Fintech Organizers – Here is what you need to know about the obligation of fintech organizations in the payment system to register in Bank Indonesia
The year 2017 was the beginning of the fintech (financial technology) revolution in the digital industry. From shopping online to paying other bills and taxes, our lives have been made easier with the existence of fintech companies. Before discussing how fintech organizations in payment system must now register in Bank Indonesia, let’s check out its history first.
What Is Fintech and How It Has
Fintech (or financial technology) is a financial service that has emerged in the 21st century. This originally began as an application to the back-end of consumer and trade financial institutions. Many well-established financial institutions have slowly begun to adapt to this digital solution.
What started as a digital paying gate soon expanded into other related innovations, like: financial literacy and education, retail banking, and online investment. The latest development that we know is called crypto-currency, where people can pay for things with something like bitcoin.
The existence and development of fintech have helped many people to shorten the process of their financial trades or transactions. For example, you no longer need to go to the bank all the time to deposit or transfer your money. Now you can use e-banking system instead to do all that.
It is also the same thing as many other financial trades or transactions. Besides paying stuff from e-commerce companies (for your online shopping), you can also use fintech to help you to pay taxes online and borrow some money to start off your business through peer-to-peer lending companies. Financial management can also be done with this technology.
How Fintech Is Shaping Financial Services – Especially in Indonesia.
The way fintech is shaping financial services – especially in Indonesia – is interesting. Before the digital era, most businesspeople or entrepreneurs focused on strengthening their products from within. Once they were ready, they launched their products, in the hopes that they would answer the public’s needs.
However, that traditional way had taken too long. Not only more problems kept emerging, their products may not always have answered their questions nor solved the problems. Because of this, many traditional financial situations are failing miserably. Their only clients now are from the older generations who are not into digital technology.
Since the millennials (or the Z-generation) practically live with more digital technology than their elders, fintech has been welcomed with open arms. They are shaping the financial services, especially in Indonesia, from the opposite direction. They are well-aware of what people need nowadays.
Since many people need to do a lot of things at once, time is the essence. They may not have enough time allocated to pay the bills while at the same time working at the office. Plus, some old-fashioned procedures of the usual financial services may come across as a hassle, from the needs for a middleman in a transaction to other time-consuming procedures.
Thanks to fintech, many trading processes are cut short. Not only time, this also means cutting down the cost. Now people can pay their business taxes while finishing work elsewhere, without worrying about traffic and other obligations being unfulfilled.
Everything You Need to Know to Join Fintech Industry In Indonesia.
If this your first time joining a fintech industry, especially in Indonesia, here is everything you need to know about it:
- Fintech and e-commerce.
It is true, some people still mistook fintech as just another e-commerce. It is also correct that 2016 was the year of e-commerce businesses before fintech took over their position in 2017. This year of 2018, fintech industry is still going strong despite being side by side with digital headhunter companies. You can say that because of e-commerce, the idea of payment startups later emerged.
- Banks are still involved.
The existence of fintech companies does not mean that the banks are no longer involved. In fact, several major banks have started investing in some startups in Indonesia. For example, MCI was established in January 2016. As a Bank Mandiri’s venture arm, it has invested about IDR 300 billion in seven fintech startup companies.
- Lending as The Fintech Popular Sector.
There are three (3) things that MCI focuses on when it comes to fintech services:
- Payment options.
- Peer-to-peer lending.
- Small enterprise solutions.
However, lending is the most popular sector in fintech industry. This can be seen from 17% of the companies focusing on peer-to-peer lending. Peer-to-peer lending can also be used for small enterprise solutions (like Koinworks).
Fintech industry also uses “crowdfunding” to help gifted or talented students get a scholarship (like through Dana Didik).
- It Is Cashless-Time.
Using financial services through fintech means going cashless in many transactions. Starting from e-banking, e-commerce, and payment options and peer-to-peer lending, the idea of this technology is to use fewer bank notes.
In some other countries, the use of bitcoin has been more common.
However, this process is still ongoing, because Bank Indonesia still has the authority here. The right license is still needed for many digital companies like Go-jek, Tokopedia, and Bukalapak to keep their e-wallet systems active. This, of course, leads us to another point that you need to know regarding joining fintech industry in Indonesia.
