By Michelle Chin
Indonesia is Southeast Asia’s most populous country which boasts high mobile and Internet penetration, social media adoption, literacy rates and middle-class growth. The economic and social situation in Indonesia presents a wealth of opportunities for fintech startups to flourish, and although many are unable to see it yet, Indonesian fintech startups have been garnering attention from global venture capital giants.
Connecting the space
In September 2015, Fintech Indonesia, an association of Indonesia fintech service providers, was launched as a collaboration between fintech startups and banking corporations in the country. The aim is to provide a platform for players and stakeholders (financial and non-financial) within the fintech space, to facilitate constructive and inclusive discussions and strengthen the fintech ecosystem in the otherwise fragmented nation.
Similar to most emerging Southeast Asian countries, the reason behind Indonesia’s surge in fintech startups originates from 4 main reasons. All of which have been challenges that financial institutions in the country have not been able to solve through traditional banking solutions:
- Large unbanked population
- Large underserved SMEs
- Inefficient existing banking infrastructure
- Geographical fragmentation within the country
Indonesian fintech startups
There are a number of Indonesian fintech startups in different segments:
- CekAja is one of the most prominent names in the fintech space in Southeast Asia. Launched in Jakarta, Indonesia in November 2013, the website serves as a comparison portal for financial and insurance products in the country. Products and services offered includes loans, insurance, savings, investments and other consumer products.
- Doku is a e-payments solution provider. Doku offers two products
- DOKU Wallet: a digital wallet in the form of a mobile application that allows for online purchases and other transactions. Customers can top up their wallets through ATM machines, convenience stores or by linking their credit cards.
- DOKU MyShortCart: a payment gateway for small and medium enterprises (SMEs). This product allows merchants to implement different payment methods into their system
- Jojonomic is a personal finance management mobile application available in both iOS and Android. This startup intends to educate Indonesians through a simple interface, implementation of gamification and brand communications, to solve the pressing issue of financial illiteracy in the country.
Venture Capitals focused in Indonesia
Local Indonesian investors have also been actively investing in the fintech space in the nation.
Convergence VC is an early-stage technology venture fund focused in Indonesia led by seasoned entrepreneurs – Adrian Li and Donald Wihardja. Both founders have had vast experiences in the entrepreneurship ecosystem in Indonesia and Southeast Asia. Their US$25 million fund will be used to invest in 25-30 companies over the next 5 years with an investment of up to $500,000 per startup.
JWC Ventures has a strong Indonesia focus and they invest in both early and growth stage technology companies. It is co-founded by Chandra Tjan, Jefrey Joe and Will Ongkowidjaja, all of which have a wealth of experience in different industries including entrepreneurship and financial services. While most of the startups within the investment portfolio are from Indonesia, JWC Ventures have also funded startups across Asia and the United States.
Mountain Kejora is a venture capital with a focus on technology companies with a joint venture with Mountain Partners AG in Zurich, Switzerland. Their portfolio includes prominent Indonesian startups such as compare88 and Qerja. They also feature a early stage accelerator – Ideabox, backed by Ooredoo Group and Indosat, a 120-day program which provides startups with up to $30,000.
Businesses in Indonesia has long been restricted by red tape. In September 2015, President Joko Widodo announced a relaxation of business regulations in order to attract foreign investments and help businesses flourish. 89 regulations were said to be simplified or removed, which were said to have hindered businesses and investments in the past, including business licensing and trading permits. For months to come, before the end of 2015, more deregulation would follow.
In March 2015, new regulations in Indonesia has enabled digital financial services, a big step forward for the fintech space in the country. E-money licenses were given out in the past however due to tight restrictions and fragmentation, banks were not able to gain traction.
A new regulator was introduced in December 2013, called the Otoritas Jasa Keuangan (OJK). The model is similar to the ones in the UK and Australia which separates monetary policy from prudential regulations. The OJK was formed to complement Bank Indonesia, the central bank, with a focus on additional areas such as fintech. With the formation of OJK, segments such as digital wallets and P2P payments are garnering more support and attention.
Indonesia has not always been within the radar for technology-focused companies, and especially not in the fintech segment. Investors have been ‘bullish’ on Indonesian fintech startups with most of them still at early or growth stages in Indonesia, none of which have investments past the Series A stage.
However, we have seen big adjustments in government regulations in the last 3 years as well as the slow but solid growth in numbers of startups. With a population of over 250 million, Indonesia is looking at an unbanked population of about 110 million, which is over 40%. There is a massive untapped segment yet to be realised by companies. Plus, with the staggering wealth gap in the country, there are plenty of opportunities within fintech to create a positive social impact on the 28.6 million (10% of total population) Indonesians living below the poverty line.