digital financial innovation in financial industry in indonesia

Digital Financial Innovation in Indonesia

  • InCorp Editorial Team
  • 4 January 2019
  • 5 minute reading time

The Indonesian Financial Services Authority (Otoritas Jasa Keuangan – OJK) officially issued a Regulation No. POJK 13 /POJK.02/2018 concerning Digital Financial Innovation for Financial Services Sector (“POJK 13”) in the financial industry in Indonesia, which was put into effect on August 16, 2018.

POJK 13 was set up to regulate the exploding growth of digital industries eagerly participating in Indonesian financial sector by defining Digital Financial Innovation (DFI) as the activity of updating business processes, business models, and financial instruments that provide new added value in the financial services sector by involving digital ecosystem.

In this article, we look deep into the regulation and present all points investors intending to join the sector of Digital Financial Innovation should be aware of.

Important Points

1.Allowed Scope of Industry

POJK 13 regulates industry under the following criteria:
a. transaction settlement (such as investment settlement);
b. capital raising (such as equity crowdfunding, virtual exchange and smart contracts, and alternative due diligence);
c. investment management (such as advance algorithm, cloud computing, capabilities sharing, open source information technology, automated advice management, social trading, and retail algorithmic trading);
d. raising and disbursing funds (such as P2P Lending, alternative adjudication, virtual technologies, mobile 3.0, and third-party application programming interface);
e. insurance (such as sharing economy, autonomous vehicle, digital distribution and securitisation and hedge funds);
f. market support (such as artificial intelligence/machine learning, machine-readable news, social sentiment, big data, market information platform, and automated data collection and analysis);
g. other digital financial support (social/eco crowdfunding, Islamic digital financing, e-waqf, e-zakat, robo-advisors and credit scoring); and/or
h. other financial services activities (invoice trading, voucher, token, and blockchain application-based product).

In addition, this regulation attempts a bold entry by including widespread criteria such as innovative and future-oriented, communication and IT technology oriented, supporting financial inclusion and literation, publicly beneficial and considering data and consumer protection.

In a way, OJK intends to encompass all new business activity beyond the currently regulated industry into “DFI” category.

2.Eligible legal entity

Article 5 of POJK 13 mandates that interested DFI provider can either be in the form of a Company (Local Company or Foreign Investment Company (PT PMA) or Cooperative (Koperasi).

However, Cooperative shall only be authorised to provide a platform to facilitate the transaction and financial service.

3.Procedural system

Simply speaking the DFI process consists of 4 phases: application, record, regulatory sandbox and registration. The process is as follows:

Application period

Interested DFI provider may apply for a sandbox by submitting the following documents:
a. Copy of the deed of establishment of the Provider and ID and/or passport of the company owner (shareholder, director, and commissioner);
b. A written summary of the product;
c. Other data dan information concerning DFI;
d. Business plan.

If the Provider has been registered with OJK for fintech industry before, it is possible to skip this step and directly continue with the next step.
Duration: unspecified.

Record period

Once approved, the Provider will be on the record phase and must meet additional requirements such as:
a. Registered as a DFI in the OJK or based on a letter issued by the OJK task force;
b. Proposal for a new business model;
c. Proof of business scale with a broad market range;
d. Registered at the Provider Association; and
e. Other criteria stated by OJK.
Duration: unspecified.

Regulatory Sandbox period

The existence of Regulatory Sandbox is to ensure that all DFI providers meet the criteria stated by OJK. Regulatory Sandbox aims at testing whether the digital ecosystems used by providers are innovative and forward oriented.

Once the application has been received, OJK will instruct the Provider to undergo Regulatory Sandbox period concerning administrative, legal and financial compliance of regulation by OJK. Duration: maximum 1 year, extendable up to 6 months.

Registration period

Three different statuses given by OJK shall instruct the Provider.
1.Recommended: DFI provider will be entitled to register legally at the OJK database.
2.To be improved: Provider must submit a revision to OJK.
3.Not recommended: Provider cannot resubmit the DFI application.
Duration: max 6 months since notification of the decision by OJK.

Monitoring and reporting 

OJK has the authority to monitor all activities conducted by every DFI provider that has been recorded and registered with OJK.

DFI providers who are currently in the Regulatory Sandbox period are required to submit quarterly performance reports. If not, administrative sanctions from OJK may incur.


Data taken from OJK in November 2018 recorded that 21 DFI companies in the financial industry in Indonesia have applied for the regulatory sandbox. These included 4 aggregate companies, 3 fintech lending companies, 2 financial planner companies, and others.

The number of registered DFI companies is expected to rise in the upcoming year considering Indonesia’s supportive investment climate and OJK efforts.

In a way, POJK 13 opens an opportunity for DFI industry players to seek legality for their operation in Indonesia and gain public trust via verification by OJK.

As a market entry consultant, Cekindo encourages clients to possess necessary licenses prior to starting a business in Indonesia, especially in the financial industry. Contact us for further information, and we will get back to you with a free quotation on Digital Financial Innovation in Indonesia.

Pandu Biasramadhan

Senior Consulting Manager at InCorp Indonesia

An expert for more than 10 years, Pandu Biasramadhan, has an extensive background in providing top-quality and comprehensive business solutions for enterprises in Indonesia and managing regional partnership channels across Southeast Asia.

Get in touch with us.

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Frequent Asked Questions

As their names suggest, the main differences between the three business kinds in Indonesia lie in the businesses and the purpose of their incorporation. Local company owners (PT) must be Indonesian citizens, as even 1 percent of foreign ownership is not allowed. This type of company is not limited to entering any business field, and restrictions on incorporation are not so tight. On the contrary, a foreign-owned company (PT PMA) is open to international investors, but the maximal percentage of foreign shares differs in various business sectors. Contact InCorp to get the most updated information on the Negative Investment List. International investors tend to open representative offices as a first step to understanding the Indonesian market before setting up a limited liability company. This type is used for marketing and promotion activities and needs the right to sell directly and receive income.

There are three things business owners need to consider before setting up a business in Indonesia: the type of business entity, capital requirements, and regulations.

Indonesian regulations separate local companies from foreign companies. Generally, foreign-owned companies (PT PMA) have more limitations than their local counterparts (Local PT). However, to pursue more foreign direct investment in the country, the government has taken several bold initiatives to increase the ease of doing business and provide numerous attractive incentives for foreign investors.

Yes, this mainly applies to import and export businesses. Instead of establishing a company, you can use an under-name import service, an importer of record.

It should take between 30 to 45 days.