- Better Regulations Regarding Fintech Industry.
It started pretty slow in 2016. Many fintech companies complained that the regulatory processes in Indonesia could not keep up with the pace they were aiming for. In 2017, the government of Indonesia tried to develop and speed up the regulatory process. Eight digital startup companies had already registered in June 2017.
This year of 2018, many fintech companies are looking forward to better regulations from the government. Since it has been proven that this technology has helped to cut costs and save time, then the government should support it in any way possible.
So, how is Indonesia fintech outlook so far?
Indonesia Fintech Outlook.
As we have read earlier, Indonesia Fintech Outlook for 2018 consists of two (2) things:
- Better regulations.
- Stronger system.
Better regulations are expected to not only support fintech industry. They are also needed to ensure that the growth of digital startup companies will not be halted. More digital startup companies also more job vacancies for Indonesians.
Of course, the system also has to be stronger. Without the stronger system, fintech industry in Indonesia will remain just as slow as it was in 2016. After all, the clock is ticking and there are so many things to finish, all at once.
How Fintech Companies Are Tackling Payments and Who Is Helping.
How are fintech companies tackling payments? Especially in Indonesia, they cannot do much without proper regulations. They must first register their company names in central banks. This obligation was in effect from January 1, 2018. This is according to Bank Indonesia Regulations (PBI or Peraturan Bank Indonesia) Number 19/12/2017 regarding the Implementation of Financial Technology.
This step taken is necessary because fintech industry keeps growing and can help to boost the country’s economy. However, its rapid and almost uncontrollable growth also has unpleasant side effects. Not only it can invite potential hackers to crack the system and steal the money, it can also lead to money-laundering.
BI keeps monitoring the growth of fintech industry through five (5) indicators:
- Company registration.
- Regulatory sandbox.
- Permits and agreement.
- Monitoring and surveillance.
To tackle payments, blockchain technology has been used by many fintech companies since 2017, especially for overseas trades or transactions. Of course, the banks are also still involved in helping the payment process.
Fintech Indonesia: A Revolution in Corporate and Consumer in Online Payments.
All revolutions are met with resistance at first. This has also happened to fintech industry.
According to Cicil.co.id – a fintech industry whose goal is to help college and university students to get the things they need for studying (e.g., a laptop) with an affordable loan, one of the ideas is to cater to people who do not have access to credit cards.
Since most of their clients are full-time students, it is not easy to apply for a credit card at conventional banks. Besides having to submit their monthly salary proofs, they also have to have a good track record in lending and returning the loan on time. This is quite problematic for students who need to use laptops to finish their assignments.
Facing the end of 2017, conventional banks were concerned about this matter. Since there are still many Indonesians without access to bank loans and credits, fintech is considered a welcoming, alternative solution. Does this mean that conventional banks are no longer relevant?
Of course, the answer is no. In fact, to reduce the side effect of the payment disruption, many banks have started purchasing or joining in a partnership with niche fintech companies. This has created a win-win solution for both. The fintech companies can still operate, while the banks are part of their payment systems.
The benefits are also for both parties. This gains more trust from consumers, especially those who have been used to certain banks. This also shows more secure, transparent products and services.
Fintech Providers in Payment Sector Must Now Register at Bank Indonesia.
It has been mentioned earlier that fintech providers in the payment sector must now register at Bank Indonesia. There are five (5) types of them that are classified by BI to register right away if they have not:
- Payment system.
- Marketing support.
- Risk and investing
- Loan for financing and capital providers.
- Other financial services.
There are five (5) criteria that make fintech companies have to register at Bank Indonesia too, which include:
- Having great effects on products/services/technology.
- The financial business models have been around for some time.
- Giving benefits to people.
- Able to be used broadly.
- Other criteria decided by Bank Indonesia.
As long as those criteria above are met by the fintech companies, then they must register at Bank Indonesia. Of course, there are companies that do not need to do this. If they have already obtained a permit from the authority other than Bank Indonesia. For this, all they have to do is to confirm with Bank Indonesia regarding their business.
