Navigating the Fintech Sectors in Indonesia

Indonesia, in 2022, has one of the fastest-growing digital economies in the world, which includes fintech industry. According to research from Google, Temasek, and Bain & Company, 80% of Indonesians now buy goods or services online through startup fintech in Indonesia. Unfortunately, this has not been accompanied by a robust digital payment infrastructure in Indonesia. However, some inefficiencies still make people hesitant to adopt digital payments.

A report from McKinsey in 2018 found that Indonesia's e-commerce market is worth at least USD 8 billion and will grow to USD 40 billion by 2023. However, around 40% of e-commerce transactions are still made through cash payments or bank transfers, meaning that the digital payment infrastructure is still unable to keep up with the development of the digital economy as financial inclusion.

This represents a promising potential for open finance to transform Indonesia's payment infrastructure or even Southeast Asia. The existence of open finance itself has been included on the radar of the Indonesian Government through crowdfunding. This financial technology is mentioned in the DFI (Digital Financial Innovation) sector. How can open finance help Indonesian consumers in the future?

The benefits of open finance for Indonesian consumers in the future

As of now, the majority of payment systems in Indonesia rely on switching agencies, which provide electronic switching and payment processing services, p2p or peer-to-peer. This could lead to inefficiencies in payment of trillion transactions. The main issue lies in the fees charged to consumers for interbank transactions. There are several ways to transfer funds between banks. However, they all charge transaction fees. Open finance can streamline this popular online payment method in Indonesia.

- Save on transaction fees

One of the benefits of open finance is that it can pass through payment gateways while supporting various payment methods in financial service provided by fintech in Indonesia. The open finance API provider allows consumers, or lender to process payment transactions for free, even via intra-bank transfer methods. The convenience doesn’t stop there; most providers in financial service companies now have improved their UX and UI, allowing merchants to manage payment transactions from multiple banks in a single integrated user dashboard. This can also facilitate business operations, particularly for MSMEs.

- Simplify credit application for MSMEs

Currently, only about 20% of total bank loans are going to MSME (UMKM). As a result, small business growth was hampered, which hurt overall economic growth that affects borrower, fintech lending, fintech ecosystem in Indonesian fintech. One of the causes comes from MSME itself. The lack of transparency regarding the financial condition of businesses and their owners makes it difficult for banks to assess their ability to repay loans to financial institutions. According to the bank, this is a high-risk lending environment.

The solution is simple: banks must have complete visibility into the financial health of MSMEs and their owners. That way, the bank's assessment process will be more straightforward and help upgrade the role of fintech to help Indonesian economy innovation. It is now possible thanks to open finance. This financial system allows banks and fintech companies to access MSME financial data with the consent of both parties.

How OJK support the growth of DFI, especially for open finance

All of the above benefits would not have been possible without support for open finance. In Indonesia, open finance regulations are still being studied. According to the Indonesia Financial Services Authority (OJK) classification, open finance falls under Digital Finance Innovation (DFI).

One focus of the Indonesian Financial Services Sector Master Plan (MPSJKI) 2021-2025 is accelerating an integrated digital economic and financial ecosystem by encouraging MSMEs, Bank Waqaf Micro (BWM), and others to digitize and encourage IT-based supervision enterprises.

Meanwhile, to facilitate the integration of financial APIs, Bank Indonesia issued the National Open Payment API Standard (SNAP) in August 2021. BI SNAP is a set of standard protocols and instructions that enable interoperability between various APIs in the payment transaction process in the fintech market. BI hopes to create an innovative system through rapid service adoption and penetration by implementing a unified standard under SNAP through fintech innovation in Indonesia fintech.

The role of Ayoconnect as an Open Finance fintech

Ayoconnect designed an open API (Application Programming Interface) network to build an open finance ecosystem in Indonesia to go cashless. API is a computing system that allows different software applications or software and hardware to interact with one another in Indonesia's fintech industry.

Ayoconnect’s open API network provides developers with the functions, protocols, and commands they need to create stable and fast interconnections between systems in small and medium enterprises. This technology enables service providers to collaborate to innovate and create mutually beneficial solutions for businesses and consumers' rapid growth in internet penetration for fintech integration.

Utilizing API infrastructure, open finance allows consumers to process payment transactions for free and simplify credit applications for MSMEs. As technology advances, so will open finance and thus provide more benefits for consumers and businesses. Indonesia has jumped on the bandwagon by making regulations about open finance implementation. We can’t wait to see what lies ahead for the future of fintech, especially for open finance!

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