Financial Services Authority, it is included in POJK No. 13/POJK.02/2018 concerning Digital Financial Innovation (IKD).

So far, several types of platforms have entered the testing phase. OJK IKD facilitates more business models, including:

Digital Finance Innovation (Regulatory Sandbox)
Digital Finance Innovation (Regulatory Sandbox)

All of the tested services have specific functionality, which helps financial industry players do more through technology. For example, Credit Scoring provides alternative data to help financial institutions conduct a more in-depth and comprehensive creditworthiness analysis. Finantier is an Open Finance player who is currently on the list of players supervised by OJK to provide Alternative Credit Scoring services.

With the regulation that covers fintech, it is hoped that the various innovative services that are currently being launched will provide more convenience and protection to users. In addition, the existence of regulations can also be part of an effort to present a healthier digital financial business ecosystem.

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