With these requirements, fintech companies no longer have to worry about their operatives being shut down due to permits and other legal issues. In fact, they can also collaborate with conventional banks regarding their payment system, since Bank Indonesia also has the list of all of them.
Bank Indonesia Draws Up Rules to Monitor Fintech.
One of the rules mentioned above is called “regulatory sandbox”. It is a six-month probationary program after fintech companies have registered their business at Bank Indonesia. This program is to test the validity and strength of their services, under the supervision of Bank Indonesia.
From this, Bank Indonesia gets to decide whether a fintech product can be launched commercially. Since fintech is still a growing and developing, so far, the regulations involve the use of e-money and payment transaction process. Of course, if some other fintech companies come up with something new, Bank Indonesia will make new regulations to keep up with the new development.
If the fintech companies do not pass the ‘regulatory sandbox’, this does not mean that their business should be shut down right away. Bank Indonesia will suggest certain things to be done, so the companies can still operate. Even if they have to re-register and start the whole process all over again, they might have a better chance of getting their products launched more commercially.
Of course, these rules to monitor fintech industry do not have to be met with resistance. Just like all businesses, legal permits are more helpful instead of going rogue or undercover. These rules will help the fintech companies to gain more support from the government. After all, digital startup companies can also boost this country’s economy, as long as they are properly managed and maintained.
Another downside of not registering your fintech companies at Bank Indonesia is the existence of shadow economy. That is actually as bad as money laundering and modern slavery themselves, especially when the staff’s salary is not paid as promised by the employer.
How We Define and Categorize Fintech In Indonesia.
In short, fintech exists to make financial trades or transactions easier and faster. Especially in big cities in Indonesia, like Jakarta, finishing many things can be quite a challenge. Aside from the heavy traffic on a daily basis, some obligations often demand to be met at almost the same time.
Who use the fintech? We should not just assume all millennials (or the Z-generation) as the answers. Even digital immigrants (or the X-generation) can also adapt to this technology if they have the will to learn really quickly. In this case, here is the category:
- B2B for banks.
- Their business clients.
- B2C for small businesses.
Here is also a category on fintech in Indonesia:
- Asset management.
- P2P lending (Peer-to-Peer Lending).
- Payment Gateway.
- Remittance, for transfer services overseas or between countries.
- Securities, like stocks, forex (foreign exchange), mutual funds, and many more.
- Financial education for customers.
- Compliance assistance providers to government regulations.
- Online shopping experience improvements (including protection against data or identity theft).
- New avenues for loans.
- Payment speed and collection.
- Asset protection from fraud.
- Something to encourage investment.
Alongside the growing digital HR and headhunter companies, fintech is still going to be around for a long time.
The Top 10 Most Expanding Fintechs in Indonesia.
Based on IDC (International Data Centre), here are the top 10 most expanding fintechs in Indonesia:
Amartha is the pioneer of fintech to connect you to micro-entrepreneurs through P2P Lending (peer-to-peer lending).
Bareksa is a marketplace for mutual funds, using financial technology. They are also the very first online-integrated investment portal in Indonesia.
CekAja.com is a portal of information and comparison services to assist Indonesians in making financial decisions.
DOKU is a local electronic payment solution, which offers new payment options to its customers. They can choose between DOKU e-wallet, e-banking, regular bank transfer, and digital transactions at minimarkets like Alfamart.
Finansialku.com is a portal for financial planners and individual financial applications.
Go Pay or formerly referred to as Go Wallet is a virtual wallet to store your Go Jek Credit which can be used to pay service-related transactions within the Application of the Project.
Midtrans is a technology company that provides solutions for online businesses, either through a payment gateway, risk management, and many more.
Modalku is another fintech company that focuses on P2P Lending (peer-to-peer lending). They help micro businesses that cannot have access to bank loans or credit cards.
TCASH is electronic money held by Telkomsel which has been registered and supervised by Bank Indonesia.
10. Uang Teman.
Uang Teman is the first short-term online loan in Indonesia. Despite some unpleasant reports about this business, this fintech still exists.
Is your fintech company going to be the next in line? Hopefully.
Relefance: BI with Its Roles and Supports for Fintech
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