digital financial innovation in financial industry in indonesia

Digital Financial Innovation in Indonesia

InCorp Editorial Team

Table of Content

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.

Verified by

Tjhia Edy Tarlesno

Legal & Compliance Manager at InCorp Indonesia

Edy Tarlesno holds various certifications and a respectable degree to be an expert on internal and external legal compliance in Indonesia. His experience starts from bankruptcy and insolvency, leading to a prominent social foundation consultancy in Indonesia.

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