For the first time in the history of Indonesia, Bank Indonesia (BI) launched a regulation on financial technology also known as fintech. Regulation Number 19/12/PBI/2017 regarding the Provision of Financial Technology, dated November 30, 2017 (“Reg. 19/2017″), was made public by BI on December 7 and will come to effect on December 30, 2017.
The regulation was intended to support the development of financial technology ecosystem and the Indonesian economy. For this reason, some restrictions have been arranged with two being the most important – obligation to register for the fintech providers and prohibition to use digital currency.
What is Fintech?
Bank Indonesia defines fintech as the use of technology in a financial system that generates products, services, technology and/or new business models, and may have an impact on monetary stability, financial system stability and/or the efficiency, fluency, security, and reliability of payment systems.
Do all Fintech Providers in Indonesia Have to Register?
A fintech provider is defined as any party that organizes fintech activities. These are divided into following sectors: payment system; market support; investment and risk management; lending, financing, and provision of capital; and other financial services.
In general, all fintech providers are obliged to register except for:
- Existing Payment System Service Provider that already obtained a license from Bank of Indonesia
- Fintech Provider under another authority
However, existing Payment System Service Provider must still submit information concerning products, services, technology and/or new business model, in accordance with the criteria of financial technology. Furthermore, fintech provider engaged in payment system under the jurisdiction of other authority than BI and that provides payment system financial technology must still register with BI.
What if I Fail to Register?
Bank Indonesia has also defined sanctions for both Fintech and Payment System Providers that fail to register their business until June 30, 2018.
Sanctions for unregistered Fintech Provider:
- Warning Letter
- Suspension of business activity
- Other action concerning payment system activity
- Recommendation to the authority to revoke the business license
Sanction for unregistered Payment System Provider:
- Warning Letter
- Suspension of Payment System Service in partial or whole
- License revocation as Payment System Provider
Is it Possible to Use Virtual Currency?
Virtual currency is not considered as a legal payment instrument in Indonesia, and fintech providers are prohibited from using it when conducting payment system activities. In general, no other money than the one issued by the monetary authority and obtained by way of mining, reward system or purchase, can be used.
2020 Update on Fintech in Indonesia
In September 2018 the OJK issued a new regulation for the establishment of fintech companies in Indonesia called the Digital Financial Innovation Regulation for Fintech Companies.
In accordance with this applicable regulation, to establish a fintech company or digital service platform, whether it is an institution or a startup, the following process must be undertaken:
- You will have to register your company to the OJK and after, you will have to go through a Regulatory Sandbox, which is used by the OJK to test, observe and determine how the fintech companies work. Institutions can submit their Regulatory Sandbox’s request with one of these fields: capital markets, banking, or non-banking financial industries.
- The entire Regulatory Sandbox process takes 12 months. The process may be extended for 6 more months when deemed necessary.
- Finally, you can then apply for a fintech permit at the OJK.
Financial Technology in Indonesia is a very hot topic. Do not let yourself to be trapped in regulations and contact the professionals from Cekindo.