Executive Column: Ilham Habibie says open finance era is now

Indonesia’s financial technology ecosystem has been growing rapidly over the past two years as the COVID-19 pandemic pushes consumers and merchants to use digital financial services like e-wallets, investment apps and online lending platforms. Growing demand for various financial services means fintech companies need to expand their products and services offerings, linking one service to another -- a practice made possible by open finance.

The Jakarta Post’s Eisya A. Eloksari spoke on Nov. 12 with Ilham Habibie, the newly appointed commissioner at Ayoconnect, a financial application programming interface (API) platform, to talk about open finance and collaboration in the financial services industry.

What fintech trends do you see in the past and forward open era?

Fintech has come a long way in Indonesia. At the beginning, there was only e-money, e-wallets, digital payments and payment gateways. Then, we started to see online lending and crowdfunding platforms for donations. Wealth management, such as investment apps, are becoming mainstream as well. I think we are in the open finance stage right now, where all of these platforms are connected to each other, and the philosophy of open finance is to increase financial inclusion.

This is good news for us at Ayoconnect, because every service, be it fintech or another, needs an API. An API infrastructure is fundamental in the digital world, as it enables interfaces between many partnership, and that is crucial for collaboration, such as in open finance and open government. There is synergy between open finance and open government in that some government services, such as tax collection, can be done through online or offline channels.

Further use cases of open government might simplify procedures for issuing passports or renewing driver's licenses, from taking their pictures to making payments.

What are some of the challenges industry players face in open finance?

First, there is a need to increase digital literacy, especially for non-digital natives. This is to ensure that everyone can participate in an open finance system.

Second, while many people already have smartphones, this is only the gateway to using digital financial data services. People need reliable mobile network connectivity, even in rural areas. I think we will see even better connectivity when many more telecommunication providers roll out 5G networks.

Third, we need to ensure affordability. The more people use the internet, the cheaper it gets. So I hope that the internet will be affordable for most people in Indonesia. People might not realize this yet, but an internet connection has become a basic necessity, just like clean water and electricity.  

What sort of collaboration can consumers expect among banks and fintech companies?

Banks can channel funds through fintech platforms. Some banks need to expand their credit portfolio, so they can work with fintech companies in giving loans to what banks usually consider as the unbankable population, for example.

Fintech’s credit scoring mechanism differs from the banking industry’s in that fintech can better assess those with no bookkeeping record or assets as collateral. So fintech gives certainty to banks that their potential borrowers meet their standards.  

What will the fintech industry look like 10 years from now?

Right now, fintech firms are still focusing on their specialty products, but I think once they are well established, they would want to add more products. Ten years from now, I believe, there will be fintech companies that become so big that their services overlap with other fintech companies, such as e-wallets that also offer peer-to-peer (P2P) lending and so on.

I think this will happen to all fintech players. When this happens, there will be more competition, but also more consolidation or mergers, as it would be more viable for a business to consolidate rather than trying to do it all alone. Companies will assess their limitations and collaborate with other fintech players to fill in the gap, and this is also made possible with APIs. This is a trend I see happening in the next five to ten years.  

What is your take on Indonesia’s cybersecurity ecosystem at the moment?

Indonesia is targeted by many cybercriminals, because we are a populous country, so there is a lot of data hackers can get. These cybercriminals are getting more and more advanced. This is one concern that I think will always haunt us, just like there is fraud and robbery in the banking industry. We might not be able to eradicate cybercrime, but we can increase digital literacy and make online transactions safer.

The fair way is for fintech players to provide educational material for their users, because it is in their interest also that consumers are digitally literate. This is on top of the government's efforts through the Financial Services Authority (OJK) and Bank Indonesia to continuously educate people on financial and digital literacy.

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