Four Reasons Why the Indonesian Market Presents a Lucrative Opportunity for Fintech Growth (InCorp Global)

Business Opportunities
September 22, 2021 - InCorp Global Pte Ltd

This is a thought leadership article on opportunities presented by the Indonesian market for FinTech growth from PrimeGlobal member firm InCorp Global in Singapore.

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For the past several years, financial technology (commonly known as fintech) has been gaining traction in Indonesia. Currently, around 20% of fintech companies operating in the ASEAN region call Indonesia home. 

According to the Switzerland Global Enterprise report, these companies are expected to generate over USD 8.6 billion in revenue over the next five years, growing at a compound annual growth rate (CAGR) of 34%.  

This article will go deeper into Indonesia’s fintech industry, and why foreign investors should consider investing their money in this newly emerging sector. 

Indonesia Fintech Industry: Opportunities Arising from Middle-class and MSMEs

Despite making up a majority of the Indonesian population, the middle-income class and Micro, Small, and Medium Enterprises (MSMEs) still find it difficult to access the credit offered by conventional banks.

Cited from the Central Bureau of Statistics, in 2018, only 29% of 186 million of the middle-lower income individuals have access to credit, while 74% of MSMEs (which make up the majority of Indonesia’s productive sector) are also still excluded from such services.

Conventional lending providers are disadvantaged by the accessibility problems due to the huge and archipelagic topography of Indonesia.

Indonesia fintech players, however, are expected to address this challenge by combining different business models, technology, and innovative approaches. These factors create room for innovation to provide sufficient financing access for these underserved markets.

The Growing Number of Smartphones and Internet Users

In January 2021, Indonesia had a total of 202.6 million people that regularly accessed the Internet. By 2025, 89.2% of Indonesia’s population are also projected to own a smartphone. 

Although the highest rate of smartphone ownership is found in the Jakarta Greater Area - the country’s most developed city - rates in rural areas have also seen a gradual increase as well, from 47.3% in 2015 to almost 55% in 2019.

As a technologically-enabled business model, Indonesia fintech companies have a broad opportunity to expand financial services towards these previously untapped segments.

Still, a smartphone and the internet are nothing but devices if the Indonesia fintech players and the government do not come side by side to innovate and curate better experiences to serve these markets. 

Covid-19 Pandemic Boosts Digital Transaction in Indonesia

As consumer behavior is moving towards digital transactions due to the social restriction imposed by the government, Indonesia fintech companies, especially those collaborating with major e-commerce outlets, have seen their transaction volume rise significantly. 

According to Statista, the total transaction value in the digital payments segment is projected to reach USD 57 million this year, growing at a CAGR of 12.18%.

Indonesia-based fintech company, Xendit, is one such service provider that reaps the benefits of the pandemic by receiving fresh funding from Tiger Global Management, bumping its valuation to USD 1 billion, and successfully becoming a new entrant of Indonesia’s growing list of unicorns.

Indonesia Fintech Sector is Consolidating

PwC sees Indonesia’s fintech sector as currently in the ‘third wave’ of its evolution, based on the level of regulatory involvement. 

In its first wave, fintech players were testing out business models without clear regulations, followed by the ‘second wave’, marked by the Indonesian Financial Authority's (Known as OJK) involvement to ensure customer protection. 

In this third wave, Indonesia’s fintech sector is consolidating even further where the players now have a clearer code of conduct and the government has a better view for licensing legal players. This should boost the investors’ confidence to invest or acquire fintech companies in Indonesia. 

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InCorp Global Pte Ltd

Headquartered in Singapore, InCorp Global is a leading corporate services provider, with an established regional presence across seven Asian countries, including Indonesia, India, Hong Kong, Philippines, Vietnam, and Malaysia. The group services more than 12,000 corporate clients across various industries, including asset / fund managers, as well as family offices. They are official partners with key government authorities in the region, such as Singapore’s Economic Development Board, a government agency that is tasked with bringing in foreign direct investments into Singapore.

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